Big merger, big risks; but these banks know the drill

How soon will images of a stagecoach show up on Wachovia Bank statements and inside its branches?

Wells Fargo & Co., the San Francisco-based bank that promotes its heritage with a horse-drawn vehicle, isn't saying. Wachovia and Wells Fargo shareholders still must approve their companies' merger agreement, so it's premature to address what's coming, said Mary Trigg, a Wells Fargo spokeswoman.

On a Web page devoted to merger-related questions, Wachovia says there are no immediate changes to customers' accounts related to the planned merger.

But given the complexity of consolidating two giant banks, it's likely that teams within Wells Fargo and Wachovia are already at work on account-related matters. That's because big banks are often under pressure when merging. If the process moves too slowly, they might not achieve the improvement in earnings that investors were promised. If the consolidation is rushed, they may be ill-prepared for glitches and risk losing the business of frustrated customers.

With every bank merger, "there are going to be customers who don't have strong ties to the institution and say goodbye when they encounter a blip in the service," said Brian Bethune, chief U.S. financial economist for the economic forecasting and consulting firm IHS Global Insight.

With almost $1.4 trillion of assets, the Wells Fargo-Wachovia combination will be the fourth-largest banking company in the country behind J.P. Morgan Chase, Citigroup and Bank of America. It will keep the Wells Fargo name.

Charlotte, N.C.-based Wachovia Corp. attracted attention in September when its access to funds began to dry up, and the Federal Deposit Insurance Corporation negotiated a hurried agreement to sell Wachovia's bank. New York-based Citigroup agreed first to buy Wachovia Bank with the promise of FDIC financial assistance. Within days, Wells Fargo jumped in with a richer offer to buy all of Wachovia, including its Wachovia Securities brokerage unit, without any assistance from the FDIC.

Wachovia's board of directors quickly accepted the Wells Fargo offer, and shareholders of the two companies are scheduled to vote Dec. 23 on the agreement. The transaction, which still must be approved by regulators, is expected to close by year-end.

That's when the merger's real work begins. Computer systems will have to be tied together and tested. Employees in overlapping posts will have to be shuffled or let go. Wachovia's products will have to be aligned with those that Wells Fargo offers. And Wachovia customers in search of guidance will have to be helped.

The results will be felt throughout Hampton Roads because Wachovia holds the largest share of the region's bank deposits.

Wachovia agreed last year to lease space in a 22-story office tower now taking shape in downtown Norfolk. The bank continues to finance construction of the $150 million office-retail-apartment complex, dubbed Wachovia Center, and it still plans to lease space there, including space for a branch, said Christine Shaw, a Wachovia spokeswoman, on Monday.

In presentations to securities analysts and institutional investors, Wells Fargo executives have touted the network that a Wells Fargo-Wachovia combination will have: more than 6,600 branches spanning the country. One factor working in the banks' favor is the modest number of branch locations that overlap, all in the western United States. Certain Wells Fargo subsidiaries, including its home-mortgage unit, do business in Virginia, but its bank has no branches in the state.

Another positive is that Wells Fargo and Wachovia are the products of large, complicated mergers. Wells Fargo, whose history dates back to the 1850s, joined forces in 1998 with a large Midwestern banking company, Minneapolis-based Norwest Corp. The current Wachovia was formed in 2001 from the consolidation of two longtime North Carolina rivals, Wachovia and First Union Corp.

While extending its reach into the mid -Atlantic states during the 1990s, First Union earned a reputation for handling its bank consolidations poorly and driving away

customers. That changed with the Wachovia-First Union consolidation, which was done more slowly and methodically.

Even with their experience at melding branch networks and payment systems, large banks such as Wells Fargo and Wachovia sometimes encounter problems consolidating highly specialized units, such as risk-management departments and trading desks, said IHS Global Insight's Bethune.

Bank managements also have to contend with cultural differences when bringing two organizations together, said Paul Schaus, president of bank consulting firm Catalyst Consulting Group in Phoenix.

"Training is always the No. 1 item on the list" of crucial tasks, and testing is close behind, Schaus said. "You can't throw a bunch of procedures at the employees and say, 'Go do your job.' "

Another key ingredient for the Wachovia-Wells Fargo merger will be constant communication. A merger is one event when "no news isn't good news," Schaus said, because employees have to be kept abreast of whether goals are being met and what tasks still have to be tackled.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com