| Mega-Mergers
Put to the Test
 By
Thomas P. Johnson Jr.
Size and scale may indeed
help in retail banking, but only within the context of
excellent risk management and customer service.
The past half-decade or so provided
one of the most promising banking environments seen in
the latter part of this century. Bolstered by a vibrant
economy and excellent credit quality, depository institutions
pursued ever-larger mergers in pursuit of economies of
scale, diversification and marketing power.
But even as new banking giants come
into being, they are receiving sharp reminders that size
and technological sophistication do not equate to invulnerability.
The former Wells Fargo & Co. stumbled during the integration
of First Interstate Bancorp as service lapses drove off
customers. Wells subsequently succumbed to a takeover.
More recently, the new BankAmerica Corp. suffered an earnings
shock as credit problems surfaced at the California-based
predecessor.
While these incidents do not necessarily
undercut the rationale for size, they do underscore the
fact that size alone can't be viewed as the total answer
for building competitiveness and shareholder value --
especially in an era of market volatility.
The issues facing mega-bankers are brought
into sharp focus at the new BankAmerica, the subject of
this issue's cover story. Encompassing the former BankAmerica
and NationsBank franchises, the Charlotte, N.C.-based
company certainly has scale, commanding an 8% share of
U.S. deposits. But as Fed chairman Alan Greenspan testi-fied
before Congress, "There are no clear-cut findings
that suggest bank mergers uniformly lead to efficiency
gains."
On another front, a rash of troubles
at the namesake pre-decessor has raised questions about
risk management. As evidenced by the 11% single-day drop
in BankAmerica's stock on October 14, deal excitement
can quickly give way to investor disdain when performance
fundamentals go awry.
BankAmerica remains a sound financial
institution and will doubtless work its way through the
current problems. The resignation of president David A.
Coulter should not be seen as a referendum on this merger.
But top industry strategists have been put on notice that
risk management discipline must be reinforced even as
consolidation continues.
Another crucial success factor in mergers
is customer service. While sophisticated technology helps,
front-line employees ultimately make or break the customer
experience, asserts Bank One Corp. retail chief Kenneth
T. Stevens. Top retail bankers participating in this issue's
roundtable discussion on the future of branches reach
much the same conclusion.
This is a further lesson that the new
retail giants would do well to heed. Mergers offer opportunity,
but failing to serve customers well can squander the gains
of even the most carefully negotiated deal.
Copyright © 2003 by Banking
Strategies, published by BAI.
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