Methodical Merger

A slow and steady IT integration effort helped Wachovia and First Union hang on to customers during their merger.

When big banks merge, Wall Street typically looks for a speedy integration of operations to obtain millions of dollars in cost savings as fast as possible. But executives at Wachovia Corp. took a very different approach when the bank merged with its larger, cross-state rival, First Union Corp., in April 2001.

Although Charlotte, N.C.-based First Union had grown steadily through acquisitions since the 1970s, the bank had suffered a major blow following its April 1998 purchase of Philadelphia-based CoreStates Financial Corp. First Union had rushed to convert CoreStates customers to a new branch-banking environment called Future Bank, but the abrupt change confused and irritated many customers, which led to higher-than-normal attrition rates and lower earnings.

"The rushed integration was the heart of the CoreStates problem," says Jean Davis, senior executive vice president of IT, e-commerce and operations at Wachovia. So instead of trying to meld their systems and operations together within a year, as is common with many big bank mergers, Wachovia and First Union executives opted for a more methodical integration effort over the course of two and a half years. The goal was to leave more room for systems testing, prevent operational disruptions and maintain customer satisfaction.

"This deal was too big for us to use a big-bang approach, so we broke it into pieces," says Frank Robb, Wachovia's chief technology officer.

The slower integration approach appears to have paid off. While there were some negligible customer defections in the first couple of months after the deal was announced, the ratio of accounts opened vs. accounts closed improved steadily throughout the integration effort between April 2001 and August 2003, says Davis.

The prolonged integration effort went so well that financial industry analyst George Tubin at Needham, Mass.-based TowerGroup touts it as "the blueprint for future deals."

"From a market perspective, [Wachovia] really focused on the customer, with as little customer impact and as little customer loss as possible," says Tubin.

For the integration effort, teams from Wachovia and First Union had to decide which of the two companies' systems would prevail for each operation, such as direct deposits or check processing. As it turned out, whichever system could handle a larger processing volume was chosen at least 80% of the time, says Davis.

One exception was the adoption of Wachovia's mainframe-based check-imaging system. Although First Union had a considerably larger retail banking presence, the Wachovia system was one of the first in the nation to offer customers online access to imaged checks. Plus, Wachovia's 5-year-old system was more stable than the distributed system that First Union began using about six months prior to the deal, says Davis.

"Rarely did we take Option C and buy a new system, given the risks and costs that this would pose during the integration process," says Martin Davis, Wachovia's corporate CIO.

Steady Progress

Wachovia executives also decided to convert customers to various systems using a state-by-state approach, working from south to north beginning with Florida in November 2002. The rollout included extensive systems testing and employee training to help customer service agents respond quickly to questions about products and services.

Florida is the biggest state in which the combined First Union/Wachovia operates, but it's also the smallest in terms of the number of branches that had to be converted, says Robb. The bank decided to build on its experiences there and move on to states like North Carolina and Virginia, where the banks handle larger transaction volumes, according to Robb. The state-by-state conversion effort was completed in Virginia last July.

The new Wachovia was also careful during the integration effort to try to retain top-performing staffers, including its IT workforce. About 150 to 200 IT workers have left the bank since the merger—a relatively small number for a big bank merger. About 75% of those people were laid off, and the remainder left voluntarily, Jean Davis says. Most of the affected workers were doing application development, an area "where we had more people than were required," she adds.

Of the IT staffers who were let go, the split was roughly 50/50 between First Union and Wachovia employees, Davis says. "We had a stated philosophy that neither company would take too big a hit," she explains.

Still, Davis acknowledges that there were some tough times during the integration. Some of the bank's 4,500 global IT workers were regularly asked to work around the clock and do systems conversion testing on weekends.

Wachovia took a couple of steps to help prevent employee burnout. For instance, following the Florida conversion, many IT workers on the systems conversion team were given a few weeks off over the holidays to spend time with their families. And after the Virginia cutover last July, Wachovia IT workers were given extra time off in August "to recharge their batteries," says Davis.

In the end, Wachovia was able to meet its goal of generating $890 million in annual cost savings over a three-year period—and it even gave back some of the budget money that had been allocated for the integration effort, she says.

More important, the orderly approach enabled Wachovia to continue to deliver services to its customers without any glaring disruptions. Says Davis, "By taking the time to plan the integration, we made the right decisions to serve and retain our customers."

Methodical Merger

Conversion Numbers

Wachovia Corp.'s April 2001 merger with First Union Corp. included converting:

11.5 million accounts

4,500 ATMs

2,600 branches

75,000 signs

The merged banks also combined about 800 systems (such as human resources systems, general ledgers and data marts) and created the new Web site with enhanced online services for more than 6 million enrolled customers.
Image Credit: AP Photo

Copyright © 2004 IDG Communications, Inc.

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