In Washington State, Keycorp is showing that even a poorly executed merger can make money.
At times, it has seemed that virtually everything that could go wrong has gone wrong in the Albany N.Y.-based company's $807 million acquisition of Puget Sound Bancorp.
After Ken took over Washington's largest independent commercial bank in January, computer glitches massively disrupted service. In one case, thousands of customers found their automated teller cards no longer functioned.
Then there were the cultural problems. Employees of the laid-back Tacoma-based Puget Sound chafed under the strict rules and faster work pace of Key.
Turnover has been high. And service suffered as staff members were shifted around and procedures were changed.
As if that weren't enough, Puget Sound's former chief executive, W.W. Philip, opened his o\,\n bank in Tacoma, taking thinly disguised potshots at Keycorp.
Executives of the New York bank company were incensed, but many observers blamed them for failing to negotiate a noncompete clause as part of the merger agreement.
|Neighborhood Bank' or Bully?
Worse still, the company that calls itself "America's neighborhood bank" sometimes seemed more like the neighborhood bully.
That impression was magnified when Key's chief executive, Victor J. Riley Jr., flew to Tacoma in June to personally fire Hans J. Harjo, the local banker who served as Key's chief in the Evergreen State.
In a startling disregard for corporate niceties, Key officials openly said that Mr. Harjo had been fired. And they blamed him for letting the bank's image slip.
That didn't play well locally. Mr. Harjo is a Washingtonian who learned his trade as a bank president in Seattle's Scandinavian Ballard district. The cashiering of a man with close ties to the community fueled Key's image as a heavy-handed outsider.
Merger Indigestion
Despite all the blunders, however, the merger seems to be working.
"Key is having a little bit of indigestion," said Dain Bosworth analyst R. Jay Tejera. "But [it hasn't] negated the value of the deal."
That's largely because of an estimated $30 million in annual cost savings gained from combining the Key and Puget Sound operations. Expense reductions helped Key's Washington unit notch a 1.30% return on assets in the second quarter, better than Keycorp's 1.26% companywide ROA.
The lesson, said Mr. Tejera, is that "the economic advantages of in-market acquisitions are so compelling, you can make a lot of mistakes."
Mergers have quadrupled Key's size in Washington. It had only a small presence in the state until last year, when it bought 48 Security Pacific Corp. branches divested by BankAmerica Corp. Key followed that up with the Puget Sound deal.
The bank soared to $6.6 billion of assets and 193 branches, second only to BankAmerica's Seafirst subsidiary among Washington banks.
New Chief
Key also seems to be getting its management house in order. It tapped Deborah L. Bevier, a 43-year-old former head of its mail-order banking subsidiary in Albany, to replace Mr. Harjo. Ms. Bevier's steady and open management style has reassured customers and eased tensions inside the bank.
"Things have really settled down quite a bit," said Don G. Vandenheuvel, the former president of Puget Sound. "Debbie has worked out very well. The sense I get is of a lot more calmness."
Ms. Bevier said her first priority has been to reach out to employees and the community.
"I made a real concentrated effort to meet as many people as possible in our organization, as well as a good cross-section of customers." she said.
