PNC Bank Corp.'s plans for Midlantic Corp. include big cost reductions through back-office consolidation, bank officials and Wall Street analysts said.
Unlike the merging First Fidelity Bancorp and First Union Corp., which share no common service areas, PNC and Midlantic have overlapping markets in New Jersey and Philadelphia. That overlap could mean significant cost- cutting opportunities.
In a statement Monday announcing the merger, the chief executives of both banks said their combined emphasis on customer satisfaction and efficiency will help create value for shareholders and customers.
Thomas H. O'Brien, chairman and chief executive of Pittsburgh-based PNC, said cost savings can be achieved in such areas as branch network consolidations, back office and administrative units, and marketing expenses.
The $62.1 billion-asset bank has set a target cost reduction goal of $150 million by 1997, or 33% of Midlantic's current expense base, Mr. O'Brien said.
Some of the savings will be achieved through branch closings and layoffs, although Mr. O'Brien declined to say just how many workers would be cut.
The bank has targeted 50 to 70 branches in Philadelphia and New Jersey for closing.
Most of the consolidations will occur in the second half of 1996, bank officials said at a press conference Monday.
"In a general sense, certain operations areas, back office branches, and staff areas are redundant," said Mr. O'Brien.
"Most PNC companies run very lean," he said. "Overall, the bank will see a continuing flattening of employment."
Although some analysts have expressed skepticism that such a high level of cost savings can be achieved, others say the goal, while a challenge, is realistic.
Joe Duwan, regional banking analyst with Keefe, Bruyette & Woods, said he considers PNC's objectives "ambitious but achievable."
"PNC has a good track record in terms of realizing cost savings," he said. "They also have a strong back office infrastructure, at the forefront of the banking industry, that will help them achieve that level of cost savings."
James McCormick, president of First Manhattan Consulting Group, agreed that "both institutions are good at cost effectiveness, and therefore are savvy as to what can be achieved."
Mr. Duwan added that the merger would enable PNC to spread its technology investments across a larger franchise, resulting in lower unit costs for providing service, and possible improvements in service.
Analysts speculate that the merger might put PNC in a better position to develop alternative delivery channels, an effort that was initiated last year when the bank announced that it would close as much as 30% of its branch network and invest $15 million in a telephone banking center that would serve customers nationwide.
Garry J. Scheuring, chairman, president, and chief executive officer at Edison, N.J.-based Midlantic, said at Monday's press conference that PNC's technology and broad range of product offerings, "puts us ahead of where we were," and will benefit Midlantic customers.
Midlantic's consumer and commercial customers will have improved access to transaction and investment accounts, he said.
In addition, Mr. Scheuring said, through the merger $13.7-billion-asset Midlantic will get back the consumer mortgage and credit card businesses that were sold over the last several years during restructuring.
Mr. Scheuring will become vice chairman and a director of PNC Bank, responsible for the New Jersey and Philadelphia markets and for consumer banking companywide.
Mr. O'Brien noted that the merger would give PNC significant opportunities to increase revenue through sales of its national products, such as asset management, treasury management, residential mortgages, and credit cards.
