Profile of a Merger: Inside the Wells Fargo-First Interstate Saga

The hostile takeover of First Interstate Bank by Wells Fargo & Co. and its highly publicized, messy aftermath doesn't quite read like Tom Peters's The Power of Wow. Granted, warm fuzzies are not Wells Fargo's thing, as many customersoand innumerable former First Interstate employeesohave discovered. Still, no one's betting that Wells Fargo won't recover from its merger-related woes. Quite the contrary: Wall Street analysts aren't about to abandon the San Francisco-based bank just yet. And most bank playersowhether they agree with Wells Fargo's product- centric business philosophy or notoare sympathetic to its integration challenges. The last thing the banking industry needs is for one of its ownoa highly respected, extremely profitable institutionoto lose market share to nonbank locals, or anyone else for that matter, while struggling to get its own house in order. With the exception of the pending departure of William Zuendt, Wells Fargo has a lot going for it: a seemingly insatiable appetite for bleeding-edge technology that enables lower cost, electronic distribution of bank products and services, a strong brand and an unwavering commitment to profitability (its most recent quarter's earnings aside). But Wells Fargo's merger integration processoa painful one, by all accountsois a stunning commentary on what happens when two financial institutions, each with wildly different cultures and business strategies for how to foster more profitable customers, come together. And, if you're a would-be acquiring institution, it certainly provides a strong message on what not to do. Most industry veterans will tell you that merger-related integration problems are nothing out of the ordinary; just ask The Chase Manhattan Corp. evp and CIO Denis O'Leary to recall his experience orchestrating the systems-related aspects of the Chemical- Manufacturers Hanover merger and how that differed with the Chase Manhattan-Chemical merger that followed some years later. By the time Chase and Chemical merged, O'Leary had nearly elevated bank integration to an art form. Of course, the Wells Fargo situation is considerably different in that its acquisition of First Interstate was not welcomed. Worse, Wells Fargo executives didn't soft-peddle anythingoto customers or newly acquired employees. If Wells Fargo is guilty of anything, it's of ignoring the implications of change management. This, in turn, has had serious side effects on the bank's business, most notably a "significant" loss of retail and corporate accounts, according to insiders. Given time, Wells Fargo will certainly regain its footing in the market. And during the next merger go 'round-if there is one for Wells Fargo-bank officials would be wise to remember that distribution channels-electronic or otherwise-are only as profitable as the customers who use them.