Much has been made of the different approaches merger partners Norwest Corp. and Wells Fargo & Co. have to banking, but nowhere have they taken more divergent paths than in small-business lending.
Wells Fargo emphasizes technology, relying heavily on credit- scoring models to make small-business underwriting decisions. Norwest, though it employs computer decision-making tools, depends more on an individualized approach in making credit judgments.
"Small-business is an area of perhaps the greatest polarization between the two companies," said R. Jay Tejera, an analyst with Dain Rauscher in Minneapolis. "It will be very interesting to see how the two areas are put together."
A 20-person transition committee, with 10 executives from each bank, has been hashing out how to meld the two small-business operations. Recommendations are expected to be made by the task force in September, according to a Wells Fargo spokeswoman.
As with many aspects of the Norwest-Wells Fargo merger, the differences in approach could either clash or complement one another.
After the merger closes, which is slated for the fourth quarter, the new Wells Fargo would be the second-largest small-business lender in the nation. As of June 30, the combined operations had $8.4 billion in outstanding loans, trailing the merging NationsBank Corp. and BankAmerica Corp., which together would have had $10.3 billion.
"Wells and Norwest are two companies who do small-business lending very differently, but each does it very successfully," said Charles B. Wendel, president of Financial Institutions Consulting in New York.
Wells Fargo takes a two-tiered approach to small-business lending. For lines of credit smaller than $100,000, the San Francisco-based bank offers Business Direct.
The nationally marketed program, which some observers likened to a "glorified credit card," offers loans via direct mail. Credit report information is plugged into a computer model, which arrives at an interest rate and maximum loan amount. In many cases, the bank does not ask for a firm's business plan or financial data.
For bigger, more complicated business loans, Wells Fargo still relies on lending experts. But the bank shuns loans between $150,000 and $500,000 because they require more complex underwriting and are therefore less profitable, according to several observers.
"The part of the small-business market that Wells attacks in the traditional, more relationship-oriented sense is actually approaching middle market, up toward $20 million," said analyst Ben Crabtree of Dain Rauscher.
Norwest, on the other hand, prefers to focus on small businesses that need less than a half-million dollars in credit.
Norwest chairman Richard M. Kovacevich "believes that the object of commercial banking is to make a whole bunch of small loans in a whole bunch of markets to avoid any concentrations," according to Mr. Crabtree. "Norwest loves loans of $500,000 or less. They brag about that."
In addition, Norwest views small-business lending as an opportunity to build a relationship with a customer.
"For many banks-including Wells-these loans are too small to justify having a relationship manager to do the analysis but too big to credit- score," Mr. Wendel said. But Norwest is willing to use bank employees to extend this amount of credit because "they know they will be cross-selling additional products to these customers."
As with many other business areas, if the banks are able to meld Wells' emphasis on efficiency, technology, and alternative delivery systems with Norwest's multiple-product culture and emphasis on interaction with customers, a small-business powerhouse could emerge.
"Wells is doing things Norwest isn't, and vice versa," said Joseph K. Morford, an analyst with Van Kasper & Co. in San Francisco. "Theoretically both companies can continue to market the way they currently do, and together will be able to capture a wider audience."
