The pending merger of First Union Corp. and First Fidelity Bancorp. should not result in a major back-office consolidation in the near term, bank officials and analysts said Monday.
In this way, the combination would differ significantly from other recent megamergers that hinged on slashing operations costs.
Executives at both companies stressed that most of the earnings benefits of the merger will come from additional fees as First Union markets investment products into First Fidelity's northeastern customer base.
However, there will be some opportunities for modest cost savings.
First Union chairman Edward E. Crutchfield, who would be chairman and chief executive officer of the combined bank, said he foresees post-merger annual expense savings of about 5%, or $90 million per year.
The savings will come mainly through the consolidation of corporate staff positions and "the leveraging of technology expenses across a broader base," Mr. Crutchfield said.
The cost-reduction estimate pales in comparison to those of major in- market mergers. For example, Chemical Banking Corp. and Manfacturers Hanover Corp. targeted $750 million in annual savings after their 1991 merger.
Chemical-Manufacturers, the 1992 BankAmerica-Security Pacific deal, and others like them involved more market overlaps than First Union-First Fidelity, and resulted in large numbers of branch closings and staff layoffs.
"We don't think this will be a complicated combination," said Anthony Terracciano, First Fidelity's chief executive, who will stay on as president of the merged institution. "However, it will be a heck of a lot of work" to consolidate systems quickly, he said.
Mr. Terracciano said he expects most of the savings to come from consolidating "transaction processing capabilities," although he was not specific as to which of First Fidelity's technology facilities may be merged with First Union's.
First Fidelity, based in Lawrenceville, N.J., already has extensive experience with back-office cost-cutting. In 1990 it became one of the first big banks to outsource its data center operations, signing a 10-year, $480 million contract with Electronic Data Systems Corp.
Last year, First Union turned to EDS, a Plano, Tex.-based unit of General Motors Corp., to process its credit card transactions.
Coley Clark, financial industry group executive at EDS, said he spoke with officials at both banks on Monday after the deal was announced.
"They said they were very happy with the work we were doing for them," Mr. Clark said, adding that it is unclear how the deal will affect EDS' contracts with the banks.
Lawrence A. Willis, a bank outsourcing expert with First Manhattan Consulting Group, did not expect First Fidelity's outsourcing pact with EDS to be a major obstacle in a post-merger systems consolidation.
"Given that you're not looking at an in-market deal, it's likely they will maintain the existing operational sites for the near term," he said.
Anthony R. Davis, a banking analyst with Dean Witter Reynolds in New York, said First Fidelity will carefully review its outsourcing agreements to see which of its operations can be combined with First Union's. "It will probably be a mix of outsourced and in-house processing," he said.
First Fidelity will benefit from access to First Union's superior information technology, Mr. Davis said. He noted that First Union has spent hundreds of millions of dollars over the past five years upgrading its software and delivery systems.
"There are some major savings and revenue opportunities for First Fidelity in adopting First Union's deposit software, management information systems, and electronic banking technology," Mr. Davis said.
