The new Chemical Banking Corp. has spared the ax in its first chance to demonstrate the cost-cutting resolve promised last July.
Rather than trim upper layers of management, the combined Chemical and Manufacturers Hanover Corp. would tolerate numerous instances of overlapping responsibilities, senior executives at both banks acknowledged privately.
The party line: Management structure will be flattened out in post-merger restructurings.
"Step one is to get the deal done," said one official. "Step two is to refine it."
However, this official conceded that failure, at the outset, to cut top staff aggressively sends the wrong message about the banks' determination to achieve projected cost savings.
By the fourth year of the merger, those savings are projected at $650 million annually. More than half that amount would come from staff reductions.
Perceptions of favoritism and political patronage also rankle lower-level staffers, whose morale is already at a low ebb.
"I hear people complaining about too many management layers and too many coheads" of departments, another official said, commencing on general internal morale problems.
Attention has focused recently on the decision to put two officials in charge of both the merged bank's syndications and private placement departments.
The appointments have also raised eyebrows in the investment community.
"The true mettle of senior management is tested by its ability to pick the strongest candidate," said one analyst who did not want to be identified.
Defenders said the appointments reflect a desire to retain the best people at both banks.
"There are lots and lots of mediocre performers that can go, before you have to start cutting the good people," one official commented.
Indeed, some analysts say it is simply too early to judge effectively the resolve of senior management in cutting costs.
"I don't think you'll get a good feel for it until the post-merger phase," said James McDermott, president of Keefe Bruyette & Woods Inc.
"I expect the toughness will evolve," he added.