Eager to Retain Barnett Customers, NationsBank Freezes Fees for a Year

Painfully aware that customer defections are a fact of post-merger life, NationsBank Corp. doesn't want history to repeat itself.

Immediately upon announcing its $15.5 billion deal with Barnett Banks Inc. last month, NationsBank put a freeze on prices-a strong signal that customer retention is a top priority.

Chief executive officer Hugh L. McColl Jr. promised that the company would not increase consumer fees for a year in Barnett's home state of Florida. He said Barnett customers wouldn't have to pay NationsBank's fees until after Labor Day 1998.

Banks have been known to lose as much as 5% of deposits in a merger's aftermath. Smaller competitors often prepare to pounce when mergers are in the works.

That was the case in Atlanta in January 1996 when NationsBank bought Bank South Corp. Officials at SouthTrust Bank of Georgia, for instance, said account openings jumped 50% in the year after the deal, thanks in large part to customers leaving Bank South.

Never before has NationsBank used such an aggressive retention strategy, officials said. The Charlotte, N.C., company has typically introduced its own products and pricing to an acquiree's customer base as soon as conversions could be made. And the bank has never promised a freeze on fees to its existing customers.

The size and scope of the Barnett deal, which is slated to close in the first quarter of 1998, caused the company to rethink its approach.

"Circumstances are driving it," said Dick Stilley, senior vice president and spokesman for NationsBank. "We want to send a message that we want to keep these customers."

NationsBank is considered one of the most aggressive in the country at pricing transaction activity both inside and outside its branches. This year it started charging Florida customers $1 each time they use a counter check or handwritten deposit slip. And it charges customers who call its operators and automated phone lines frequently. Barnett does not charge customers for either of these services.

Price comparisons with Barnett vary-but Barnett officials said in most cases its charges are less than or equal to NationsBank's for similar products.

In a move planned before the merger announcement, Barnett will introduce a new pricing plan next month for all consumer accounts.

Customers will be able to get discounted PC banking, preferred loan rates, free automated teller machine transactions at other banks, and no- fee credit cards. Barnett has raised fees on some basic deposit accounts by $2, but it is also offering up to $7 of monthly discounts for customers who reduce their reliance on branch banking in favor of ATMs and on-line and telephone banking.

Because of antitrust concerns, NationsBank will likely divest at least $3 billion of deposits. From the bank's perspective, that makes it even more critical to retain as much as possible of the remaining $30 billion or so.

The message on fees could also appease regulators who are scrutinizing the deal for its impact on Florida residents. The state attorney general's office subpoenaed NationsBank and Barnett Sept. 4 for extensive information about their proposed merger.

The attorney general is investigating the antitrust ramifications in conjunction with the Florida Division of Banking. In the past, the state banking commissioner has called on banks to do more to improve the public's perception of burdensome banking fees.

"We certainly do care about fees," said Doug Johnson, assistant director of the banking division.

NationsBank's promise is unusual, he said. "But the early indications are that NationsBank is going to do everything it can to ensure it has smooth sailing on the consumer front and on the regulatory front."

Susan Michaelson, managing director of Michaelson, Kelbick Partners Inc., a New York consulting firm that specializes in merger communications, said customer apprehension about mergers has abated in recent years as they have become more frequent and familiar.

Fees are still a sore point. "The primary negatives come if there are significant fee changes," she said.

That concern has already become apparent in Florida. Less than a week after the Aug. 29 merger announcement, several letters from readers critical of the deal were published in Florida newspapers. Some specifically mentioned the possibility of price increases.

One letter railed against an "acquisition-hungry NationsBank" and decried "nationwide giants that bombard customers with added fees for every transaction."

Another lamented the proposed deal with a simple question: "What's it going to cost now?"

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