When First Bank System Inc. and Wells Fargo & Co. were fighting over which one would get to buy First Interstate Bancorp., a key issue was which institution would slash more costs from the Los Angeles-based target.
While it lost the bid for First Interstate, First Bank's reputation as a bank that tightly controls its costs wasn't tarnished.
Indeed, while the battle for the Southern California prize was being waged in the media, courtrooms, and the Los Angeles mayor's office, a team from First Bank was in the midst of a 25-week effort to convert and integrate Firstier Financial Inc. in Omaha.
The deal for the $3.6 billion-asset bank closed as workers were heading home for the three-day President's Day weekend in February. But thousands of bank employees were just gearing up for a two-day systems conversion that would, by the following Monday morning, eliminate virtually all traces of the acquired bank and begin to reduce expenses by some $41 million a year.
"You've got to have SWAT teams. You've got to have managers who are really good at making this work," said Philip G. Heasley, the exuberant First Bank vice chairman who oversees technology and products.
Mr. Heasley said First Bank's ability to take out back-office costs on day one of the merger can be a competitive advantage for an acquiring bank on the prowl.
Continuing to run the Nebraska bank's systems separately would have cost nearly $3.5 million a month. So if a year passed before the conversion was completed, the added costs would reach $40 million, he said.
"It becomes a big deal," said Mr. Heasley. "The old Banc One strategy (was to) buy a bank and up-price everything - there isn't the room in the marketplace to do that anymore. There are too many other pressures."
The potential to slash expenses has always been a factor used to justify mergers. But analysts agree that as banks fetch higher prices, an acquirer's ability to get savings from converting systems swiftly has become increasingly important.
"They truly do have a competitive advantage," said Joseph C. Duwan, an analyst with Keefe, Bruyette & Woods Inc. in New York. "Both in the structural technology platform that they have and their tough-nosed attitude to expenses. They're never satisfied. It's an ongoing corporate culture that's well ingrained."
When it plots systems conversions, First Bank chooses one of two timetables - 16 weeks from the agreement to buy a thrift with a limited product offering and 26 weeks for a full-service bank. With Firstier, which offered a complete range of services, First Bank wanted to accelerate the process to just 24 weeks to take advantage of the three-day holiday weekend in February.
"We have weekly meetings right up to my level," said Mr. Heasley. "This project plan is managed as a key corporate objective."
The size of the new bank is not an important factor to First Bank. "If you can do this conversion, say, in a $3 billion to $4 billion bank that's full service, you can do it in a $15 billion or $20 billion bank or a $30 billion or $40 billion bank," said Mr. Heasley.
What does make conversions easier is the degree to which systems are centralized at the acquired bank. Bringing a multibank holding company into the fold that operated on several platforms is a more complex process. "We purchased some banks in Denver that were in effect one legal entity. But there were still three processing environments underneath them" requiring three conversions.
First Bank honed its consolidation expertise by performing two dozen systems conversions in the last few years. The bank has developed an on- line project plan that includes some 80,000 instructions. Andersen Consulting has assisted the bank in the last 10 or so conversions.
Mr. Heasley marked some of the key milestones in the process:
*Understand what you've acquired. After the deal was announced last Aug. 8, First Bank sent in 31 teams to look at systems and determine exactly how the new bank would be run. First Bank, which has just one data processing site, is highly centralized company with common systems and common products.
"In Firstier's situation, we knew they did not have the same systems as we did," said Mr. Heasley. "And we also knew that their product offerings were fairly similar to ours, which is positive because we not only convert the systems, we also standardize all the products."
*Mapping. This is the nuts-and-bolts design for converting Firstier's multiple systems to First Bank's platform. After the teams swoop down on the acquisition target, they "immediately come back and model the differences - the delta between what they have and what we have. And that becomes the basis of the conversions."
*Software development. First Bank uses computer programs to handle the actual systems conversion. But some steps must be customized. For example, Firstier's systems had never handled the processing volume that would be required on the last day. "So we had to get parameter changes to go in and do that," said Mr. Heasley.
*User acceptance test. Systems employees evaluate whether the plan is set up in the right sequence, will actually standardize products, and ensure operations will come in at the projected cost.
*Dress rehearsals. "We just don't go blindly into the conversion," said Mr. Heasley. "There is a whole process (where) we've accumulated a whole series of fixes that we're going to have to execute."
The bank then retests them before the last dry run.
*The event. "We've got literally thousands of people working the conversion weekend around the clock," said Mr. Heasley. "The whole teller setups are being changed. Training is taking place. Live data is being tested as it becomes available. We've got planes delivering tapes point to point to make the whole thing work. We're converting."
Perhaps the hardest task when integrating a large bank, he said, is training personnel at acquired branches how to operate the new system in a short period of time.
After the Firstier deal closed that Friday, the bank closed for the three-day weekend. But on Monday, a bank holiday, former Firstier customers were able to access their new First Bank accounts via the telephone and withdraw cash from automated teller machines.
And on Tuesday, personnel at First Bank branches in 11 states could pull up customer information files on the new customers.
By Tuesday evening, permanent First Bank signs adorned nearly every new branch. Before a merger closes, First Bank likes to begin replacing the old signage. The new signs are then covered with banners bearing the old bank's name. "When conversion comes, you just take the wrapper off," said Mr. Heasley.
*Post-mortem. While First Bank said the most recent conversion was smooth sailing, it plans to make 200 minor changes (out of 80,000 items) in the process.
First Bank said it will remove 34% of Firstier's cost base, or about $41 million. The biggest areas of savings are administrative functions (85% to 90%) and data processing (more than 80%).
A swift, competent conversion can also help retain customers at the acquired bank, First Bank said. As evidence, Mr. Heasley said Firstier's deposit, asset, and customer base actually grew between the time the deal was announced and the closing 25 weeks later.
"We usually suffer our greatest loss prior to conversion," he said. "Once we convert, we tend to turn around onto a growth curve."
First Bank, of course, isn't the only institution that is efficient and a prudent manager of technology. Mr. Heasley even offered a few words of praise for that other bank in California.
"Wells Fargo doesn't talk a lot," he said. "But Wells Fargo is an excellent technology manager and they are excellent process managers."