technology played a significant role in their decision to strike a merger deal. The banks said their computer operations could be quickly and easily converted to common systems, yielding substantial - and quickly realized - cost savings. The banks estimate they could cut $193 million in annual data processing and operations costs by eliminating redundant operations. This figure is about 40% of the total projected savings from the proposed merger. Executives also said that because the two banks have compatible technology - both use packaged software from Hogan Systems to run their retail banks - they can convert all systems within 90 days of the deal's closing date. Analysts believe the cost savings are achievable - particularly given Minneapolis-based First Bank's excellent track record at absorbing acquisitions. But the cost savings would be less than the projected savings from a Wells Fargo-First Interstate deal, where there would be more overlap in branches and facilities. Wells Fargo & Co., based in San Francisco, made a hostile bid for Los Angeles-based First Interstate three weeks ago. Executives of First Bank and First Interstate "are looking for a way to validate their ability to quickly consummate the transaction," said Lawrence A. Willis, a principal at the First Manhattan Consulting Group. "If there is a commonality of technology it facilitates integration." But, he added, "technology wouldn't be the driving factor" in any merger deal. A merged First Interstate and First Bank likely would keep a $60 million retail deposit system from Hogan Systems that First Interstate just finished installing a week ago. However, the software would be upgraded for compatibility with First Bank System's more advanced version of Hogan software, which allows customer information to be shared across state lines. First Interstate's retail deposit system is said to be one of the sticking points in the negotiations between First Interstate and Wells Fargo. William Siart, chairman and chief executive of First Interstate, said in a presentation to analysts that "with interstate banking, its important to have common, packaged systems, and to take those systems and drive them across your territory." First Bank System, which is widely regarded as a technology leader, would head the consolidation of systems and of product lines, bank executives said. If the deal pans out, Philip G. Heasley, vice chairman of the product group at First Bank System, has been tapped to head the consolidation effort. Bank executives said the combined bank would adopt First Bank System's standardized product approach, taking all operations out of the branch to be managed centrally. This strategy is credited with allowing First Bank to achieve high cost savings in other mergers. Mr. Heasley said some decisions - such as which of the banks' two main data centers would survive - have yet to be made. But observers said First Bank's main data center located near Minneapolis is likely to survive because it features more advanced systems than First Interstate's data center in Arizona. Mr. Heasley said that because of its efficient data center, First Bank Systems' average processing costs are $10,000 per MIP - millions of instructions per second. This is much lower than the industry average of $70,000 to $120,000. By adding First Interstate's transaction volume, the cost for the combined bank would be between $12,500 and $20,000 per MIP. In the credit card business, First Bank does $15 billion in sales and has $2.5 billion in loans and is a leading provider of Visa corporate cards. First Interstate has $2 billion in sales and $1.2 billion in loans. This strength means First Bank's credit card systems and operations would probably remain in place after a merger. "We're an efficient credit card processor, and First Interstate pays a large price to outsource processing," Mr. Heasley said. Bringing the operation in-house at a merged bank would cut the costs in half to $28 million, he said. In merchant processing, First Bank has $16 billion in sales, and First Interstate has $4 billion in sales. "We were thinking of selling or outsourcing," Mr. Siart said. But if the merger with First Bank goes through, "we'll move the revenue and take the cost out." In corporate trust, Mr. Siart said, First Bank Systems' systems were superior. The banks expect to save $8 million, or 10% of costs, by moving to a single facility. In the personnel area, the banks expect to eliminate 848 staff or executive positions for a saving of $129 million; 448 positions in data processing for a saving of $84 million; 2,281 in operations for a saving of $109 million; 1.837 positions in retail banking to save $81 million; 249 in payment systems for a saving of $28 million; 295 in commercial banking to save $21 million, and 130 positions in trust to save $8 million.

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