Fleet's Tech Whiz Put to the Test Again
Fleet/Norstar's technology czar Michael R. Zucchini has been in the spotlight before, but this time around it promises to shine a bit hotter.
As chief information officer of Fleet/Norstar Financial Group Inc., Mr. Zucchini succesfully orchestrated back-office consolidation efforts in Fleet's 1988 acquisition of $8 billion-asset Norstar Bank.
Now Mr. Zucchini is expected to work the same magic in merging Fleet's operations with the Bank of New England, which the bank acquired from the Federal Deposit Insurance Corp. with the help of investment bankers Kohlberg Kravis Roberts & Co. in late April. The deal will add $15 billion in assets to Fleet's balance sheet, making it the largest bank in New England.
In submitting the winning bid for Bank of New England, Fleet estimated annual cost reductions of $350 million due to consolidation. While much of that number will come from eliminating redundant branches and cutting staff in the front offices, about $90 million is expected to come directly from combining back-end operations such as data processing.
Because most of the failed Bank of New England's operations have already been cut to the bone by survival efforts last year, observers have doubted Fleet's ability to squeeze such numbers out of the merger.
A |Fragmented Environment'
"The estimates are feasible, but I think very aggressive," said Donald E. McNees, a vice president at Towers & Perrin in New York. "Fleet is inheriting a very fragmented environment that presents a major challenge to the new management team."
Complicating the challenge of unifying the fragmented systems is the intense scrutiny that is sure to accompany this consolidation.
According to consultants and insiders at the FDIC, one of the key factors in Fleet/Norstar's successful bid for the Bank of New England was its track record in back-office consolidation.
This and other hard-to-quantify criteria have fueled the controversy over how the FDIC can justify giving the nod to Fleet over the well-capitalized Bank of America or Bank of Boston, which had more market overlap with BNE.
A Costly Failure
Add to that the fact that since the Bank of New England debacle is the third most expensive bank failure in U.S. history, costing taxpayers an estimated $2.5 billion, consultants and Wall Street analysts say the consolidation efforts will be watched very carefully.
The problem that most observers have with Fleet's estimate of $350 million in savings from consolidation is that the Providence, R.I-based company expects only $20 million of that number to come from closing branch offices.
"It is not clear how someone who is planning to close as few branches as they have predicted will achieve the kind of cost savings they are talking about," said Michael Simmons, executive vice president in charge of technology at Bank of Boston.
Popular View Shunned
Branch closings are considered by many - including the Bank of Boston, which based a large part of its bid for BNE on its savings from shutting down about 200 redundant branches - to be the best way to save money through consolidation.
But Mr. Zucchini disagrees with this popular wisdom. Fleet plans to shut down only about 55 branch offices.
"I don't think the big money is in closing branches. The back office is one of the few places you can get significant cost savings," Mr. Zucchini said.
He contends that the annual saving from closing a branch - which experts put at about $300,000 to $400,000 - cannot compare with the back-office cost cutting.
One Data Center
The vast majority of the $90 million that Fleet expects to get from the back-office consolidation will come from the data processing area. Fleet announced plans last month to handle all of Bank of New England's data processing functions at a single site in Albany, N.Y.
Overall, the bank said that about 1,000 of Bank of New England's 3,000 operations and technology employees will be laid off in the next 18 months.
An additional $100 million of the projected $350 million cost saving is rooted in the elimination of staff and support areas, and many of the expected layoffs depend on the success of the data processing consolidation.
Another important component of the total saving anticipated is the $85 million a year in fees Fleet will collect from the FDIC in exchange for servicing the problem loans carried by the Bank of New England.
Referring to the projected employment cuts, observers have pointed out that Bank of New England has already undergone a significant down-sizing. Fleet executives counter with their plans to move the Bank of New England and Fleet/Norstar to a common computer system.
"Our strategy and numbers are built on the foundation of common software - every bank utilizing the same software in the same way," said Mr. Zucchini. "The programming and support staff can then be leveraged because it's the same system for every bank."
PHOTO : MICHAEL ZUCCHINI: Back office is key to savings
