We've had some highs and some lows since the advent of interstate banking eight years - and 35 acquisitions - ago.

I will tell you candidly. It's ... been interesting and, at times, scary.

It's been a little like a scene from "Butch Cassidy and the Sundance Kid." After several days, Butch and Sundance come to a high cliff edge where they have to either jump over or surrender to the posse. They take one long look, scream and jump, hoping the water in the creek below is six feet deep instead of six inches deep.

That's what going into a merger and acquisition mode feels like - jumping over a high cliff.

The Rules Changed

It's been a tough adjustment for many bankers used to a safe, predictable, regulated world.

... Historically we've been rewarded for predictability.

If your industry is on the same road traveled by banks, there's spine anxiety to come. Of the banks that made up the nation's top 50 only seven years ago, 17 have disappeared - mostly through mergers.

There are simply too many companies chasing too little business in banking and in utilities.

At the same time, the barriers to entry in both industries are beginning to crumble. It's much easier for others to offer bank-like services or to build a power plant, often with much less regulation and capital investment.

Lure of Cost Reduction

The opportunity to reduce expenses through consolidation has been one of the strongest motivations driving change in the banking industry.

Ten years ago, it was clear to us that the banking industry was about to undergo massive consolidation. We knew it was going to wash over us - whether we were ready or not, and whether we wanted it or not.

First Union had three strategic options: buy, sell, or do nothing. First, we investigated selling our company but found no buyers. A second option, doing nothing - hoping somebody would later buy us out at a big price - seemed like a passive, myopic, and dangerous strategy.

Stuck in the Middle

We believed midsize banks were doomed. They would be too small to compete with the big banks on the basis of cost, and too large to compete with community banks.

We were one of those mid-size banks, with about $7 billion in assets, operating only in North Carolina. So we took a deep breath and decided to go for it.

We knew our shareholders would have to accept some earnings dilution up front. That bothered me and our board a great deal. But we took the "long view," hoping that by 1990 - then five years down the road - we'd be a successful player in a nationally reshaped industry.

No Time Wasted

We moved decisively, and our pace was fast - some said too fast. [Beginning in 1985] we made four or five acquisitions per year.

During that time, I remember visiting my father, a retired country judge and lawyer, some time before he died. Thinking about our rapid acquisition pace, and without even looking up to say hello, he said: "Son, you're not catching 'em faster than you can string 'em, are you?"

I will admit to many dark moments and some self-doubt along the way. As you may know, some Wall Street analysts, journalists, and others with five-minute attention spans don't understand the "long view."

They expect instant gratification. But we stuck to our plan, and the payback we anticipated gradually started to reward our shareholders.

Tables Are Turned

Today Wall Street analysts (including the early critics) are praising us for taking the "long view." But you can't run your business based on what analysts say - pro or con - because they are followers of change, not leaders. In fact, it makes me a little nervous when they start writing nice things about us.

We have to be the leaders who - as we approach that cliff - decide whether it's best to jump or stay. Today many of those who sat still back in 1985 and did nothing are part of history.

That's a short version of First Union's journey since 1985.

Now I'd like to shift gears and touch on a few lessons we learned that might be helpful to you during your journey.

First, learn about the company you're buying (or selling to), and be prepared to move quickly. To often after mergers, one side or the other finds unhappy surprises. You turn over a rock and find a snake.

We want to know exactly how, when, and if we can consolidate operations and realize the expense savings needed to offset the acquisition cost.

Shortsighted Critics

I emphasize again ... Wall Street and the financial press have little tolerance for mistakes and little patience for long-term payoffs to shareholders. That makes it tough.

It's important to keep your company's stock price high. That's the currency used for making acquisitions (or the basis for pricing your company to an acquirer).

A second lesson we learned was to pay close attention to the mood of your regulators. This may be old stuff for you, because utilities are probably the only companies more regulated than banks.

Regulators can stop plans for a nuclear power plant or a bank merger in their tracks. I personally learned that close communication with regulators is a must. We also learned not to expect consistency of behavior from regulators.

One last word about regulators and politicians: We don't depend on them to create a level playing field or to protect our industry or our company from competitors outside the industry. We try to level the playing field - and protect our markets - with our own actions.

The Human Component

Finally, let me touch on the human side of our merger experience. How you communicate and treat employees can make or break a merger - just as quickly as the operational and financial issues.

Personnel experts say a 15% loss of productivity is typical in a merger, simply because of all the time employees spend worrying about how the new situation will affect them and their co-workers.

The lesson we've learned about employees is this: Never underestimate the traumatic effect of a merger on your employees. The psychological effect can be devastating.

Keep Workers Informed

Our first pledge to acquired employees is to communicate quickly and tell it straight. We give them information as soon as we know it - even when that information is negative.

Their No. 1 question is "Will I have a job?" We move quickly to answer that so they feel back in control of their own fate. It's tough to communicate candidly and build a team when at the same time you're eliminating jobs and most of your news to employees is negative.

We have 32,000 employees - over half of them from recently acquired banks. My most time - consuming task is communicating with employees in groups and staying in touch.

I've saved our most important "lesson learned" for last: Focus intently on listening to and serving the customer.

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