When a bank spends good money buying its way into a market, the last thing it wants to do is run off its new customers.
But keeping customers happy while integrating an acquisition, which was always hard, has gotten even tougher since the financial crisis.
"There is a broad understanding that the perception of financial institutions has taken a hit…and the industry is working hard to regain the stature and reputation it once had," says Paul Legere, a principal with Deloitte Consulting.
Unfortunately, buyers' focus on customers during integrations "hasn't been as aggressive as it should have been," says Legere, who is also Deloitte's global financial services leader for its M&A and restructuring team. "In this new world order, the focus has to increase."
Customers of BMO Harris Bank — the buyer in one of the largest deals of the last few years — have served the same message.
Last month, J.D. Power and Associates published its 2013 U.S. Retail Banking Satisfaction Study, and BMO Harris' score took a big fall from previous years.
In 2011, Bank of Montreal's U.S.-based Harris Bank unit in Chicago acquired Marshall & Ilsley in Milwaukee roughly seven months after announcing the $4.1 billion deal. It completed the integration late last year.
In 2012, Harris' ranking — which measures satisfaction with account information, channel activities, facility, fees, problem resolution and product offerings — was 771 out 1,000, compared to an countrywide average of 753.
In the 2013 survey, the consolidated and rebranded BMO Harris Bank had a score of 716, compared to a national average of 763.
"Their scores went down dramatically, more than what we would have expected in a typical merger," says James Miller, senior director of banking at J.D. Power. "We really saw the decline in Wisconsin."
The final systems integration last fall endured some glitches that denied online customers access to their accounts for longer than expected.
Regional factors may have influenced the drop, too, Miller says. Wisconsin consumers might not have been keen on a Canadian company buying its largest local bank. Also, customers there have not experienced as much consolidation as those in other markets.
"Customers in Atlanta maybe are less sensitive," Miller says. "Just about every bank in that market has been part of an acquisition."
There were signs for concern earlier. M&I's last score in 2012, measuring its customers' satisfaction during a period when the deal was completed and integration begun, fell to 728 from 766 in 2011.
Generally speaking, about half of those customers who say they are considering moving actually do, Miller says. That gives banks a chance to try to salvage a lot of relationships. BMO Harris seems to be doing that now.
"After any large merger it is not uncommon to see temporary declines in customer satisfaction," says Jim Kappel, the bank's spokesman. "However, it's important to note that we are now seeing customer satisfaction improve, which is reflected by the strong growth we are seeing in our business segments. Our commercial loan growth has been robust as we are adding new customers throughout our markets. Our deposit growth has also been strong."
Several integration experts say the best way to avoid integration problems is to have a detailed plan where customers are divided by type — such as commercial customers, the typical retail customers and the private banking clients. That kind of segmenting allows the bank to sharpen its integration skills as it progresses to more complex relationships, said Bruce Kiene, a managing director in Accenture's M&A and growth strategy practice, in a late 2012 report about integration.
Deloitte's Legere added that buyers need to focus on making sure the employees like tellers and branch staff fully understand the transaction because they have a direct connection to the customers.
Sudden changes should be avoided, Miller said, such as "charging for something that used to be free."
Moreover, banks should err on the side of too much information to customers, he says.
"It is hard to over-communicate," Miller says. "With too many customers, you can't send out a letter and expect them to read it. You have to keep making sure they are aware of the changes."
Though acquisitions may result in a more profitable company on paper, a poor integration can unravel the benefits.
Customers' "first reaction is fear: that the combination will result in poor service or otherwise degrade their relationship," the Accenture report said. "When those fears become reality due to mismanaged integration activities, the resulting customer exodus can be deadly to the value of the deal."