NationsBank Corp.'s takeover of Barnett Banks Inc. appears to be shaping up just as the acquirer had hoped: as a textbook case of how to retain customers.
The third and final phase of the post-merger integration process is under way, and "our retention figures are at or above Barnett's" before the merger, said Harris A. "Rusty" Rainey, the NationsBank executive vice president in charge of the program.
"Of Barnett customers, 90% are positive to neutral about continuing with NationsBank," Mr. Rainey said, in what amounts to a declaration of victory over the unpredictable demons of post-merger customer reaction.
NationsBank reportedly took pains to analyze and closely match Barnett's product offerings, communicated with customers early and often, and quickly instituted a sales culture to prevent customer defections.
After years of experience with progressively larger and more complex acquisitions, NationsBank's approaches are coming to be regarded as core competencies. Analysts cited them as a factor in the company's 53% increase in second-quarter profits, reported Monday.
With Barnett costing $15 billion, or four times book value, customer retention was viewed from the start as crucial to the deal's payback. With $44 billion of assets at the time of acquisition, Florida-based Barnett boosted NationsBank's assets by 18%. And it brought the status-tangible and otherwise-of Florida's premier retail banking organization.
A product-mapping exercise, completed during the first 60 days of the Barnett integration, was a critical first step in the retention effort, officials said. The aim was to match NationsBank products to their closest Barnett equivalents.
NationsBank also introduced products, including a 15-year mortgage loan, an express checking account, certificates of deposit, and credit card-based overdraft protection.
"They have gone to great lengths to minimize attrition levels by taking a more in-depth view of the needs of the customer base, ensuring that the product mapping was equivalent and competitive," said Lawrence A. Willis of First Manhattan Consulting Group in New York.
The company chose to engage in detailed analyses of customer accounts. It was willing to pay the price of slightly extending the integration process.
"Institutions that have that ability have to make a trade-off," said Mr. Willis.
Beginning on the Jan. 9 closing date, NationsBank purposefully listened to and communicated with its newly acquired customers, hoping to assuage any transition fear.
NationsBank used a Barnett system, one of only three retained from the acquiree, to monitor feedback from outbound calls made to customers. The "rapid cycle testing" software tracked customer reactions to various product proposals and helped NationsBank swiftly modify plans as appropriate.
"When you are going through a merger process and so many significant changes, you need to do a great job of communicating with your customers," said Mr. Rainey, who has led more than 30 integration efforts since 1985, including those of Boatmen's Bancshares, First RepublicBank Corp., C&S/Sovran Corp., Maryland National Corp., and Bank South Corp.
In Florida, assessment teams for retention and sales were put together about three weeks after the Aug. 29, 1997, merger announcement, said Lynda O. Smith, a former Barnett executive who is transition sales and service integration manager at NationsBank.
Within days of the merger announcement, Mr. Rainey arrived at Barnett's headquarters in Jacksonville, where he joined NationsBank president Kenneth D. Lewis at an employee sales rally.
"The integration process has been overlaid with a very conservative initiative" to retain profitable customers, said Carla D'Arista of Friedman, Billings, Ramsey & Co. of Arlington, Va.
"NationsBank has a very well-calibrated retail delivery system that has conspired to boost retail profitability," she added.
With 22,000 tasks, 1,000 key events, and more than 400 major projects, completing the integration in 12 months-plus is "highly reasonable," said Mr. Rainey. "We could have done it in nine months if we took more risk than we are willing to take."
After a 60-day assessment phase came a 60-day design phase. Technologists incorporated selected Barnett systems into the next version of NationsBank's "model banking" system, a combination of some 20 retail, 20 commercial, and 50 back-office systems.
Most of the decisions on staffing and training-including the retention of at least 1,000 Barnett technology employees-were made during the design phase.
The Barnett systems that survived, besides rapid cycle testing, were a credit application that reduces mortgage closing times and the on-line banking program associated with Intuit Inc.'s Quicken software.
Key conversion events are taking place over weekends an average of twice a month. Tasks completed so far include numerous site consolidations, 67 branch divestitures, and integration of the banks' respective general ledger and accounts payable systems.
Mortgage processing systems were switched in June, and credit card processing is expected to be converted this weekend.
The final steps-including conversion of Barnett's core processing and branch delivery systems, changing signs, and answering phones by stating NationsBank's name-are set for the weekend of Oct. 9.
Sandwiched between the acquisition of Boatmen's Bancshares in January 1997 and the pending merger with BankAmerica Corp.-both adding large territories to NationsBank's realm-integrating single-state Barnett may have seemed relatively simple.
The Boatmen's integration, completed last week, was complicated by the need to eliminate 57 bank charters and systems, said Mr. Rainey.
NationsBank was putting its model banking platform into Texas at the same time. Rather than switching Boatmen's to a branch system that would soon be outdated, NationsBank delayed some aspects of the technology conversion.