GRAND RAPIDS, Mich. - The way David Wagner sees it, a lot of the megamergers that took place in 1995 are simply short-term solutions to long-term problems.
The problem, says Mr. Wagner, chairman and chief executive of $11.8 billion-asset Old Kent Financial Corp., is that banks are getting their tails kicked by other financial services companies. The solution has been to merge two large banks, fire a lot of employees, and cut redundancies to take advantage of economies of scale.
Sure, there will be cost savings in the near future, Mr. Wagner concedes. But he says banks are taking the easy route.
"There isn't anything intrinsically in the shareholders' interest in a large merger that creates dilution and drives an organization to be twice its original size, but that does not really offer customers anything they couldn't get in the past."
The gospel according to Mr. Wagner is a familiar one around Grand Rapids, a town once dubbed Furniture City because of its many furniture manufacturers. It was the same gospel espoused by John Canepa, who retired as chairman Nov. 1 after 22 years with the bank.
It is now Mr. Wagner's turn, and at age 41 he too could conceivably run the company for years. Mr. Wagner has spent his career at Old Kent, having joined it after receiving his masters degree in business administration from Indiana University in 1976. If Old Kent were ever sold, Mr. Wagner said, he might try a new profession.
Both Mr. Wagner and Mr. Canepa strongly advocate keeping Old Kent, which was founded in 1853, independent. They say this even though some analysts call it a very attractive acquisition candidate.
"John (Canepa) was very clear about this, and I am very clear about this," Mr. Wagner said. "We can, as we have in the past, deliver a superior return to shareholders consistently."
Old Kent anticipates reporting its 23d consecutive year of earnings growth. And analysts say the company can stay independent if it keeps shareholders happy.
"They don't have to merge," said Fred Cummings of Cleveland-based McDonald & Co. "If earnings are superior, then they can stay independent."
Mr. Cummings said Old Kent has consistently outperformed its larger rivals in Michigan, a list that includes $124 billion-asset First Chicago NBD Corp., $35 billion-asset Comerica Inc., and $23 billion-asset First of America Corp.
But of the three large independent commercial banks left in Michigan - Old Kent, First of America, and Comerica - analyst Michael Moran of Roney & Co. said Old Kent is the least vulnerable to a takeover.
He said a disciplined acquisition strategy and a handle on costs has made Old Kent a solid performer for shareholders.
Old Kent is as recognizable a symbol of Grand Rapids as the bright orange Alexander Calder sculpture that sits downtown. But there are more than sentimental ties that make Old Kent's management reluctant to sell. Mr. Wagner truly believes not selling is the right thing to do.
Mr. Wagner, who was named president last year and took the reins as chief executive and chairman this year, believes his bank can survive the consolidation wave by trimming fat, focusing on retail banking, and increasing fee businesses, especially through a mortgage banking subsidiary and a newly acquired insurance agency.
Mr. Wagner says he's zeroing in on competitors such as Fidelity Investments.
Like so many other banks today, Old Kent wants to steal a share of the financial services market rather than rely on traditional banking practices.
"It might be easier in business today to do a large merger than to figure out how to gain market share," Mr. Wagner said. "It's a whole lot tougher to sell trust funds to baby boomers and figure out the financial services business than to go out and do a dilutive acquisition."
So rather than wait for a merger to provide impetus to cut costs, Old Kent is engaging in a major restructuring designed to cut $25 million by 1997.
As part of that program, Old Kent is analyzing every branch to determine its usefulness. Plans call for closing branches, changing hours at some branches, and converting some locations to ATM sites. Old Kent also plans to spend money to improve ATM technology, upgrade telephone banking service, and expand the number of supermarket banks.
"We have less self-service banking then we believe we need," Mr. Wagner said.
Old Kent hasn't determined how many branches it will close, but company executives recently told analysts they would close 12% of the Grand Rapids branches and reconfigure another 30% there.
In addition to the cost-cutting and the emphasis on retail banking, Old Kent plans to be an acquirer, particularly of mortgage companies. So far, the company has been opportunistic, trying to buy up small, struggling companies, such as Republic Mortgage Corp. of Salt Lake City.
Meanwhile, there's a change in gepgraphical focus. Long known as a small-business and middle-market lender in Western Michigan, Old Kent wants to build its retail base, especially in suburban Detroit and Chicago. That's surprising to some analysts who question the bank's presence in Chicago.
"I would not be surprised if they pulled up stakes and left Illinois entirely," said Mr. Moran.
But Mr. Wagner says suburban Chicago is very much a part of Old Kent's future. However, two banks it has in Chicago's downtown Loop will likely be reduced to ATM sites or smaller branches.
However, Mr. Wagner believes his bank can compete in niches. Old Kent has branches in two corporate headquarters in suburban - at Sears, Roebuck and Co. in Hoffman Estates and at Allstate Insurance Co. in Northbrook.
Centralization is key, Mr. Wagner says. Consumer and small-business lending operations have been consolidated in the large metropolitan areas. But Old Kent, which has two state-chartered banks (one in Illinois and one in Michigan), leaves decision-making in its 14 Michigan banking markets to local presidents. Some of the staff responsible for Old Kent's market dominance in small and middle-market lending have been moved to Detroit from Grand Rapids to concentrate on the eastern part of the state.
"Dave's got a team around him that's very capable," said Roney & Co.'s Mr. Moran. He believes Old Kent can ride out the consolidation wave. And as the old adage goes, it's not the size that counts.