The proposed merger between First Chicago Corp. and NBD Bancorp should generate significant cost savings from systems consolidations, bank officials said.
The deal, likely to be completed in the first quarter of next year, will yield annual savings of $200 million - 6% of the combined company's cost base - said officials from both banks. Analysts consider this an easily attainable goal for the merging bank.
Cost reduction also should occur following the recently announced merger of PNC Bank Corp. and Midlantic Corp.
Officials at these banks predicted a cost reduction of $150 million by 1997, or 33% of Midlantic's current expense base.
In both proposed mergers, the banks would achieve some cost reductions by eliminating overlapping market areas.
Providing a breakdown of First Chicago's cost-cutting framework, bank spokesman Thomas Kelly said savings of $110 million are expected from the consumer banking area, $45 million from the commercial side, and $45 million from corporate staff and functional units.
System and staff redundancies will account for some of the savings, Mr. Kelly added.
Consolidation in the Chicago market is likely, where both banks maintain branches in about 20 locations, he said. Approximately 1,700 job eliminations are also expected, he added.
Further savings will be realized from the consolidation of core processing systems, said Mr. Kelly. The processing system used by 68 NBD branches in Illinois will be eliminated, and processing for the offices will be moved to the First National Bank of Chicago's system, he said.
Mr. Kelly said the combined company - to be called First Chicago NBD Corp. with headquarters in Chicago and $120 billion in assets - will have the earnings stream needed to invest aggressively in technology on both the retail and the commercial sides of business.
First Chicago's plans are representative of other large banks looking to get more bang from their technology investments, particularly in merger situations, said Peter F. DiGiammarino, vice president, finance industry, at Fairfax, Va.-based American Management Systems Inc.
The improving cost/performance ratio of many hardware platforms is creating an excess of computing capacity in the banking industry, he said, adding that banks are getting better at economizing through standardization and consolidation.
In addition, many institutions also are getting better at market segmentation, which can help selling products to existing customers, and significantly increase the value of a merger, he noted. "In-market expansion gives the (acquiring bank) a dramatically increased customer base," he said
Although no specific plans have been set, First Chicago is likely to make upgrades to its telephone banking system, which handles more than one million transactions a month.
The bank also is installing new computer systems in its mortgage and credit card processing areas, and may make investments in cash management, Mr. Kelly said.
On a more routine level, the merged bank will continue to encourage use of alternative delivery channels, such as automated teller machines.
First Chicago ignited controversy earlier this year when it announced charges for some teller-assisted transactions. But that move is aimed at a target in the sights of many institutions: introducing logic to a fee structure in which a bank's least costly transactions carry the heaviest charges.