NCNB's Rx for Back-Office Merger: Move Quickly, Drop C&S Systems

NCNB Corp. spent years getting C&S/Sovran Corp. to the altar, but the acquired bank's operations managers can expect a very short honeymoon.

NCNB's track record of quickly melding back offices already stands out in an industry where turf battles often bog down mergers. And NCNB, once again, plans to move full speed ahead.

But this consolidation is much bigger than any other undertaken by the Charlotte, N.C.-based company. And it may be even more complex than the other megamerger announced this year, involving Chemical Banking Corp. and Manufacturers Hanover Corp.

To successfully merge the companies, NCNB has a number of key hurdles. Among them, it must:

* Take over the unfinished business of combining the hodgepodge of systems it finds at C&S/Sovran, the result of the 1990 merger of Citizens and Southern Corp. and Sovran Financial Corp.

* Create a computer system with more than 60,000 terminals and 1,800 branches tied to a centralized processing site, the largest such network in banking.

* Meet an aggressive timetable - as little as 18 months, according to consultants - for completion of the consolidation. The new Chemical Bank, for example, plans to finish combining its back office in three years.

C&S/Sovran's technology staff is likely to bear the brunt of the consolidation - by losing their jobs - according to observers close to the banks.

C&S/Sovran's data processing operation, headed by executive vice president George A. Budd, believed in buying software packages and tailoring them to fit the bank's needs, a skill in small demand at NCNB. Few C&S/Sovran managers, drawn from banks half the size of NCNB, have experience in running the large-scale processing operations that will dominate at the new bank.

Model for the Industry

With the long anticipated wave of mergers and acquisitions under way, how the new $118 billion-asset NationsBank handles its systems consolidation may provide a model for the industry.

Analysts say what sets NCNB apart is its aggressiveness to get the job done and its senior management, which is willing to back tough decisions that lead to cost cutting.

Given the go-go attitude of NCNB's managers - some C&S executives now refer to them as "McColl's Raiders" - most observers believe NationsBank will be able to consolidate back offices and computer systems in as little as 18 months, a whirlwind pace compared with other big bank mergers.

O. Darwin Smith, an operations veteran who has commanded a number of the bank's previous consolidation efforts, is directing McColl's commandos, some of whom have already landed on C&S soil. Just days after the acquisition, they began poring over C&S/Sovran's data processing operation, combing through contracts and taking stock.

"If you look at our track record, we have been decisive," said Mr. Smith, president of NCNB Service Co., the banking company's automation arm.

Eliminating Overlap

Most of the cost cutting will come through the reduction of some overlapping branches and data processing consolidation. An estimated 70% of the bank's combined costs will be associated with its far-flung branch network - 60% is typical for super-regional banks. The bank plans to cut its work force by 9,000, roughly 15% of the combined companies.

"NCNB has been through this before," said William Storts, head of the banking practice at Andersen Consulting, referring to the bank's many acquisitions in Texas and the Southeast. "They know that getting C&S/Sovran under the NCNB umbrella will not be easy."

NCNB's approach to consolidation is expected to be quite different from the route taken by Chemical and Manufacturers Hanover. The two New York banks plan a friendly merger, with thoughtful deliberations on which systems should be chosen for use throughout the merged company.

Low-Cost Imperative

NCNB, on the other hand, may be forced to leave little of C&S's technology infrastructure standing to reach its goals of quick expense reduction. The bank is pledged to be a low-cost provider of services through centralized data processing - an administrative approach that eluded C&S/Sovran. NCNB followed that plan in Texas when it took over the failed First RepublicBank Corp. in 1988. That consolidation took only a matter of months, a faster pace than virtually any other bank has achieved.

Mr. Smith declined to elaborate on his consolidation plan, but NCNB's long history of mergers provides a clear indication of his most likely steps.

"NCNB will force C&S/Sovran's operations underneath the NCNB structure to increase revenues at less cost," said Mr. Storts. "That's where they will get the profits."

For the past four years, NCNB has been aligning its operations and merged banks to support nationwide banking, including moving its data processing out of North Carolina to a less expensive location in Richardson, Tex.

Customer Information File

The bank has taken other steps as well. Using sophisticated data bases, NCNB is creating a companywide electronic file of information on customers, drawn from various loan and deposit computer systems.

But more important for the merger is Mr. Smith's belief in running the bank using a single set of software. Common systems, as they are called, save staff costs because there are fewer software programs to maintain. Aside from cutting costs, the common systems approach allows executives to gather bankwide information on deposit levels and credit exposure, for example.

Some individual C&S/Sovran systems may survive, however. The bank, for example, has a more sophisticated risk management system than NCNB, consultants said.

"Part of our role is to the put foundation in place to help us take advantage of nationwide banking when it comes," said Mr. Smith. "I don't think we will walk away from that."

C&S/Sovran found its own resolve undermined after its merger last year.

"C&S/Sovran had the same attitude as NCNB to low-cost delivery of product," said a consultant familiar with the bank. "They just had more social constraints in getting there."

C&S/Sovran Merger Unfinished

The unfinished merger will make NCNB's job harder, but also may bring bigger than estimated cost savings. From a back-office standpoint, acquiring C&S/Sovran is more like acquiring five banks, since the two banks never finished their own separate consolidations.

Observers estimate the unfinished consolidation at C&S/Sovran could net NCNB as much as $45 million in addition expense reduction.

One way to cut costs and speed up consolidation is to hand off part of data processing to an outside company, a practice commonly known as outsourcing. Manufacturers and Chemical, for example, are discussing that option.

While outsourcing appears to go against NCNB's roll-up-the-sleeves style, Mr. Smith does not rule out partnerships with technology companies or other banks. "Our objective is to deliver a product that's consistent at the lowest cost possible," he said. "All of us in the industry are looking for ways to deliver cheaper - joint ventures, consortiums, for example."

PHOTO : IN CHARGE: O. Darwin Smith is directing McColl's commandos.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.