When NationsBank and BankAmerica close their $43 billionmerger today, they will do more than create another megabank. They will form a new class of financial services giant: the nationwide bank.
The merged concern, to be known as BankAmerica Corp., will have 4,800 branches in 22 states, making it the first banking company with a truly coast-to-coast branch network. Until now, banks have relied on technology and nonbanking outposts to pursue their national ambitions and have limited their branch networks to select regions of the country.
As a result, all eyes are on BankAmerica as it pieces together its sprawling multistate operation. Bankers, analysts, and others are eager to see whether this next step in the banking industry's evolution-from regional bank to superregional to nationwide player-is viable.
"It is a test that has to be run several times before we see just how fabulous it can be," Mike ter Maat,a senior economist at the American Bankers Association, said. "I am optimistic that it will be a very,very successful trend."
Executives of the new BankAmerica say that size and breadth will give them a slew of competitive advantages, from diversified revenue streams to operational efficiencies. By offering "a commonality of product and services" nationwide, they say, BankAmerica can appeal to an increasingly mobile population.
The effort, however, will not be without challenges.
With its top executives split between Charlotte, N.C., and San Francisco, the new company will have to meld Southern-style management with West Coast banking culture.
It will have to create a unified brand identity for a sprawling retail territory. And it will have to make good on promises to cut costs while offering more value to customers.
"Given their size, they could be more volatile rather than more successful," said Charles B. Wendel of Financial Institutions Consulting in New York. "It comes down to execution, how they make it work."
Being nationwide "differentiates them from everybody else," he added. "But does it lead directly to increased profitability? Of course not."
Executives from NationsBank and BankAmerica voice little doubt that the enterprise will succeed.
"We'll be coast-to-coast and in every major metropolitan area," said James H. Hance Jr., vice chairman and chief financial officer of Charlotte, N.C.-based NationsBank Corp. and the new bank's CFO.
"It translates into higher returns," he said. "It translates into lower prices for customers. It translates into a sounder institution and a sounder company."
Certainly, the new BankAmerica will be big. With assets of $572 billion, it will serve 29 million households and two million businesses. It will claim the dominant share of deposits in some 13 major metropolitan areas, and control 8.1% of U.S. deposits.
The new bank will also be the No. 1 player in a broad range of businesses, from consumer lending to mortgage servicing to corporate cash management. And it will have nearly 2,000 more locations than its closest branch banking competitor, the combined Norwest-Wells Fargo.
According to Mr. Hance, the ability to offer a consistent customer experience from Florida to California is a key benefit of BankAmerica's nationwide branch network. Not only will it appeal to convenience-hungry consumers, but it will give incentives to large retailers and other multistate businesses to bank with the new BankAmerica, Mr. Hance said.
In seeking to make its brand well-known, the company is hoping to benefit from considerable economies of scale in advertising. In other words, advertising dollars could go further when they are applied to national television buys rather than to regional efforts. (For more on BankAmerica's new ad campaign, see the accompanying story.)
"Scale is a big deal," Mr. Hance said.
A number of observers, however, remain unconvinced that size brings any real competitive advantage.
"We don't buy the scale argument," said Sean J. Ryan, an analyst with Bear, Stearns & Co. "There are real limits to economies of scale and there are certainly diseconomies of scale. Every piece of data we look at supports the thesis that size doesn't matter, or is dwarfed by skill. It isn't to say that being big is bad; it's just that it doesn't matter."
Mr. Ryan questions whether the top managements of giant banks can fully understand the complexities of the multiple and varied businesses their companies engage in. Larger banks may also find it more difficult to quickly change course in response to changing market conditions, he said.
Another challenge: turning a far-flung retail business into a trendsetter. Many cutting-edge banking companies already compete nationwide through alternative delivery systems such as telephones and computers, or through a scattering of specialty lending offices.
First Union Corp., a Charlotte, N.C.-based competitor to NationsBank, is a fresh example of that strategy. On Sunday the $232 billion-asset company kicked off its first nationwide advertising campaign-despite the fact that its retail operations are limited to 12 states along the country's East Coast.
"We are national," said Sandy Deem, a First Union spokeswoman, citing the company's capital markets and mortgage lending offices that extend through the Midwest to California.
Jackson W. Moore, president of Union Planters Corp. of Memphis, which operates in 12 states in the South and in the Midwest, said technology is making geographic presence less important.
"You can be small and still be nationwide," he said. "I don't think geography in and of itself is the end to the means.
"Geographic diversification does give you some comfort in terms of credit quality diversity and asset quality diversification. But I don't think the average regional bank aspires to be national."
Still, R. Harold Schroeder, an analyst at Keefe, Bruyette & Woods Inc., said the new BankAmerica's creation is a key part of an "evolutionary process" for the industry.
"We're certainly learning how to manage bigger organizations," he said.
"You couldn't have put this size of companies together and run them effectively a few years ago. We didn't have technology or the management expertise. Everyone cut their teeth on smaller banks," Mr. Schroeder said. "But we now have a generation of management growing up with bigger companies. They're smarter than their parents were."
BankAmerica executives are betting that this is true. In a statement when the merger deal was announced, NationsBank CEO Hugh L. McColl Jr. called it a "watershed event." And BankAmerica chairman David Coulter declared that the new company would "set the industry standard" for customer service, capabilities, and efficiencies.
"Together we will have the broadest range of products, delivered by the best people through the most extensive distribution system in the nation," Mr. Coulter said.
Mr. McColl is slated to run the merged concern from Charlotte, with Mr. Coulter as the No. 2 executive, based in San Francisco.
Whether the two companies can make the merger live up to its promise will start to be seen over the next several months. But, experts say, it may be many years before the full impact of the merger on the industry becomes clear.