Norwest-Wells Deal: Closed But Far from Finished

Paul Hazen, chairman of Wells Fargo & Co., says his company's merger with Norwest Corp. may be legally closed, but it is a long way from being completed.

With the November closing, now comes the challenge of putting the two companies together without losing customers. The latter is an especially sensitive topic to Mr. Hazen.

"Absolutely the No. 1 focus of everyone is there not be customer disruption and there not be customer loss," Mr. Hazen said.

As chief executive of Wells, Mr. Hazen pulled off only the second successful hostile takeover in banking when he bought First Interstate Bancorp in 1996, only to have the deal later serve as Wells' undoing. Focused on getting cost cuts, Wells did not realize it was losing business. Customer losses led to revenue shortfalls and ultimately left the company looking for a merger partner.

The new Wells is the seventh-largest banking company in the United States, with $200 billion of assets, and is a Western powerhouse with banks in 21 states, mostly west of the Mississippi. But slow and steady are the company's watchwords. Wells has said it would take three years to integrate its merger. That's an unusually long time. The market has generally rewarded companies that can absorb their acquisitions quickly.

Of the largest bank mergers completed in 1998, NationsBank Corp. and BankAmerica Corp., Banc One Corp. and First Chicago NBD Corp., the Wells- Norwest merger is expected to take the longest to integrate.

Mr. Hazen said he and chief executive officer Richard M. Kovacevich are not going to speed the integration at the risk of business disruption. Focusing on the revenue growth, rather than the immediate expense savings, is the route they have chosen.

The company has put off merging its computer systems that track checking accounts until next year.

The rationale is to make sure existing systems are prepared for the year-2000 computer problem by the middle of this year.

Some systems will be merged, however. For instance, the company will merge systems in states where Norwest and Wells had overlapping bank operations, including Arizona, New Mexico, and Nevada. It may also merge systems in Texas this year. The change of name from Norwest to Wells will take place in those states when the computer systems are merged.

Wells may also change some names of Norwest operations, including Norwest Mortgage and Norwest Financial, this year for marketing purposes.

The new Wells is focusing on a few businesses that could quickly be used to draw new retail and commercial customers. On the commercial side, Wells is introducing commercial real estate lending in former Norwest markets. Likewise, Norwest is beginning to pitch its mortgage and insurance products to Wells customers in the West.

"The real intent is to gain customers," Mr. Hazen said, but "in contrast to First Interstate, we're going to be very successful keeping existing customers."

Mr. Hazen echoes the sentiments of Mr. Kovacevich, who has said the First Interstate example created both "painful" and "valuable" lessons.

A banker who has been through a number of mergers said deals between similar-size companies are the toughest.

"Mergers of equals are the most difficult deals to do," said Eugene A. Miller, chairman and chief executive officer of Comerica Inc. "The whole business of putting together two companies takes longer than you think it will because you're dealing with people you don't know."

Mr. Miller became CEO of the company that resulted from the 1992 merger of Comerica and Manufacturers National Corp. His company had to do a major cost-cutting program four years after the merger.

Though Norwest is considered the nominal buyer of Wells, the company has been particularly vocal about calling the deal a merger of equals.

That has been troublesome for some investors, who believe there was too great a cultural difference between Wells and Norwest to do a successful deal. Eyebrows were raised even among those who championed the stocks of Norwest and Wells.

"The challenges are the cultural differences," said James Schmidt, executive vice president of John Hancock Funds. "Norwest was a good marketer and Wells Fargo was a good cost manager."

Although Mr. Schmidt said he views Norwest as the dominant merger partner, he said success of these deals can be hard to gauge. "We don't know yet if it will work." He added, "When it's a cultural issue, the challenge is making that work. Time will tell."

Mr. Hazen said addressing the issue has been a goal.

"There is a natural sense of loss" on both sides, said Mr. Hazen, but he said the top management has to articulate the new vision-something he said he and Mr. Kovacevich have been working toward. "It does have to start at the top. There has to be clarity to people in the company that there is a genuine commitment by top management."

Despite the commitment to keeping people happy, the people issue is one of the common pitfalls of large mergers, said one expert.

"The people equation is usually the last thing companies look at," said Jeffrey C. Hooke, a Washington investment banker who has written a couple of books on mergers.

"The culture thing is not as pronounced as two dissimilar companies, like Citibank and Travelers, merging," Mr. Hooke said, referring to the merger that created Citigroup. "But clearly there's going to be some culture battles.'

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