Partners Shoot for Quick Savings of $350 Million a Year
Executives at NCNB Corp. and C&S/Sovran Corp. have outlined a conservative cost-cutting plan for what many observers believe will be a rapid consolidation.
Senior managers of the proposed NationsBank said they plan to save $350 million in annual expenses in the three years after the merger is completed. In the new banking giant, about 60% of the savings will stem from consolidation of operations and data processing and closing of branches in overlapping markets.
Bennett A. Brown, C&S/Sovran's chairman, told analysts some of the savings will come from reducing the number of employees by as many as 6,000, about one-10th the combined current work forces of NCNB and C&S/Sovran.
Saving 20% of Expenses
The cost savings represent about 20% of C&S/Sovran's annual expenses, slightly less than the goals reached by previous successful mergers, said analysts. But the proposed savings, which the two companies said are conservative, are sufficient to make the deal attractive to investors.
Nonetheless, to create the third-biggest bank in the United States, observers said, the two companies face one of the most difficult consolidations in the industry. C&S/Sovran, for example, is still sorting through its own back-office consolidation after Citizens & Southern Corp. merged with Sovran Financial Corp. in 1990.
"I think they can reach that number," said Richard Stillinger, an analyst at Keefe, Bruyette & Woods Inc. in New York. "If they can get that kind of savings, it makes it convincing that the merger will be beneficial to NCNB and to C&S/Sovran in the long run."
Together, the two banks spend nearly $3 billion a year on noninterest expense. The cost-cutting efforts will center on five areas. NCNB chairman Hugh L. McColl Jr. and other managers believe the biggest portion of savings - $126 million - will come from support services and operations, including melding the two companies' overlapping operations in South Carolina and Florida.
Fleet's Projected Savings
By way of comparison, Fleet/Norstar Financial Group Inc., Providence, R.I., plans to save at least $90 million on operations and data processing in its consolidation with the failed Bank of New England. Fleet, with the addition of the Bank of New England's assets, will be less than half the size of the combined NCNB-C&S/Sovran.
NationsBank will also save $108 million from the consolidation of overlapping branches. Other key areas for expense reduction include the combination of marketing, administration, and front-office functions such as corporate banking.
NCNB is expected to move quickly to consolidate operations of the two companies, a hurdle over which C&S/Sovran stumbled in its 1990 merger. NCNB's management is expect to be much more aggressive about paring costs and merging operations. Still, NationsBank faces the biggest merger challenge, consolidating the operations of two of the nation's biggest banks.
O. Darwin Smith, NCNB's chief technologist, has been through scores of mergers, consolidating 41 banks in Texas and creating a single data center in Dallas that will eventually handle most of NCNB's data processing.
"If anyone has the experience to do it, he has," said Anthony Davis, an analyst at Wheat First Butcher & Singer in Richmond, Va.
For starters, the new company must deal with the unfinished consolidation begun by C&S/Sovran. It was tripped up by internal politics in its back-office consolidation plans, as the new bank's management sought genteel cost-cutting solutions.
Sovran itself, before the merger, was plagued by poor productivity and a decentralized operations organization. As C&S found, a back-office merger with Sovran was more like a consolidation with four banks than one. One result: C&S/Sovran operates six data centers, rather than one or two.
One reason analysts are optimistic about the combined banks' ability to cut costs is that each has room to improve its own efficiency. Each loses a high portion of its revenue to expenses. In the first half of 1991, for example, NCNB spent about 68 cents of each dollar of revenue on overhead - the worst performance of any southeastern superregional - due to its rapid expansion.
C&S/Sovran was slightly better in operating efficiency but worse than the average.
Down the road, however, the payoff may be considerable.
Management at both companies is no doubt eyeing significant business opportunities. With a combined technology budget of about $500 million, the new company is poised to turn its 1,800 branches into an extremely sophisticated branch network.
If regulations are changed to allow interstate banking, for example, NationsBank could link its retail branches to retain customers who move to any state within their large market.
PHOTO : Largest Savings Comes From Bank Office Source: NCNB, C&S/Sovran