In just a few months, hundreds of thousands of customers of Chemical Banking Corp. will get notices telling them that their local branch is about to close.

The bank's rivals can't wait.

"It's a great opportunity to capture market share," said David Totaro, chief marketing officer at Dime Savings Bank, "one of the better ones to come along in a while."

Biggest in the Big Apple

Over the long run, of course, those rivals may well end up regretting Chemical's megamerger with Manufacturers Hanover Corp.

With the deal, which was completed last December, Chemical overnight became the largest retail bank in metropolitan New York. If the new Chemical can successfully integrate the two banks' 345 surviving New York-area branches, marketing experts said, it could steadily increase its lead through economies of scale and marketing ploys.

But in the short run, the bank's rivals see a window of opportunity.

Chemical has fallen behind in integrating the two banks' check-processing systems, forcing it to delay until early next year a big marketing campaign for the unified branch system.

Instead of closing 30 branches this year, as planned, it will shut only eight to 10. In all, 80 branches are to be closed.

Competitors Look for Openings

And Chemical's rivals are moving fast to exploit such inevitable snags and to steal away any customers that become disillusioned in the process.

Dime, New York's fifth-largest retail bank by market share, is running commercials on 13 radio stations, in which a customer complains: "Now my bank is merging with another one. ... I think I need a new bank."

The Bank of New York has a new print campaign telling readers the time is ripe to change banks. "It's aimed at both Chemical and Hanover customers," said Richard D. Field, a senior executive vice president at Bank of New York.

One banker, who asked not to be named, said his thrift has isolated teller machines in its shared network that are frequently used by Chemical customers. It plans to program special messages onto them that encourage a switch from Chemical.

Citibank, the Citicorp subsidiary, is taking an even more personal approach. It has pinpointed Hanover customers in certain neighborhoods and sent them letters encouraging a stop at a nearby Citibank branch.

The competitors are also appealing directly to depositors' pocketbooks. Several bankers, who requested anonymity for competitive reasons, said they are preparing special offers to waive some fees for Chemical or Hanover customers who switch banks.

Some bankers said branch managers throughout New York have been instructed to spy on neighboring Chemical branches, carefully monitoring signs of deteriorating service and disgruntled customers.

In the suburbs, Long Island Savings Bank, a $5.6 billion-asset thrift in Melville, N.Y., has beefed up training and development programs to emphasize customer service. Thirty of its 48 branches compete directly with Chemical outposts.

Marketing Courtesy

"If you're a small bank, like ourselves, you have to differentiate yourself with friendly, courteous service," said Robert Volk, a senior vice president at the Long Island thrift.

The pitches, marketing experts said, should reach a crescendo when the doors start shutting in earnest at Chemical-Hanover branches.

"The banks are going to do everything they can to get the attention of those people who are impacted by the merger and get them to consider other options," said Les Dinkins, managing principal at NBW Consulting, a bank marketing firm.

But Chemical is doing its best to foil such plans.

Business-as-Usual Line

Until it formally merges the branches next year, it plans to continue its deliberately low-key approach to the retail market. When it speaks about the merger to customers, it stresses business as usual.

The two banks have maintained separate signage and ad campaigns, although Hanover ads are slowly being phased out.

Chemical also is not giving an inch (of space) to any rival. Officials said they are categorically rejecting requests from other banks to sublease space in closed branches.

Meanwhile, the few branches that have already been shut have gone quietly. Chemical has closed three branches since the merger and plans five to seven more closures by yearend. Bank officials said they have not lost many customers but are taking nothing for granted.

"We're spending a lot of time taking the pulse of our customers," said Michael Hegarty, Chemical's senior executive vice president for regional banking. "We know other banks are attempting to poach them."

Mr. Hegarty said that about one-third of the bank's customers will be asked to switch to other branches.

As part of its plan, Chemical has done monthly customer-satisfaction surveys. Bank officials claimed that satisfaction scores have risen since Jan. 1.

Chemical has two other sources of strength - customer inertia and integrated business-personal banking relationships.

Chemical is ranked first in the Gotham market in relationships with middle-market companies. It has accounts with one of every two midsize firms in the region and is lead bank to one in four. Moreover, many of those companies' executives have personal accounts at Chemical.

Experts say that, even in the face of branch closings and disappearance of the Hanover name, many customers will find it easier to stay put than to search for a new bank relationship.

"Within the first year of a merger, most banks won't see market share shift significantly," unless service deteriorates dramatically, said Tim Evans, vice president at Claritas NPDC, a market research company.

At the beginning of the year, Chemical had checking, savings, or other deposit account relationships with 23.1% of households in the region, according to Payment Systems Inc., a market research affiliate of American Banker.

That's a shade more than Citibank's 22.2% share, well above Chase Manhattan Bank's third-place share of 8.8%, and significantly stronger than the 13.8% or 7.6% shares held by Chemical and Hanover, respectively, a year earlier.

Even after its planned branch shutdowns, Chemical will have 345 offices in the New York region, 50% more than second-place Citibank's 216.

"A large part of how consumers choose a bank is based on geographical convenience," said Ted Morehouse, head of retail marketing at Emigrant Savings Bank. "That should give Chemical substantial leverage in the market."

Chemical also has a clear strategic advantage over its competitors - knows exactly which branches will be closed. With customer retention as its chief priority, it has isolated 71 pairs of branches sited near each other and has hatched plans to make switching to a neighboring branch as easy as possible.

Chemical also plans direct-mail campaigns to introduce customers to bankers at neighboring branches once a closing is announced. It also will set up information centers at both closing and surviving branches to aid customers and may hold "welcome" rcceptions at some branches.

About 60% of surviving branches in the pairs will be renovated with additional space. And staffing is expected to grow at most surviving branches to accommodate new customers.

|Ideal' Test Goes Awry

"You've got yourself a heck of a battle," conceded Long Island Savings' Mr. Volk.

Even Chemical, though, admitted that the customer retention plan is complicated and difficult to execute. It found out just how difficult after alerting customers of a Manhattan branch this month that the office would soon be closed.

Chemical thought this would be a great test case, since another branch was almost directly across the street.

To the company's chagrin, many angry customers wrote letters threatening to close their accounts. Chemical officials now say they are reconsidering and may close the other branch instead.

Mr. Hegarty acknowledged the difficulties and said he expects to lose some customers along the way. But in the long run, he proclaimed, Chemical will succeed and increasingly dominate the New York scene.

"It's going to be a slugfest over a protracted period," Mr. Hegarty said. "It's a long-term battle and one we're well positioned to win."Jostling for PositionMarket share, based on percentage of households in metropolitanNew York City using deposits products 1/90 7/90 1/91 7/91 1/92Chemical-Hanover 21.3% 23.5% 21.2% 22.2% 23.1%Citibank 21.4 21.0 21.0 22.8 22.2Chase Manhattan 9.8 9.6 9.3 10.0 8.8National Westminster 4.7 6.2 5.8 4.6 6.8Dime Savings 5.4 4.3 5.4 4.6 6.3Bank of New York 5.6 4.5 5.7 6.2 5.6Crossland Savings 6.5 6.1 6.7 5.9 5.0Source: Payment Systems Inc.

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