CLEVELAND - Robert W. Gillespie would like to be known as the visionary who altered the evolution of the banking industry by crafting a long-distance merger of equals between Keycorp and Society Corp.

In justifying the union with Albany, N.Y.-based Keycorp, Society's chairman and chief executive asserts that revenue enhancements have supplanted cost savings as the top priority in bank mergers. Spending fortunes in acquisitions whose outcomes hinge on axe wielding is "yesterday's game," he says.

Whether or not that view stands the test of time, Mr. Gillespie is off to a grand start. By joining forces with Keycorp, he will be forming a $58 billion-asset company operating nearly 1,400 offices in 18 states.

Both banks are healthy. Each has unique attributes that may complement the other's. And two years after the deal's completion, Mr. Gillespie will succeed Keycorp's Victor Riley as chief executive of the merged entity.

In a recent interview with the American Banker, Mr. Gillespie acknowledged the controversy surrounding the transaction announced on Oct. 4 and laid out his rationale.

Q.: The proposed merger of equals with Keycorp seems to be sparking more controversy than kudos in the early going. Why? GILLESPIE: People are looking at the track record on mergers of equals, and they are comparing us with situations that are in no way comparable. I understand completely the skepticism one has, when one says: |Gee, there is no model to look at.'

But we are preparing ourselves for what is coming. A lot of other people are thinking that business as usual is a viable strategy - and it simply, in our minds, is not.

Q.: The stocks of both companies have dropped following the announcement. Did you anticipate a negative reaction? GILLESPIE: I expected the market to be neutral to mildly positive, because there is a phenomenon here, with real potential and very little downside.

I guess what we are learning is that there were people in both of our stocks who were in for a short-term gain through a sale.

If, in fact, what is happening is that people who were looking for a short-term gain are being replaced by longer-term investors, that probably is not all bad.

Q.: At the same time, this transaction seems to go against an acquisition strategy that you have spent years honing and promoting. You apparently achieved projected cost savings in the Ameritrust Corp. takeover, for example, and some institutional investors say they would have preferred to see further transactions of that sort. How do you respond? GILLESPIE: We both believe that the wave of consolidating acquisitions of the 1980s is largely played out, and that there will be more important strategic consolidations, such as the one we announced in New York.

The real battle is shifting from being able to be an effective acquirer to being the winner in the corporate treasurer's office, and in the nation's households.

To be very frank, the other path of traditional acquisition, where the premiums go to the selling company and all of the benefits that are achieved - 50 to 75 percent of those benefits - go to the selling company shareholders . . . that was an important and necessary phase of consolidation.

But we would describe it as yesterday's game.

Q.: You speak of competing with nondepository institutions. They generally are lesser-regulated, operate at lower costs, often can obtain funds at comparable rates, and often are backed by heavily capitalized parent companies. How does this deal address those competitive disparities? GILLESPIE: I would argue, by and large most of our customers appreciate the trusted advisory role that they have with their bank representatives. If a person is comfortable talking with a voice-recorded message in Philadelphia about his or her future financial security, we are in big trouble.

Our whole strategy is that the customer base we want to serve is looking for a relationship and not transactions. On a sheer transaction basis, we'd probably lose out to the low-cost competitor.

But we are betting most people are interested in relationships, and in knowing the people to whom they are entrusting their financial security.

Q.: You want to drive Society's trust products through Keycorp's branches, and you want to expand Keycorp's mortgage banking operations into Society's markets. Will any estimates be forthcoming on the timing and scope of potential revenue gains? GILLESPIE: It is going to take trained, talented people to examine the marketplace and determine the potentials and how quickly we can gear up the staff and the support resources to make a dent in the market.

I believe we are going to enhance revenues as early as 1995, and I believe we can look to enhancing revenues in a substantial way. But is it going to be 3% more, 5% more? It really, I think, would be kind of unprofessional to just guesstimate those numbers.

Q.: On the other hand, some analysts contend that projected cost savings are understated, perhaps even deliberately so. Is there a chance you can do better than a 5% reduction in annual operating expenses? GILLESPIE: The only point we've made is to say that 5% is the minimum level. We will be able to achieve that by the first quarter of 1995 And as we look in greater detail, there may in fact be more savings than that.

But 5% is not insignificant, I might remind you; 5% savings can amount to as much as a 7% or 8% increase in Wall Street expectations of our 1995 earnings.

Q.: Are there any banks out there whose strategies seem even remotely similar? GILLESPIE: The vision we have is a company that can very effectively serve large metropolitan areas and surrounding communities, that can offer state-of-the-art products and services along three groups: Consumer banking, commercial banking, and investment product management and trust - not disproportionately weighed in any one of those directions to the detriment of the other.

We intend to be able to do that on a national scope, with a bias towards the northern half of the country. With that in mind, leaving out the geography, one could guess whether BankAmerica Corp. and NationsBank Corp. begin to be similarly described.

Q.: How does this merger fit within the context of a consolidating banking industry? GILLESPIE.: I think we will be judged to be doing something that is very important in the ultimate definition of the American financial services industry.

There will be people who are skeptical; there will be people who think we are on the right road; but I think everybody will watch with real interest as the story unfolds.

And I'm prepared to catch some heat along the way. After all, the pioneers are the ones who get the first arrows.

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