Tech Challenge to NationsBank: Don't Scare Off Barnett Customers

The payoff from NationsBank Corp.'s acquisition of Barnett Banks Inc. would have everything to do with systems and technology-but not just in the usual, back-office sense.

Though NationsBank has plenty of conventional consolidation and expense- control opportunities-for the way they are unfolding in investment products, see page 13-it has the added imperative of making the changeover invisible to customers.

NationsBank has said that customer retention is crucial to justifying the $15.5 billion price tag. It has pledged not to raise Barnett customers' fees for at least a year. It cannot afford to turn those people off.

"The pressure is on in that Barnett has set high-level expectations for service," said Robert E. Hall, chief executive officer at Dallas-based Action Systems, a consulting firm that has worked with Barnett. "NationsBank will have to keep that up or face backlash."

NationsBank has a relatively good track record in merger-related technical projects, consultants in the field said. Throughout its years of aggressive acquiring, it has hit most conversion deadlines and has usually met cost-saving projections.

But the Charlotte, N.C.-based company also has a history of high-profile snafus that have tarnished its image with consumers. In one, during the conversion of Bank South Corp. in Alanta last year, 800,000 customers were unable to use automated teller machines for a day.

NationsBank and Barnett executives, having just begun setting timetables for their conversion, declined to comment on measures they might be taking to avoid customer disruptions.

Outsiders are saying the companies' annual cost-saving estimate of $915 million, or 55% of Barnett's expense base, is high but achievable.

"If there is a trade-off to be made, NationsBank might give up some short-term cost benefit in order to retain customers," said Lawrence A. Willis of First Manhattan Consulting Group in New York.

The banks said it is too soon to say whether any Barnett systems would survive the merger. Consultants and analysts expect the consolidation to follow the pattern of those that preceded it, which means the vast majority of Barnett's systems would be scrapped in favor of NationsBank's.

Some observers suggested that one critical customer information system at Barnett, the Retail Marketing Management System, or RMMS, could survive in some form. It delivers account profitability, risk management, and other information to front-line personnel and to executives.

Based on a data warehouse Barnett has been building for the last couple of years, RMMS enables the type of data mining that most of the nation's largest banks are striving for.

"I don't expect a lot of Barnett systems to survive, but the ideas and experience of Barnett executives certainly will live on, and that's not insignificant," said Carole S. Berger, analyst at Salomon Brothers in New York.

The most vexing challenge for NationsBank is to keep Barnett customers content with the quality of service delivered through branches, many of which are sure to close.

The banks have 1,104 branches total, and about 300 serve overlapping areas. The majority of the 1,104 are Barnett offices, an extensive network well suited to the penchant of Florida's retiree population to bank in person.

Bernard Gunther, a partner in Boston of the New York-based Mitchell Madison Group, said NationsBank will be walking a fine line as it tries to reduce branch costs without alienating the types of customers who "love to stroke their money."

In the wake of a typical big merger, around 5% of the acquired bank's deposits move to other institutions. In the glare of attention from regulators, consumers, and activists, NationsBank may have to work harder than ever to keep attrition rates at or below the norm as it tries to hold on to the roughly $30 billion of Barnett deposits that would be left after divestitures.

NationsBank is "in a great big fishbowl with a microscope trained on them on this one," said William Bradway, principal and research director at Meridien Research Inc., Needham, Mass.

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