SAN FRANCISCO - It has been more than four years since Wells Fargo & Co. consolidated its California branch network by axing scores of offices acquired when it bought First Interstate Bancorp and replacing scores more with no-frills, in-store bank centers.

The sharp scaleback had disastrous results and sparked waves of customer defections. Now a simple tour around Southern California can make Terri Dial cringe.

"Sometimes I'll say we should have a store here, and I'll hear that we used to," said Ms. Dial, group executive vice president and head of California retail banking at the San Francisco company. Ms. Dial, who worked on the consolidation, has made it her mission to reverse the old "Wells-way or the highway" philosophy.

The task was made easier two years ago when Wells was bought by Norwest Corp., a Minneapolis company that long embraced the branch concept (and decided to adopt the Wells name). "The merger allows us to close a chapter and move us on to the next stage," Ms. Dial said. "We would have done it" without the merger, "but it would have been slower."

The job of improving Wells' California network will soon enter its second stage. In the first quarter Ms. Dial, 51, will pass along her title and leave the company for an early retirement. Thus it will be up to the next generation of regional presidents and managers to make sure the network avoids the snafus that roiled the old Wells Fargo.

California, which has generated about 25% of the company's revenue this year, is Wells Fargo's biggest market. About 10% of the company's employees work there.

Much of Ms. Dial's attention recently has been focused on the conversion of systems in the state, which affects 8.6 million customers. The company says the conversion went smoothly, but it has not been flawless. Last week its nationwide computer system crashed for a few hours, and customer access to real-time account information such as account balances was limited.

But the key to the change has been Wells Fargo's embrace of a decentralized structure - also a concept of the old Norwest - that should allow more face-to-face interaction between the company and its customers, Ms. Dial said.

No one knows better what is at stake than Ms. Dial, who was named vice chairwoman of consumer and small-business banking in 1996, shortly after Wells Fargo won its hotly contested bid for First Interstate, of Los Angeles.

The ambitious integration schedule that followed the purchase resulted in a public relations nightmare: delayed Federal Reserve fund settlements, downed call-in lines, inaccurate account information, and ultimately, lost customers.

"It's hard thinking about how we let people down with the First Interstate merger," said Ms. Dial, who told a story about a branch manager who was still apologizing to a customer for foul-ups made three years before. "It was like an open wound for us, a deep, deep sense of shame."

Decentralization - starting from the top and working its way to the teller line - has already produced tangible differences in Wells Fargo's California operations. The company has added more middle management in the state. Instead of splitting it along the north-south divide, there are now five regional markets, including one each for the Los Angeles and San Francisco areas.

Ms. Dial said the company has "stopped worrying about 'span of command,' " a previous effort to give every manager the same number of branches and employees to lead.

Many functions, including human resources, operations, public relations, and advertising, have been moved to local markets. "The only things we keep centrally are tools people need, like sales tracking," Ms. Dial said.

Wells Fargo is also starting new branches and adding locations through acquisitions. It approved a plan to add 29 branches, or what it calls "banking stores," in California and opened five in the state this year. Despite some regrets about the branches that were closed during the previous reorganization, Ms. Dial said most of the openings "are not making up for locations we closed."

The changes are in stark contrast with the focus on efficiencies and streamlining that made the old Wells Fargo one of the hottest bank stocks of the early 1990s. With kudos from Wall Street, chief executive Carl Reichardt and his successor, Paul Hazen - who still maintains the role of chairman - were pioneers in moving services out of branches to alternative channels like supermarkets and call centers.

That meant branch shutdowns and job cuts. After the First Interstate purchase closed, Wells Fargo sold or shuttered more than 350 California branches and slashed 10,000-plus jobs.

The cost-cutting was designed to help the merger save about $800 million a year. It was also on par with the company's history. In the 15 years before the First Interstate purchase, Wells closed about two-thirds of its stand-alone branches, according to one estimate.

Andrew Collins, an analyst with ING Barings in New York, said banks at the time "were being encouraged to be more tight-fisted." While there is still pressure on banks to control costs, the opinion now is that "you can't do that at the expense of revenue growth," he said.

Given that Norwest's own decentralized approach is the model for what is happening in California, it should be no surprise that many of the architects of the new network hail from Norwest. Robert Worth runs Southern California community banking. Anat Bird is president of the Northern California region, and Carrie Tolstedt, who runs central California, has been appointed Ms. Dial's successor.

Mr. Worth personifies the company's decentralization philosophy in California. Last December he was reassigned from the Montana and Wyoming territory to the newly created position in San Diego.

Other members of the new California management team, who don't hail from Norwest, are also relative newcomers to the organization as a whole.

Lynn Pike, president for the company's Los Angeles market, joined Wells one week before it announced its agreement with Norwest, after leaving a management position at GMAC in Boca Raton, Fla.

Even at that time that the old Wells Fargo was shifting to a sharper focus on sales and local markets that had been sidelined by the First Interstate integration; Ms. Pike was hired to run the new Southern California division.

When she was named regional president in 1998 as part of the post-merger California team, Ms. Pike, like her counterparts elsewhere in the state, was told to add more local flavor in strategies for markets. She oversees a layer of management with longer ties to the region: five market presidents from the old Wells.

Ms. Pike says her position is a result of the shift from a centrally controlled structure to one in which each territory has control over things like ad budgets.

Under centralization, "people in the local market knew how to execute very well, but not to strategize as much," Ms. Pike said. The veteran Wells Fargo managers have thrived under the new structure, she said.

One example executives like to cite as proof that local is better is a recent Spanish-language advertising campaign that would seem obvious to any company trying to target the growing Spanish-speaking population in and around Los Angeles, but had not happened before at Wells.

While she speaks like a true fan of decentralization, Ms. Dial managed to defend some of the old policies and procedures she helped to implement. "Before, technology mandated some centralization," as when, for instance, the credit decision-making process was computerized.

But ultimately, she follows the new Wells mantra: "It's better to decentralize."


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