First of all, you need to have a very clear-cut game plan prior to the merger. You have to define the social issues and identify the consolidations you want to achieve. You need to have a business plan before you contact a partner. If you don't, you spend an awful lot of time after the fact figuring that stuff out. But if you've done that, everybody's on the same page of the hymnal.

You have to keep in mind that the point of every merger is to accomplish the consolidations yet preserve the franchise. Avoiding disruption of customer service has to be a very strong consideration. You can't make consolidations transparent to the customer, so there will be comments and questions. But you can make it more customer-friendly. If you're merging data centers, for example, be sure to pick a time when it's not too busy. We would never convert our data centers between Nov. 1 and the end of January because there's just too much yearend business that could slip through the cracks.

The key thing is to do thorough due diligence. The acquirer must know the exact state of the loans of the institution that is being acquired.

Employees are another key area. If employees are going to be let go, and in just about any merger, administrative people tend to be reduced dramatically, the acquiring institution must let go of these employees in a humane fashion. That means severance pay, outplacement counseling, and offering support groups.

Through it all, the bank must pay attention to the customer. There should be backup plans for problems that arise during the conversion.

Customers vote with their feet. There is usually some disintermediation in the first few months after a merger. But you'll get a positive deposit flow back in a few months if you show your concern for their problems and questions.

A communications plan should be a key component of the large merger project and every component project. The plan must encompass every stage of the merger, from the announcement to the final systems conversion, and address all internal and external audiences critical to a merger's success.

Managers must remind themselves that their employees want to hear from them on a regular basis. The tendency to overlook routine information needs has to be addressed by a structured communications program and consistent reminders from senior management.

A strong communications program can assist you in merging two cultures. It can help unite and motivate employees and help build public acceptance of the merger. When good communication is blended with strong project planning and execution, mergers succeed.

The biggest issue is humanizing the transaction. A merger is not only bringing together accounts, departments, and buildings. People are involved, both customers and employees. You must stay aware that they have needs and concerns that must be addressed. Sometimes we get caught up in the mechanics of the merger and forget the people. But the people are the key to making it work.

The biggest problem is the impact of the cultural change on the sales force of the acquired company. People going through a merger experience a high level of anxiety. Their chief concern tends to be very internally focused: "What's going to happen to me?"

What we need them to do is stay externally focused, and keep serving the customer.

The best way to handle this is communication. You can't communicate to the employees too frequently. They have an unquenchable thirst for information. Face-to-face communication is best, backed up with paper communications. It's a fairly time-consuming task, but one that pays big dividends.

A major problem is the culture shock. Typically, the acquiring bank is larger. The two institutions are, therefore, at different levels of development. Under normal growth patterns, a company passes gradually from one stage of development to the next. Its employees and customers hardly notice the step-up. In a merger, the transition, for both personnel and customers, is abrupt and can be traumatic if the acquiring bank is not sensitive to the problem. Closely related to this difficulty is the necessary follow-through to ensure that the combined bank realizes the anticipated cost benefits that made the deal attractive in the first place.

I think you really have to pay attention to two particular areas. First is the people, the employees. You have to make clear what they're supposed to do, what their jobs really are. As the organization gets larger, the challenge is communications. Because we are primarily a retail bank, we have to make sure our employees know how we want them to serve the customer.

Second, in today's environment it is a real challenge to gain the cost efficiencies that are expected from a merger. You have to know how to generate the savings and how to increase revenue.

On a side note, there is also a big challenge in the application stage of a merger: getting the regulatory agencies to sign off on the deal.

Like any major business transaction, bank acquisitions and mergers create a number of challenges, but I believe they are manageable ones.

In each of the 10 acquisitions we've completed since 1990, retaining new and existing customers has been Washington Mutual's top priority. Customers want as little disruption to their finances - and lives - as possible. That's our goal.

Maintaining employee morale, merging corporate cultures, converting and standardizing systems, and closing duplicative branches may create some short-term disruptions.

But our experience has shown that careful strategic planning and effective communication can alleviate many potential problems and help create a smooth transition for our customers.

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