Why Chemical's Name Will Be the Survivor

If their choice of a name is any indication, the top managers of the future Chemical Banking Corp. know how to put egos aside, reach a mutually acceptable conclusion, and charge ahead as if there were never any serious disagreement.

Their decision was quick, firm, and apparently without rancor, favoring the bigger bank with the shorter name - despite survey findings that showed Manufacturers Hanover Corp. to be more recognized or esteemed by the public.

It remains to be seen whether this decisiveness carries over to other major mergers. For example, the back-office consolidation of Fleet/Norstar Financial Group and Bank of New England, although smaller in scope, is slated to be completed within 18 months.

The initial reaction from industry experts is that the goal is achievable but could take even longer to complete than projected. Incompatible software and the long list of back-office systems that must be merged will make it a painful process, they say.

While operational savings in the merged New York bank will be less than one-third of the total expected expense cuts, bank executives expect the back-office consolidation to pose the greatest challenge in terms of management, implementation, and cost control.

'Work to Do'

"We'll have work to do on the systems side of the house, and it will take us some time to accomplish that," Joseph G. Sponholz, project manager for the merger, told an analysts briefing this week.

Working in their favor will be the banks' reasonably successful efforts in the last two years to streamline their own operations. But the merger puts the banks back to square one - once again with multiple data centers and software systems.

"Six hundred and fifty million as a total number is realistic and conservative, and [about] one-third of that in technology savings is conservative. It's doable," said Robert B. Hedges Jr. vice president at the Mac Group, Chicago. "But it's vitally important that they to do it right. There are some significant risks in systems consolidation. Ultimately, it may take a little longer."

Executives in charge of the consolidation said Chemical has set two priorities in choosing which systems to keep and which to scrap. Their goal is to achieve a common set of systems as fast as possible.

Criterion for Judgment

"The criteria for making the judgments is getting to a set of systems that allow us to offer a common set of banking products and to capture savings in a rapid period of time," said Edward D. Miller, vice chairman of the combined institution, with responsibility for tri-state regional banking, operating services, and nationwide retail operations.

One of the biggest decisions for the merged bank is choosing a back-office strategy for the retail operation.

Complicating this task is the fact that Hanover was in the middle of completely overhauling its retail banking systems. The bank is replacing its 1970s-era NCR Corp. computers with more powerful and efficient International Business Machines Corp. mainframes in its data centers and converting to new commercial lending, profitability analysis, and demand-deposit software from Systematics Financial Services Inc., Little Rock, Ark.

Hanover is also in the midst of upgrading its NCR branch systems. It has invested $80 million in the retail project so far.

Chemical Bank, on the other hand, runs retail banking software that it co-developed with Digital Equipment Corp.

"We must make a decision whether to move forward" with Hanover's system, said Mr. Miller. "If we do that, we think we will have implemented all the changes in 18 months. We could also make the determination to scrap that and move to Chemical's system. If we do that, we may be able to move that time frame up."

Mr. Miller expects to decide on the surviving retail system within a few months. While he said it's unclear which one will win, Mr. Miller said priority will be given to the system that will let the bank support a common set of retail banking products in the shortest time.

The merged banks can realize fairly quick savings from closing down data centers. Hanover recently consolidated eight data centers to a new facility in Wilmington, Del.

Adjacent Data Centers

The bank has another data center in downtown Manhattan. In recent years, Chemical has also reduced data centers; the bank now has an operations center in Jericho, N.Y., a data center in New Jersey, and a Manhattan data facility practically next door to Hanover's.

Merging to a single facility in Manhattan could save the bank tens of millions in staff and equipment costs.

Another benefit will come from merging check operations, which will hasten the movement to image technology for check processing, said Mr. Miller.

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