Banks Wrestle with Integration Issues During Mergers

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My last gig involved covering financial services technology. One story stuck with me. A large bank spent several years trying to integrate the technical systems of a bank it acquired into its own to get the finacial and efficiency benefits you expect from a consolidation before throwing up its hands and crying uncle. The acquired system had so much specialized technology, it just seemed easier -- after expending a fair amount of effort and expense -- to leave it alone. (A decade later, I suspect the bank may have finally succeeded in merging the systems. An Internet search for more information proved fruitless, and my friends who worked there are no longer with the bank.)


That's got to be an anomaly, right? Not so much. IT Business Edge's Mike Vizard today wrote about TD Bank's recent high-profile failure to integrate an acquired bank's system into its own, one that not only resulted in droves of unhappy customers but also earned the attention of government regulators.


Loraine Lawson, who regularly covers integration issues for IT Business Edge, has written about how organizations struggle with post-merger integration. Last summer, she cited a 2007 Hay Group study that found 90 percent of European buy-outs and mergers fell short of their objectives. An especially stunning statistic from the study: 75 percent of managers worldwide admitted they do not always consider how integrating IT systems will affect operations after the merger. She also mentioned an expert who recommended the drastic step of scrapping post-merger infrastructures and starting over.


These kinds of integration complications loom especially large for banks because so many of their business processes are IT driven, according to a Gartner analyst Loraine cited in another post. There are plenty more scary statistics in this post: From a 1999 Economist study, two of every three deals did not work. From a 2001 Xapgemini study, 50 percent of financial services mergers from 1990-2000 eroded shareholder returns.


Luckily, Loraine followed up in July with some lessons learned from IT managers at Wells Fargo, which is in the midst of a major project integrating the systems of Wachovia, which it purchased in December. Just last week, Wells Fargo CEO John Stumpf told The Wall Street Journal that integration with Wachovia is "on plan, on schedule and on budget." (While the article doesn't specifically address technical issues, I am assuming they are part of the overall positive picture conveyed by Stumpf.) The lessons shared by Loraine:

  • The banks incorporated an integration strategy involving the business, in this case a formal methodology created by Wachovia during earlier mergers.
  • The banks decided to keep it simple by always giving Wells Fargo's system precedence, unless there was a compelling reason not to do so. They also resisted the temptation to solve problems by purchasing a new system or software.
  • They acknowledged the inevitable staff worries and insecurities.
  • They established key metrics to monitor progress, encompassing system availability, staff retention, budgets and operational efficiency.
  • They looked for cost-saving synergies. So Wells Fargo canceled plans to expand its data center, since Wachovia had recently built a new one.


I found another interesting example of a smart move by the two companies. Check out this well-maintained and informative Wells Fargo-Wachovia Blog, which is designed to keep customers informed about merger-related changes and address questions regarding services such as ATMs and mortgage payments. It's not a huge surprise, considering Well Fargo's Web 2.0 early adopter status, a relative rarity among banks, which I wrote about back in 2007. Since then, of course, other banks have jumped on the social media bandwagon, as this Mashable item shows.