When financial institutions merge Featured

12:07pm EDT June 29, 2006
What happens when your bank merges with or is aquired by another bank? Do you panic? Or do you try to stay in touch with your account officer and sort things out together?

“Every organization has a unique culture,” says David Janus, president of First Merit Bank’s Cleveland Region. “If I were a business owner, I’d give myself a chance to see if the new bank is a fit or not. You won’t know right away, unless you had previous experience with that particular bank.”

Janus spoke with Smart Business about the sometimes daunting experience of seeing your favorite financial institution involved in a merger or acquisition.

How are bank mergers/acquisitions different than corporate mergers/acquisitions in other industries, or are they?
The motivation for the corporate takeovers you read about in the newspaper is probably the same as the takeover for a bank: increasing market share, lowering expenses, earnings-per-share growth, acquiring specific products or geography. I don’t think the banking industry and other industries are much different from each other in this regard, because they all address the same constituents — that is, their shareholders.

If I am a commercial customer, and I hear or read that my bank is involved in a merger/acquisition, should I be concerned?
Near and dear to most companies’ hearts — especially middle-market companies — is what’s going to happen to their credit relationship. For small to mid-sized companies, the bank can be their sole source of financing. Don’t overreact. Most people tend to think the worst: ‘I’m going to lose my line of credit,’ ‘I’m going to lose my loans.’

Make sure you talk to your relationship manager and his or her boss. You want to know information about the other bank and its reputation. Sure, there are going to be a lot of ‘I don’t know,’ answers because they really don’t know. These company integrations take time to iron out all the issues.

Banks in general need more customers to grow their business. They don’t merge or acquire another bank to kick customers out. That’s counterproductive.

You may, however, be in an industry or business — like a parts supplier to the auto industry — that’s higher risk in the current economic environment. So you may need to know how the new bank views your business. It helps if you know multiple people in multiple positions at the bank. The credit guy knows your business well and knows you well, and he or she may be in the best position to be your advocate and to give you the benefit of the doubt during difficult times.

How important are bank/customer relationships?
Bank/customer relationships are the most important thing. Merger or no merger, you need to have a relationship with the bank. If you know your relationship manager well and you know the team leader or regional manger, you’ll be as informed as you can be. It’s the companies who don’t have deep, ongoing relationships who are kind of left in the dark.

What are some of the advantages and disadvantages of banking with an institution that has gone through a recent merger?
One advantage may be new product and service offerings the combined bank may have. For instance, if your company needs to do a lot of international business, it’s a benefit to you if your regional bank is acquired by one with international services and foreign offices.

On the other hand, banking with a bigger bank has the potential to be more expensive on some fronts, while product offerings may be more standardized and less customized. Another concern I often hear is that people feel like a number at a big bank. Well, I know first hand a lot of relationship managers at big banks who made customers feel like they were dealing with a small bank because they provided great customer service and good communications.

Are the changes after a merger more likely to be of a systemic or personal nature, or does it vary widely depending on the institutions?
I would ask my account officer how he envisions the merger impacting my relationship with the bank. Is your relationship in jeopardy? Will it cost you more? Are same products and services going to be available?

On the personnel level, mergers typically don’t impact all the way down to the account level. Chances are you’ll have the same account officer, because the new bank needs someone to service your account. What may change is the credit guy or regional and senior managers.

Also, there will probably be a different product offering. You may fit well into a product that your new bank has, so you might able to save money. Or, the new bank may have a higher fee schedule.

DAVID JANUS is president of First Merit Bank’s Cleveland Region. Reach him at (216) 694-5658.