But since most bank mergers eliminate costs by closing overlapping retail branches—not much of a factor in these two giant mergers—something else will have to give during the merger-integration stage. And while neither BofA nor JPMorgan Chase has yet detailed the specifics of their cost-cutting, analysts say that the “something else” will likely be back-office and wholesale-banking operations.
“Considering that there is hardly any retail overlap, I would expect to see some degree of consolidation in their wholesale-banking services—in addition to the usual savings in technology,” says Lee Kidder, director of wholesale-banking research at TowerGroup, and former head of commercial-loan operations at BankBoston before its 1999 merger with Fleet Bank. This could mean consolidation in cash management, treasury services, specialty lending departments, and similar departments—and job elimination that would limit the service that a corporate customer might get.
“Some proportion of the combined total of wholesale-banking employees is going to be eliminated,” predicts Kidder. “And that means they may have to stretch account coverage.” He believes the JPMorgan Chase/Bank One deal will face much the same dilemma, with the result that CFOs of customer companies may find themselves with different relationship officers, who aren’t as familiar with the accounts as the previous officers had been—and who may be stretched a little thinner than in the past. For some, this will be reason enough to find a new bank.
“League of Trillionaires”
The prospect of fewer available bank officers is less daunting to FleetBoston corporate customers that have diversified their bank relationships to prevent just such an overdependence. “I’m not that nervous about the merger, to be honest,” says Netegrity’s Sommer. “I wouldn’t characterize us as hugely dependent on Fleet. There are other alternatives in this market.” She notes that her view “would be very different if we had two banks from this market merging, and it meant fewer competitors and fewer choices. But Bank of America isn’t a big presence here.”
But the likelihood of a continuation of the trend toward giant bank mergers should raise corporate caution levels, some banking experts say. TowerGroup’s Kidder warns that bottom-line pressures and a move to standardize policies could lead giant banks of the future to institute higher fees and rates, change credit terms and corporate lending relationships, or choose not to renew a line of credit that isn’t deemed profitable enough.
Companies with significant infusions of private-equity cash could be especially vulnerable. JPMorgan Chase has publicly stated its goal of reducing its exposure to illiquid private-equity investments. According to analysts, it has been successful already in moving toward that goal—trimming its private-equity carrying value from $8.23 billion to $7.23 billion in the past year. Bank One’s private-equity division, One Equity Partners, could well be subject to the same mandate postmerger. That could mean that Bank One also will be looking for exit strategies from its many investments, which include Polaroid Corp. (see “What’s Wrong with This Picture?” January 2003).