The Wells Fargo-First Interstate Merger : Strategies for a Takeover : MANAGEMENT CHALLENGES : Swift Transition Predicted

By MARTHA GROVES

Jan. 25, 1996 12 AM PT

TIMES STAFF WRITER

Ten years ago come May, Wells Fargo & Co. bought rival Crocker National Corp. and immediately set about purging 1,650 employees and closing 120 branches. The ruthless approach proved painful to workers and customers who missed seeing familiar faces, locations--and the Crocker name. But Wells shareholders were thrilled with the ultimate results.

The man charged with making that merger pay off was Paul Hazen, then No. 2 at Wells. Now, as the San Francisco-based banking giant’s chairman and chief executive, he will soon have another chance to demonstrate his prowess at merging two disparate organizations, in a deal that is far larger and more complex: Wells’ $11.6-billion purchase of First Interstate Bancorp, the sole remaining big bank that called Los Angeles home.

There are key differences: Hostile suitor Wells had to fight much harder to win First Interstate than it did Crocker, which Midland Bank was pleased to unload. And Wells is putting far more on the table than it did for Crocker, which was on the ropes and drew a bargain-basement price of $1.07 billion. As a result, making the takeover work financially will be far trickier.

The union--the biggest bank merger ever--clearly poses monumental challenges, but most consultants and analysts agreed Wednesday that Hazen is up to the task. With California facing the loss of as many as 8,000 jobs and the closures of 350 branches as a result of the takeover, consultants say Wells would move with characteristic swiftness to effect as smooth a transition as possible.

“They’ll err on the side of being expeditious and upfront [with employees],” said Frank Terzuoli, senior manager with Andersen Consulting in San Francisco.

In a recent interview for the alumni publication of UC Berkeley’s Haas School of Business, Hazen indicated that Wells plans to capitalize on its experience with Crocker.

“Many of the people who did Crocker are still here, almost all of our senior officers,” he said. “The experience . . . taught us a great deal about integrating different systems. We’ve been devoting resources to planning the restructuring of the bank once we get First Interstate. We now know how to do this well.”

Based on Wells’ experience with Crocker, however, senior First Interstate managers would be wise to update their resumes. And, in fact, many have scurried this week to contact headhunters specializing in the banking industry.

“Given what happened when Wells Fargo took over Crocker, it’s not going to be a pretty picture,” said Roger Miller, a partner in the executive search firm of Ryan Miller & Associates in Pasadena.

“It’s a frightening thing for a lot of people. The cultures are so radically different. Wells Fargo is take-no-prisoners [and] hard-nosed sales, and First Interstate is more collegial. There’s going to be enormous culture shock when these First Interstate people get exposed to the senior management of Wells Fargo.”

Most of First Interstate’s mid-level and senior managers probably won’t even get the chance. Very few individuals at Crocker with the rank of senior vice president or above survived the axings.

But nervous executives can perhaps draw some solace from a comment Hazen made in the Berkeley publication: “Part of what is embedded in a top manager is knowing a competitor’s strengths. You have to know what to keep. . . . We’ve been working on that for a while now, and our managers do know a great deal about First Interstate’s strengths.”

Wells could go overboard in forcing its harder-edged culture onto the First Interstate organization, said Eric Flamholtz, a UCLA management professor who also consults on mergers and acquisitions in the financial services industry. Hazen, he said, must “walk a fine line between making sure this deal pays back what Wells put into it and looking for hidden gems [at First Interstate].” For example, he noted, keeping lower-level workers in the branches can pay off by preventing irate customers from bolting to competitors.

Layoffs are “probably the hardest thing that any manager has to do,” said James Chessen, chief economist with American Bankers Assn., an industry trade group in Washington. “With each layoff announcement, there is an addition to the anxiety. That does present a tremendous challenge to these organizations that have to make these decisions.”

Perhaps the most difficult aspect is to manage the layoff process while maintaining the spirit and confidence of the remaining employees and encouraging them to improve their service to customers.

Wells has reiterated that it cannot say how many of the job cuts will result in layoffs. Among bank tellers, turnover that reaches as high as 30% to 40% could accomplish much of the reduction. But with as many as 8,000 jobs being cut, it’s a good bet that the toll in layoffs will be steep.

Early analysis indicates that Wells will offer severance packages that in this age of pink slips are relatively generous--even for part-time workers.

In addition to the $29 million in packages already arranged for First Interstate’s top 39 executives, Wells and First Interstate employees laid off as a result of the merger will receive four weeks of pay per year of service (prorated for part-timers).

Times staff writer Nancy Rivera Brooks contributed to this report.

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The Banks at a Glance

A combined First Interstate and Wells Fargo would have $108 billion in assets, but the merger could result in the closing of 350 First Interstate branches and 7,000 to 8,000 layoffs in California. A look at the banks:

First Interstate Bancorp

* 14th-largest U.S. banking company

* Assets: $58.1 billion

* Branches: 1,148 in 13 western states

* Employees: 27,901

* Households: 4.8 million

* ATMs: 1,796

* Total deposits: $50.2 billion

* Total loans: $36.7 billion

* 1995 earnings: $885.1 million

Wells Fargo & Co.

* 17th-largest U.S. banking company