Despite all the talk about the “seamlessness” of the mergers being planned in the nation’s fast-consolidating banking industry, CFOs of bank customers aren’t all that convinced. And their concerns are both financial and personal: Will the merger of their bank hurt their access to capital, they ask? And how will their relationship with bank officers change?

“Banking is about the relationships. What’s important to us is maintaining a relationship team,” says Regina Sommer, CFO of Waltham, Massachusetts, security-software provider Netegrity Inc. As a FleetBoston Financial Corp. customer, Netegrity is contemplating Fleet’s $47 billion acquisition by Bank of America (BofA), which would create the nation’s largest retail bank. “If there’s a reduction in quality of service and our relationship team gets cut,” she says, “that could be a deal breaker.” These days, “the products the banks offer are pretty much commodities.”

Steven Wasserman agrees. “One of the biggest worries for me during a [bank] merger is relationship management,” notes the CFO of software firm ON Technology Corp., which is being acquired by Cupertino, California-based Symantec Corp. “You want to be able to call the person there and [have confidence] that they know you, especially if you have to rush something through, like a letter of credit.”

Experience has taught Wasserman that other, more-tangible dangers can swirl around the possibilities of reduced access to capital and tougher terms for loans and other credit facilities. At a previous employer, which Wasserman prefers not to name, “Fleet Bank and BankBoston were both in our syndicate.” Soon after their 1999 merger, he found that “the merged bank doesn’t give you the total borrowing capacity that you used to have. They cut it way back.”

Or, as Ray Soifer, chairman of Ridgewood, New Jersey­based banking research firm Soifer Consulting LLC, puts it: “Organizations have a way of changing while they’re merging.” You may be faced with a whole new set of bankers, and then “the question is, will the bankers’ eyes still be on the ball?”

Wholesale Consolidation?

On the other side of the question, arguments in favor of bank mergers are likely to grow even as the mergers themselves multiply—at a rapid rate. Last fall’s BofA-Fleet merger announcement formed a bank that controls close to the 10 percent limit on total U.S. deposits allowed to a bank by the federal government. And it was followed closely by the $58 billion J.P. Morgan Chase & Co./Bank One deal, which will create the second-largest bank in terms of total assets, if it is approved by regulators. Both deals pair a bank that is largely retail- and small-business-driven (Bank One and Fleet) with an institution with large, world-class investment banks and large business-lending and services divisions.

For Fleet or Bank One customers, “the mergers will probably result in the banks being able to offer a wider array of services,” says Soifer. Good rates and fee levels are still prevalent, and in particular, “the New England banking market is likely to remain competitive.” Cost savings, business diversification, and synergies drive the merger logic, say spokespeople for both acquirers, echoing the merger defense made in most bank mergers, including the nearly $130 billion of combinations recorded in 2003 and 2004 (see “Blending the Banks,” at the end of this article).

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).

“CFOs absolutely have reason to be concerned,” adds Kenneth Thomas, who lectures in finance at the University of Pennsylvania’s Wharton School, and who calls himself “a big fan of diversification” in banking relationships, and especially in loan portfolios. He strongly advises CFOs not to fall for the “range of new services” pitch that merged banks offer as a postmerger benefit to customers. “I would be very cautious about putting all my banking relationships in one basket, even though the banks want you to do that. In the final analysis, diversification always wins ,” he says, and may give companies a better bargaining position on rates.

“Even if you’re a big company, you’re just another brick in the wall to the ‘League of Trillionaires,'” says Thomas, referring to the merged BofA and JPMorgan entities, along with Citigroup. “It is increasingly difficult to go to the top person in your bank. If you were a Boston customer of Fleet Bank, at least you knew that the president lived in the same city as you.”

Kris Frieswick is a senior writer at CFO.