Preface:

History repeats itself for those who dont learn from it the first time around- Anonymous.
This report aims at magnifying what we have learnt in the Commercial banking course and
extrapolating it to analyze the make and break of financial intuitions around the globe with the
intent to learn from their mistakes and to build upon their success. For the purpose of this report,
to provide the holistic view we will be analyzing an international as well as a domestic case to
discern the similar post acquisition and merger problems and in light of our course provide easily
applicable cost effective solutions. Mergers and acquisitions are of integral importance in
shaping the banking industry. The trend of Consolidation which has taken over the industry has
resulted in the cessation of existence of small and medium sized banks, making room for larger
banks to capitalize on the vacuum created and to gain advantage of the positive synergies that
ensue when two entities merge. Acquiring or merging with a competitor is an extremely
important as well as tedious decision in this fiercely competitive industry as this decision will not
only determine what the future holds for the two entities and the perception current and future
customers as well as shareholders have.

Overview

In 2008 Wells Fargo and Company acquired Wachovia Corporation for 15.1 billion in all stock
takeovers. This takeover would create the North Americas most extensive financial services
distribution network. Wachovia established in 1879 grew to be one of the most diversified
financial services providers in the US. Wachovia was especially known for its broad range of
retail banking and brokerage, asset and wealth management services. Wachovias strategy was to
build a diversified financial service provider company and to expand its customer base as much
as it could. To accomplish this objective Wachovia, over the last two decades acquired nearly 100
banks, thrifts institutions and broker-dealers to become a leading banking franchise in the
Eastern, Southern and western United States, as well as becoming a nationwide retail securities
brokerage business. In these series of takeovers Wachovia also took over the Golden West
Financial Services Corporation whose substantial part of mortgage portfolio consisted of
Adjustable Rate Mortgages (ARMs) with monthly payment options. The credit quality of this
portfolio had deteriorated considerably hitting striking a big blow at Wachovias Balance Sheet.
In addition to this Wachovia also suffered heavy valuation losses due to increases in sub-prime
home loan delinquencies and declines in housing values. With deteriorating loan assets and
worsening liquidity outlook the options for Wachovia were becoming increasingly limited and
finally after a series of meetings with the management of Wells Faro and Company the deal was
signed for the takeover of Wachovia. The takeover would enable Wells Fargo to gain the big
retail banking network it had long sought. Moreover the combined company will have total
deposits of $787 billion and assets of $1.42 trillion, more than double of Wells Fargo's totals on
both counts.

Technological Problems:
The acquisition of Wachovia by Fargo meant that the combined entities had over 70 million
customer accounts. Around 3088 of Wachovia retail branches had to be converted to Wells Fargo
branding. It also meant connecting Wachovia and Wells systems running on 80 different business
lines from brokerage accounts and business loans to mortgage lending and credit cards.
Wells Fargo way to acquisition was moving all the operations onto a single system. This meant
shutting down and eliminating half of the major IT platforms.
Martin Davis from Wachovia was responsible to lead the technology integration.
Fargo wanted to shift Wachovia customers to Wells Fargo brand as quickly as possible. When a
geographic area was ready to be converted to Wells Fargo brand, the plan was then to send each
Wachovia customer a debit card with Wells Fargo brand name
However, the response was not what Well Fargo had hoped. The customers did not expect the
mail and hence many of them did not activate their new accounts. Therefore, Wells decided to
stop the issue of new cards and instead let all the existing cards keep working and replace them
once they had expired.
The decision to let all the cards working meant there was a need of a new IT plan and new IT
systems that not only accepted the Fargo cards but also now accepted the legacy Wachovia cards
for some time period.
False starts are always unpleasant, but thankfully the bank decided to reverse course when it had
only about 20,000 customers converting cards, Davis says, since it realized the problem during a
fairly small early rollout (Information Week)
The three years Wells Fargos integration with Wachovia was not a very smooth task. There was
not much implementation of new technologies as the banks IT heads preferred limiting customer
disruption as the expense of adding new features. The schedule was complex and required some
sort of system changes almost every week.
In the first 90 days after the acquisition, a group was drawn from IT, operations and business in
order to work out how the banks can run as one single organization. It had to be decided which
systems to keep and which had to be phased out. Teams were made consisting of people from
both Fargo and Wachovia to work on projects. With the master plan in place, the teams then had
to meet the deadlines for more than three years.
What kept the integration teams motivated through the long haul was being able to work on a
merger "unprecedented in the history of banks, one that's not likely to be repeated," says George
Cheng, Wells Fargo's head of technology governance services. "There's a lot of emotion in this
(Information Week).
Wachovia and Well Fargo IT integration led to problems for the customers as their account
details were not properly updated and they started receiving checking account and mortgage

statements as per old records. One of the customers who particularly suffered were divorced
couples. Merging the two banks databases led to husbands getting bills and statements for their
ex-wives. One of the customers reported I get a letter from Wells Fargo saying I have an
account thats past due, an account I dont recognize (consumerist ). On his inquiry, he got to
know that, that mortgage statement belonged to his ex-wife. Such confusion led the customer to
switch bank.

POLICY PROBLEMS:
Bank's rules of well fargo for paying bills via Internet are different from those of stated by
Wachovia. Wachovia rules stated that utility, mortgage and other recurring payments will be
directly paid out on pre-scheduled dates According to the Wells Fargo's online banking rules in
most cases, funds will be deducted from account on the date specified, however for some
payments; deductions are made up to five days early.
Well Fargo follows a "good funds model" for online bill payment. Under this method, the funds
are debited from the account prior to the date the payment is made. This method ensures that
money is available to make the timely payments. Such policy is also used by BB&T and JP
Morgan Chase. On the other hand Wachovia used to follow a "risk-based model," in which funds
are transferred out from a customer's account without verifying a customer's available funds, In
this case, the bank used to send out money to a payee even if there were insufficient funds in the
account. Banks like SunTrust and Bank of America, operate under the risk-based model. Because
of the system Wells Fargo uses to process bill payments, funds will be withdrawn from the
account up to 5 business days earlier than were previously.With Wachovia Online BillPay, funds
were withdrawn from the account on the Pay Date (the date payee received payment). With the
new Wells Fargo Bill Pay service, funds are withdrawn from the account on Send On date, which
is up to 5 business days before the payee receives payment. Over 80% of Wells Fargo payees
accept electronic payments, and the average transaction time for those is 2 business days. If a
payee doesn't accept electronic payments, it could take up to 5 business days to deliver a paper
check by U.S. mail. The payer must have sufficient funds available in your account on the Send
On date for the bill payments to be processed successfully. Not having sufficient funds could
result in a missed payment, overdraft, late fee, or other charge.
Earlier deduction of larger payments such as mortgages posed a great problem for the customers
of Wachovia who planned their monthly payments carefully based on payroll deposit dates and
other cash-flow concerns. Some of the complains were also received by the customers who said
that though money was transferred from their account out on the date as scheduled but the
payments were not received to the specified receiver because of which they had to pay late fee
charges.
A customer of Wachovia and its predecessors since 1993, ran into problems when trying to make
an online payment to the department store Macy's after Well Fargo acquisition of Wachovia .
With his bill due on Sunday, he scheduled for the payment to be made the previous Thursday.
While the money was deducted from his account on Thursday, it wasn't received by Macy's until

Monday, leaving him with a late fee. This mismanagement of bill payments led the customer to
consider switching banks.
Another problem faced by customers of Wachovia holding free checking account was that their
account that were not transferred to Well Fargo were no more free. Services like overdraft
protection and identity theft protection that were free before now came with an additional cost of
$12.99 a month. Also the online bill payment service was also charged $6.95 per month in Well
Fargo.
There was a difference in overall business model of the two banks. Wells Fargo have a lot of
experts in their branches. They have experts for small business, investments and even general
bankers to individually guide every customer. They believe in building strong relationships with
customers. On the other hand Wachovia tended to have fewer people in their branches. They had
more people targeted mass affluent in contrast to providing service to everybody in the market.
So when the two banks integrated, it was important to change Wachovia business model
accordingly and Well Fargo had to employee more employees. Employing additional employees
of course had additional cost but in addition to that changing the entire culture of an institution is
not an easy task. Integrating the two different cultures into one was troublesome.
SERVICES PROBLEMS:
Customers of Wachovia after the takeover were exposed to new choices of services in checking
and saving accounts. Other products ranging from renters insurance and auto insurance which
helped in identifying theft prevention and the ExpressSend remittance service were also added
to the portfolio.
In addition to that throughout 2009 and 2010, Wachovia ATMs were replaced with Wells Fargos
environmentally friendly Envelope-Free ATMs. These ATMs credit cash instantly and accept
stacks of cash or checks without envelope. These ATMS provide increase convenience for
customers because it give them more time to do their banking and they can receive credit for
their deposits even after the banking store is closed.
In addition, all banking stores of Wachovia nationwide were remodelled to the Wells Fargo open
layout floor plan, which improved the customer experience. A more environmentally friendly
system was also implemented throughout the banking stores. All these changes to the services
and banking system for the benefit for the customers although led to customer satisfaction but it
also resulted in a substantial increase in cost for Well Fargo.

Standard chartered and Union Bank merger

The first branch of Standard Chartered had been opened in Karachi in 1863. 2006 was the
beginning year for the transformations of Standard Charterers operations in Pakistan. During
this year the Bank announced its acquisition of Union Bank that was the eighth largest banks in
Pakistan with US$2 billion in assets, and about 400,000 customers. The acquisition was for US$

487 million in December 2006. Bank settled effectively cemented position as the largest and
fasted growing international bank in Pakistan. In 2007 the merged bank had 115 branches across
22 cities in Pakistan. A year later in mid of 2008, the bank had 176 branches across 41 cities.
Main causes of merger in Pakistan according to banking system review are; Increase in
Minimum Capital Requirements, Restructuring of public sector and private entities, Appetite for
Commercial Banking License, Expansion & Growth (Malik, 2006).
Standard Chartered Banks main problems and deterioration started after its acquisition of Union
Bank. The issues responsible and even today are the technical difficulties involved in managing
the change affecting employees, customers, structure and policies. All this chaos resulted in demotivation, lost customers, financial loss and mismanagement.
The change came in the structure i.e. the reporting line completely changed, span of control was
transferred. Also the technological aspect changed as SCB had different procedures and methods
from those of Union Bank. People did not completely changed but there was a change in their
behaviors and attitudes.
However there was a difference in culture and values of both companies and employees found it
hard to adjust in the beginning
With this merger the hierarchy and reporting line was changed and most of the people resigned
due to their new unsatisfactory job descriptions and pay structures
Union top level management did not show any resistance to the change, in fact they supported it
whole heartedly. However the middle and low level management was unfamiliar to the policies
as they were not communicated to them. But after much difficulty, they finally adapted to the
new structures as they had the required skills and were competent enough to acclimatize to the
new environment.
The resistance was experienced from the low and middle level management because of the
following reasons:

MIS was changed completely and it required some training to get familiar with the new
system.
Compensations were delayed during the first few years that affect their employees work
efficiency.
Reporting line was changed which gave rise to personnel dissatisfaction.
The SCB culture was strict as compared to Unions flexible policies.
Existing employees were satisfied with their pay structures and this change didnt bring
any difference in their mindset.
There was no involvement from the low and middle management in the process and
policies were not clear to them.
There was a fear that whether if the new supervisors would be good to them and their
rights and culture would not be ignored.
Due to these resistances, SCB faced come consequences which are listed below:
Unsatisfied employees resigned from SCB.

50% of the employees switched to other banks.

It took SCB two years to reach the required level of growth
There was no single or definite problem but due to this change many problems arose;
50% of customers switched to other banks, employees de-motivation and slow growth
rate were a few of them. The exact origin of the problem was difficult to define.
Polices of Union Bank were very flexible for the employees but the policies of SCB were
very tough and rigid, which were the main reasons for employees to resist this change

The other resisting force was of customers as some customers did not like SCB so they would
automatically switch their loyalty to some other bank and the image of SCB would be tarnished.
Furthermore many employees of Union Bank were demoted as a result of the merger and thus
became highly dissatisfied and did not want to work. As a result many employees left the new
organization and the existing employees were overburdened. Although incentives were given in
the form of bonuses, allowances and even promotions, yet the employees just left simply because
they had had a sour experienced with the initial merger and did not wart to stay further on.
. The customers of Union Bank could not access their accounts easily in Standard Chartered
Bank and vice versa. It was a failure on the managements part which could not make appropriate
use of the technical systems of either company
As explained above, the culture of Union Bank was very informal and casual. This became a
problem at the time of the merger, as the Union employees were not accustomed to such hard and
fast rules and tough policies. SCBs culture of rigid policies made it overlook the disgruntlement
of the new comers until too late. They modified their hierarchy and executive positions through
consensus, yet many employees of both organizations left SCB. On the other hand the company
suffered from financial loss and low stock prices.

To further Analyze we did a financial analysis of union bank and standard chartered after merger.
EFFICIENCY/PROFITABILITY RATIOS

LIQUIDITY RATIOS

CAPITAL/LEVERAGE RATIOS

Overall