Wells Fargo's CEO John Stumpf announced at a Citigroup conference this week that the $848 billion-asset bank is looking to make more acquisitions. Because U.S. rules prevent any bank from taking on more than 10 percent of the nation's deposits, the fourth-largest U.S. bank is looking at brokerage, retirement-services firms and insurance companies to buy, Stumpf suggested.
Such acquisitions likely would add to the workload of the bank's EVP and head of technology integration, Martin Davis, and EVP and information services CIO Wayne Mekjian, who visited our office recently. The two have been grappling with the technology implications of the Wachovia merger for two years, with one more year to go. In the next phase, tomorrow all Wachovia branches in the Northeast will be re-opened as Wells Fargo stores.
Our first question to Davis [whose role in the bank is to head the Wells/Wachovia IT integration]: What will you be after the integration is completed?
This was a joke, but one that alludes to the legal and technical challenges of merging two large banks operating on different coasts but with overlapping territory and product, feature and pricing differences between the two organizations that have to be reconciled. The integration dramatically affects the technology operations group's 24,000 members, 4100 applications, 1,700 annual projects, 73,000 servers and 12,000 ATMs. (For scale, the group processes 6.3 billion prime pass items, 93 million wholesale lockbox transactions, and 128 million ATM deposits a year, in addition to sending out 656 million paper statements a year.)
One complication that's arisen is snow birds -- customers who live in the Northeast and move south for the winter. "We're converting in the Northeast on March 12 and in Florida in the summer," Davis notes. "How do we create a common customer experience? We decided to hold off converting those customers until the last state they bank in has been converted."
Some product line integrations have had to happen synchronously with others, such as overdraft protection linked to credit or debit cards. "If you want to convert DDA accounts before credit cards, that doesn't work, we had to synchronize," Mekjian says. "The world doesn't stop because we're in the midst of an acquisition. Sometimes I wish it would."
Yet most of the technology work has been done at this point. "We have done the technology integration work and we're ready to start converting accounts," Mekjian says. "The brokerages are all on the same platform, the credit cards and ATMs are on the same platform. We're 20% done with DDA account conversion."
Mortgages and DDA accounts are all being moved to Wells Fargo's platform. But brokerage accounts have all been converted to Wachovia's system.
"Our mantra is, choose system A or system B, but never system C -- we're not going to create a new system in the middle of the merger," Davis says.
Yet, in some cases the bank is building a system C. For instance, the two banks had four major loan origination systems, but Wells Fargo is creating a new system, CORE, that will replace all of those. "One thing that is unique to financial services is that our technology is the product, we can't wait for a vendor to deliver that product," says Martin. CORE will use imaging and document management technology to scan loan documents and feed them into an automated workflow. The bank is also building a home equity loan system that will incorporate image processing workflow.
Asked about technology rationalization with respect to the merger, Martin notes that the bank initially set a goal of saving $5 billion through the merger; $1 billion of that on the technology side. "We have done rationalization around systems, vendors, and our target operating model," Martin says. In one example, before the merger Wells Fargo had been planning to buy a large new data center, but Wachovia had just built a $1.5 million data center that filled that need.
"We're not going to stop at $5 billion in savings," Mekjian says.
Davis and Mekjian shared a merger integration lesson learned: Don't re-issue debit cards. "Customers would ignore the new card they got in the mail, mistaking it for a solicitation," Davis recalls. "People were tossing their new plastic out. Then they would go out and use the old card and it wouldn't work."
They reconfigured their debit card system so that the old plastic would continue to work post-merger. "That was a huge lift to customers," Davis says.
Mekjian and Davis say the merger has made Wells Fargo's IT organization stronger staff-wise, with more database managers, more COBOL programmers, and more mainframe administrators than before. However, there's a current "bubble" in IT staff due to the integration, which has increased the IT workload by three to four times, Davis says. As the integration concludes, that bubble will have to deflate.
Yet, if the new acquisitions Stumpf hinted at this week come to fruition, these bubble employees and Davis could remain in their current positions for a long time, coping with the challenges of mixing more new systems into their vast nationwide IT infrastructure.