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The ‘Big Kahuna’
Murray, Gifford discuss Fleet-BankBoston deal
— and what it means for the rest of us
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Business New Haven
3/22/1999
By: BNH
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On March 14, Fleet Financial Corp. and BankBoston announced their intentions to merge in a $16 billion, stock-for-stock swap that rocked the region's - and the nation's - financial markets (see story, page 1). The next day Fleet CEO Terrence Murray and his BankBoston counterpart, Charles K. (Chad) Gifford, faced the press in Boston to explain the deal and answer questions. Below are highlights of that press conference.
Murray: We think by this merger of two good companies that we're creating an exceptional company - one that has New England values and hopefully a global reach. The merger of Fleet and BankBoston preserves a top-tier financial-services company, headquartered in Boston, that is attuned to the regional needs, the regional economy, community needs and, as importantly, is positioned to compete on a national and global basis in the 21st century. It gives us a broader platform to do business; delivering value-added products on a wholesale and retail basis; we have a greater diversification of income - which was one of the major motivations that Chad and I had - and which we think will be the pre-eminent banking franchise in the Northeast. And we think we will accelerate the earnings growth of this company dramatically in the coming years.
This is a merger of equals - let me emphasize that - and I think the management structure will truly reflect the best and brightest of both companies.
A quick look at some financial data: We will be one of the largest corporate lenders in America with almost $50 billion in commercial loans; we'll have a commercial-finance portfolio of an additional $20 billion; we'll have some 55,000 corporate customers; we'll have almost 6,000 distribution outlets [including branches and ATM locations]; 20 million households will bank with this company; we'll have 450,000 small-business customers and deposits of $71 billion. Assets under management - one of the fastest-growing areas of our companies - will be approximately $110 billion.
Gifford: I appreciate your emphasizing, Terry, that this is indeed a merger of equals. When I see in the newspapers words like 'acquisition' or 'sale' of a company that's got the heritage of a BankBoston, it stings. This is a group of management and directors from both sides coming together to create a company that this region will be very proud of.
This is a converging, changing, consolidating industry, and what we have in this company is more customers, more products. We have regional pre-eminence - not just in size, but in quality. We have a greater capital base for the growth businesses we have. Size alone doesn't do the job for customers; but in a consolidating world, some scale is necessary.
Look at the demographics: We're in four of the six wealthiest states, with eight million combined households. We have 500,000 [combined] online banking customers. Having that many online customers going into the Internet age is a tremendous springboard we're going to take advantage of.
A year ago talks between your two companies broke down, reportedly over 'cultural difference.' What has changed since then to bring this about?
Gifford: First of all, there have been a number of further transactions since Terry and I began talking ten or 11 months ago. For various reasons, it wasn't the right time. [Since then] there has been further consolidation. Balance sheets don't make deals; people make deals, and [Murray and I] have gotten to know each other, and each other's businesses, significantly better since then. I have had more of a chance to think about our strategy within a changing financial world. So you put together the obvious benefits of the market mergers together with that changing world, plus a group of people that you increasingly admire, and it seemed like the stars were aligned right this time.
Most people seemed to believe that BankBoston was going to be taken over one way or another.
Gifford: I've been asked so many times since I've been CEO, 'Are you going to merge? Are you going to sell?' This is the only time since I've been chief executive - and this is the only individual that I've had a serious discussion with. I am and was extremely confident about what BankBoston was doing. I do think that the volatility of this business was making it increasingly difficult to get the shareholder value that our shareholders deserve. You put all that in a changing, consolidating environment, and that's where we are.
Murray: You know, the bar continues to rise every day, as it has for the last five years. And it's not just the size issue; it's where your concentrations are, where the balance of your earnings are, the level of acceleration of your earnings growth. In the last 24 months, Fleet has dramatically changed its earning mix in terms of fee revenues vs. spread revenues, with the addition of Quick & Reilly and Advanta. BankBoston has a spectacular international operation; that was 22, 23 percent of its earnings stream. The bigger balance sheet allows us to do more in Latin America or anywhere else.
Let me just say one other thing: In the last 24 hours a lot of you [the media] have had a lot of fun with the differences between Chad and me, and my background and his background. But we do have one thing in common: We are both professional bankers. We've been at this a very long time, we've done a decent job, and we're very cognizant of the evolving world that's taking place on the business side and the financial-services side. And we were committed to getting this job done.
How has this announcement sat with employees?
Gifford: I have no doubt that there are employees on both sides who are apprehensive. Market mergers do result in further efficiency capabilities, and that's clearly the concerning side [sic] of a situation like this. We calculate there are some 5,000 positions, net of divestitures, which will not be required following completion of the integration of [companies]. But through various programs - an immediate hiring freeze, normal attrition - by the time it gets around to [completion], that figure will fall dramatically. That, compounded by arguably the best employment economy in our working lifetimes, we hope will make it as easy as possible.
Most observers think your sheer size will overpower many of the region's banks. How do you think regulators will respond?
Murray: We've had preliminary conversations with [the U.S.] Justice [Department] and we've presented them with a template of what could be on the table in terms of divestiture. Those conversations have been productive enough - although not definitive - that we're encouraged to proceed with this. Clearly, from a consumer point of view, there is major overlap in greater Boston, less so in Connecticut and Rhode Island. But those are the only serious areas of overlap, in small business and consumer banking.
Is this just likely to set off another round of mergers/acquisitions with an even larger financial entity?
Murray: We'll put our heads together on what we hope to do strategically. But we have a full plate for the next 12 or 15 months - this is a major task consolidating these two companies. That said, we do have a very provocative strategic group in both companies who come up with a lot of good ideas. So we'll continue to evaluate options.
How long will this merger...
Murray: Integration.
How long will this integration actually take to complete?
Gifford: We have this creature called Y2K. And if we anticipate, as we do, approval in closing early in the fourth quarter of this year, it would be prudent to hold off the integration until some point near the end of the first quarter in the Millennium.
I just want to comment on another question about being the big Kahuna in New England, which indeed we will be in the Northeast. And I'm sure I'm going to read, 'These guys are so big they don't care about the little people.' Absolutely not true. Size by itself doesn't do it for customers. We've got to deliver, whether we're a $10 million community bank, or whether we're as large as we are. And that's what our intention is.
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