Bank of America: When Systems Dont Merge

Bank of America hasn't completely unified the two core banking systems from its 1998 merger with NationsBank. Now it has to integrate FleetBoston's systems. Are they up for this huge challenge? (Baseline)

Bank of America now stretches from the West Coast to the Gulf Coast to the East Coast. But its information systems dont.

Even five years after combining with Southern banking giant NationsBank for $67 billion, customers still cant easily transfer money between accounts from the banks East and West Coast operations. And now, Bank of America will try to absorb the 1,500 branches of FleetBoston Financial Corp., a New England banking giant that it is trying to acquire for $47 billion.

Bank of America has made some progress over the past five years in integrating its operations, but in effect it still has two core banking systems. Now it will have three. Experts such as Amir Hartman, a former technology consultant to Bank of America and founder of management consultant firm Mainstay Partners, says integrating those systems without angering customers wont be easy, particularly if history is any guide.

When NationsBank (now Bank of America) acquired Barnett Banks of Florida in 1997, it angered clients with electronic glitches, poor service, and hikes in a wide range of fees. Result: Bank of Americas share of the Florida market fell 4 percent in three years.

Fleet Financial Group Inc.s 1999 acquisition of BankBoston (to create FleetBoston) was a mess even by the companys reckoning. Numerous branches were closed and BankBoston customers were force-fed Fleet products, leading to a revolt. Result: FleetBoston ranks last in customer service satisfaction among 120 banks serving the New England area, according to Consumers Checkbook, a non-profit organization based in Washington.

Bank of America customers complain that five years after the merger with NationsBank, they still have to jump through hoops to transfer money between accounts from the former two banks. Result: They wonder if this mega-merger will only make matters worse.

Marcia Salkin, a Bank of America customer in Washington, D.C., says she is frustrated at how long it has taken the bank to integrate its data systems. The California native chose Bank of America because she had a daughter moving East for college in Washington, and figured she might also be joining her a year or two later. By opening a Bank of America account for her daughter in California, she figured she could easily deposit money into her daughters account.

However, her daughter discovered she could not make a deposit to her California Bank of America account at a Washington-area Bank of America ATM machine-- that required a separate trip to a teller. When Salkin did move East in early 2003, she discovered further problems. She opened a Bank of America account in Washington, but found that a check deposited to her daughters California-based account required a waiting period before the funds could be accessed.


And when Salkin went back West this summer for a visit, she too found that she couldnt make a deposit at a California Bank of America ATM to her Washington account.

"The whole reason I chose Bank of America was because I thought I would be getting the benefits of a national system," she says. "It would have been a lot simpler to sign up with a local bank."

Eloise Hale, a spokeswoman for Bank of America, was surprised to hear of this difficulty and said it likely was due to special circumstances. However, other Bank of America customers who have had similar situations told Baseline of the same problems.

"They havent done a great job of integrating their systems to date. Theyve taken more of an if it aint broke, dont fix it approach," says Jim Eckenrode, a retail-banking analyst with Tower Group in Needham, Mass. For the most part, Eckenrode says Bank of America has deployed middleware to create workarounds between the banks core systems, rather than replacing them. For the record, Eckenrode is a fan of this deal, based more on prospects for growth than on cost savings.

Behind-the-scenes technology integration usually doesnt get much attention from Wall Street, but this time it is. Financial analysts were highly critical of the deal, in which Bank of America paid a 42 percent premium for FleetBostons shares. On conference calls and in investor presentations, Bank of America executives defended the premium, predicting they would wring out $1.1 billion in annual cost savings and generate another $200 million in "synergies" from operations.

Next Page: Merging proprietary applications and large development teams.