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Tech Industry

Technology fuels bank mergers

Technology, not just deregulation, is a catalyst for the spate of recent bank buyouts, though many customers dislike the banks' automation.

Technology, not just deregulation, is a catalyst for the spate of recent bank buyouts, the latest being today's merger between Wells Fargo and Norwest to form the nation's seventh-largest bank.

Nowadays cost-conscious banks are building state-of-the-art computer networks to link customers and workers as well as to provide banking services on the Internet. Companies such as Netscape Communications, Oracle, and Microsoft, among others, are chasing this growing business. One example: Netscape's deal last month to provide software to Citibank for e-commerce sites, intranets, and extranets.

Although these networks cut costs, they also anger many consumers who prefer handing their money over to a real person. The systems can break down as well, as evidenced by a recent frame-relay outage that cut access to automatic teller machines.

In today's deal, Wells Fargo is merging with Norwest in a $34 billion stock swap. Norwest chief executive Richard Kovacevich, who will be chief executive of the combined companies, said the target is to get at least $650 million in annual expense savings during the next three years. More than 2,000 positions are expected to be eliminated, and the banks expect to be prepared to handle the Year 2000 computer problems by year's end.

The Wells Fargo-Norwest merger comes on the heels of the recently announced $60 billion combination of NationsBank and BankAmerica, and the $30 billion merger of First Chicago and Bank One.

"The costs of technology are a principal factor driving these mergers nowadays," said Hans Schroeder, banking analyst for Hoefer and Arnett. "If you can consolidate the back office, then you can exact efficiencies and create a more efficient bank. That's definitely a strong trend in pushing mergers throughout the country during the past five years."

The mergers are expected to continue. One reason: small banks will merge with larger ones, partly because they "can't deal" with the Year 2000 computer problem, as Mike Abrahams, analyst with Sutro & Co. put it.

Wells Fargo has been a leader in positioning itself as a high-tech bank. Just last week, for example, the bank said it would offer a real-time service for getting a decision on a home equity loan application. It also has been a leader in building online banking and automatic teller machine networks. Its ATMs now are located in major local supermarkets, for example.

Consumers have criticized the changes, however. The execution of Wells' previous merger with First Interstate left some fuming, and many went to other banks. As a result, many community banks are thriving, Abrahams said. For example, an institution called the Bank of Petaluma in Northern California has expanded by purchasing and reopening branches previously run by Bank of America. Its motto: "Perpetuate a unique providing superior service, innovative products, and timely attention to the needs of the community."

Reuters contributed to this report.