BANK MERGING? You've Got Choices.

If it hasn't already merged, the odds are good that during the next five years, your bank will merge into a larger operation. The 14,000 U.S. commercial banks in existence in the mid-1980s now number less than 9,000, and experts predict the total to stabilize at 2,000 3,000 in 15 to 20 years. How can you tell if your bank is a merger candidate? What steps should be taken following a merger announcement? And what should you do if you find the situation unacceptable?

Prior to the official merger announcement, look for three "flags:"

1. The bank's competitors are part of national or global banks.

2. The bank appears to be treading water (or drowning) without a clear strategy for its corporate business.

3. The bank's market-to-book value ratio is below two. At the beginning of 2001, eight of the top 50 banks were in that situation. (Note: the top five banks are excluded, since they're too large to be acquired.)

Merger's On: What to Expect

Don't expect business as usual. Changes you may expect include:

* Staff turnover and distraction. Many retained employees may lose focus in the face of uncertain futures and increased workloads.

* Service package changes. Acquirers often evaluate and change existing packages.

* Administrative paperwork. Establishing new account numbers, signature cards and preparing bank resolutions.

* Systems interruptions. As systems are integrated, anticipate unusual outages and unavailability.

As a customer, don't panic! The bank should be very responsive during this period, when business retention is a primary responsibility. A good first step is to inventory all the business you have with the merging institutions. If you're doing business with both, consolidation can provide an opportunity to negotiate better terms.

A few other hints for the transition period:

* Monitor each transaction, especially time-sensitive payments.

* Reconcile bank statements and invoices closely.

* Get plugged into special customer service areas that are often established to soothe merger-related problems.

* Identify the senior executive responsible for your business, and make him or her aware of merger-related problems.

* Negotiate for reimbursement of merger-related expenses such as printing new checks and late payment fees.

Finally, be patient and prepared for glitches. Once the initial consolidation period passes, product performance and service delivery will probably prove acceptable.

Merger Impossible

If, after giving it a chance, you find the new environment unacceptable, it's time to find another bank. You can start by using a request-for-proposal (RFP) process. The Association for Financial Professionals (AFP) has published standardized RFPs to assist with questions in numerous service categories, including controlled disbursement, depository services, wholesale and retail lockbox, wire transfer, automated clearing house (ACH), electronic data inter change (EDI), information reporting, disbursement outsourcing, treasury workstations, purchasing cards and custody services.

When selecting your next bank, keep these points in mind:

* Stay with proven products and services. Avoid new products until you are satisfied that the bank has an ample client list. While corporate treasury banks frequently offer new products such as Beta trials (with live R&D test sites prior to public release), you should avoid these. Users generally find technical glitches, inadequate customer support and incomplete documentation.

* Keep your product and service search simple. Don't expect your bank to handle special processing, a service banks generally don't do well and charge premium prices for.

* Describe your requirements when soliciting bids. Begin your RFP with a description of your processing flow and state your "musts" and "wants" explicitly.

Finally, the best advice for dealing with a banking merger is: just accept it. Moving towards oligopoly in the corporate banking market means accepting fewer choices and higher prices. So, be prepared to aggressively manage the banking relationship and be patient with short-term problems.

James Sagner is senior managing principal of Sagner/Marks, a treasury consulting firm, and author of Cashflow Reengineering (AMACOM Books, 1997). He can be reached at 914.686.2732. Michele Allman-Ward is president of AWA Associates, a firm that conducts global treasury studies;