Wells Fargo Tech Exec Discusses Wachovia IntegrationWells Fargo Tech Exec Discusses Wachovia Integration

One early success in merging the Wells Fargo-Wachovia IT systems was getting mortgage employees on a single platform in time to rake in this year's refinancing boom, says the executive leading the technology integration for the combined companies.

Other victories include combining payment systems so Wachovia branches could accept payments from those new Wells Fargo mortgage customers, and allowing customers to use the combined ATM network, says Martin Davis, head of the Technology Integration Office and previously CIO for Wachovia.

Still, most of the technical integration work lies ahead for one of the most closely watched acquisitions in the banking industry. "We've got the planning laid out, we know how we're going to do the integration, and now executing flawlessly is the most significant challenge," Davis says. "We know we can get the work done, but we want to make sure we minimize any impact to our customer base."

Wells Fargo agreed to buy Wachovia for $15 billion in October, when Wachovia was on the brink of collapse. Wednesday, Wells Fargo announced second quarter results with revenue of $22.5 billion, up 28% from the first quarter, and net income rising to $3.17 billion. Yet investors still drove the stock down, as analysts worried about the bad loans in its portfolio, which grew to $18.3 billion, or 2.2% of its total loans.

The U.S. banking sector is in the midst of major change as fallout from last fall's banking crisis. The Wells Fargo-Wachovia deal will create a 10,000-branch, 12,000-ATM operation, linking Wells' West Coast franchise with Wachovia's East Coast presence. Meanwhile, JPMorgan Chase expects to have fully integrated the retail banking assets of Washington Mutual by year's end, while at the same time bringing on the investment bank Bear Stearns.

Anyone who's been through such IT integrations knows they're tough, in part because it means picking one software system and killing off another. "It can be emotional," Davis says. "[IT pros often] tie their value and worth to the organization to the system they support. We constantly remind our team members the value of a technology professional is the experience and knowledge you bring around technology, not necessarily tied to a particular system." Davis declined to put a number on the IT layoffs resulting from the acquisition, but says they've been minimized in part by reducing local contractors and offshore activity.

Wells Fargo's IT integration strategy starts with the assumption that it'll keep the Wells system, unless there's a clear performance advantage, such as using Wachovia's brokerage platform. There's also the option of bringing in a new software platform that's better than either company has, but the team resists that. "We select system A or B, and we challenge if someone tries to bring in option C," Davis says. However, the integration does present a golden opportunity to efficiently ramp up adoption of the right emerging technology. One such example is server virtualization.

In a typical year, an IT organization might work on 20% to 30% of its software platforms in a significant way. During the integration, IT teams will touch more like 80% of systems. Wells Fargo was in the midst of planning for a major data center expansion, but it instead will move into a new data center that Wachovia recently built. That's the right time to consider running more apps on virtual machines, thus increasing server utilization and letting the company operate fewer boxes. Both companies have been using server virtualization, of course, but Davis says this will speed that up, letting teams "make a conscious decision whether we should or should not virtualize."

Wachovia had more recently been through a major integration, bringing on First Union and AG Edwards in recent years, so the combined companies are using Wachovia's methodology for setting integration priorities. Each business unit creates a "target operating model"—a Tom—that lays out the business units' product plans, workforce size and geography, its technology needs, and any gaps in product or technology.

Business unit leaders walked through each TOM as a group, figuring out how to prioritize the integration, where the synergies are, and how they'll work together.

Davis says the key metrics he watches to see if the integration's on track center around system availability, employee retention, budgets, and operational efficiency.

The market's cool response to Wells Fargo's growing sales and earnings this week shows investors still have grave doubts about the banking markets, and that only ramps up the pressure on executing the Wells-Wachovia integration. CEO John Stumpf called the integration the company's "top priority."

Along with the pressure, though, Davis says there's a motivation for the IT team in working on an historic integration. "How many times in a career will you have a chance to do what we're doing right now?" Davis asks. "You can probably argue there will never be a transaction in the financial services industry of this size again, given the size of the players that are currently in the U.S. financial market."

information's Informed CIO series lays out 10 steps to achieve excellence in service assurance initiatives. Download the report here (registration required).