It’s been over a year since Wells Fargo & Co. acquired First Interstate Bancorp for $11.3 billion, but Wells is still recovering from arguably one of the longest cases of the Monday morning blues in recent corporate memory.

Since closing the transaction on April 1, 1996, Wells has suffered through a string of technological glitches and an exodus of unhappy customers, disgruntled with long lines, less personal attention and service disruptions all of which have led to earnings that were sharply below analysts’ expectations in Wells’ most recent reporting quarter.

Added to that was a larger-than-expected departure of former First Interstate employees who chose lucrative severance packages over staying with Wells, all of which have led Wells officials to be unusually candid about the missteps.

“Moving customers from two (institutions) to one is very complex especially for a company with systems in 13 states,” said Paul Watson, the vice chairman of Wells Fargo responsible for the commercial banking group and the highest Wells official based here in L.A.

“Now we’re mopping up the mistakes we made when we converted the systems. There are still problems, but not as many as in the merger, and each month there’s measurable improvement.”

Indeed, merger missteps became so pronounced last summer and fall that they prompted Wells Chairman Paul Hazen and President William Zuendt to make equally candid comments in their letter to shareholders in the Wells annual report in March.

“In moving as quickly as we did (to integrate First Interstate into Wells) , we did not expect things to go smoothly from start to finish. They didn’t,” they wrote.

Some of the biggest glitches that have plagued Wells in its first year of matrimony with First Interstate include:

– The overwhelming of its online banking system early last September, which forced Wells to take down the entire system for two days. A higher-than-expected volume of calls from former First Interstate customers was blamed for the problem.

– The delay of $40.3 million in direct deposits for 119 Wells Fargo institutional customers last August, including checks for 6,000 UCLA employees. Wells blamed the problem on human error and said the glitch wasn’t merger related.

– The issuing of thousands of erroneous loan statements to small business customers last July and August, for which Wells later apologized. Again, Wells blamed the glitch on human error and said it was not merger related.

– Sporadic disruptions between Wells’ central computers and its automated teller machines last summer, causing some customers to get inaccurate information about their accounts.

– Frequent customer complaints about branch closures and unusually long teller lines at the branches that remained.

“It was horrible. It was a nightmare,” said Juan Luzariaga, general manager of Five Star Service, an auto service center in Glendale that moved its account from Wells Fargo last October following the merger.

“They closed down the branch next door to us in April (1996), and the lines got a lot longer. When we complained that the branch was being closed, they told us there was an office in the market next door. But when you’re a business, you want a branch to bank in,” Luzariaga said.

Lost business resulting from merger-related problems caused Wells to post lower-than-expected earnings and declining loan volumes and core deposits in the latest reporting quarter ended March 31.

Net earnings and earnings per share for that quarter came in well below analysts’ expectations, with Hazen blaming “runoff in our loan and deposit portfolios” for the disappointing figures. In the same report, Wells also said its total loans were off 3 percent in the first quarter vs. the fourth quarter of 1996, and core deposits were down 7 percent over that period, causing total assets to drop 6 percent.

Analysts predict the numbers could drop even further in the second quarter, and results will likely be flat for the rest of 1997.

The disappointing numbers caused Wells Fargo stock to drop all the way to $250 per share shortly after the announcement, from a high of $316 per share in February. Spurred by an overall stock market rally, the share price had risen to $287 by last week (still 9 percent below the February high).

Some analysts attributed Wells Fargo President William Zuendt’s recent announcement that he will retire later this year to the disappointing numbers in the merger’s wake. However, Zuendt’s departure was already in the works before the merger even began, said Watson.

“I don’t think (Zuendt’s resignation) was totally unexpected. He’s been planning his retirement since age 45, and having shepherded the bank through the transition, I think he saw an opportunity,” Watson said.

Watson added that glitches continue to pop up as Wells integrates First Interstate’s customers and operations, although those problems are becoming more infrequent over time.

“Most of the impact has been neutralized,” he said. “It’s difficult to say (how long lingering problems will persist), but we would expect to have it all under control by year end.”

Indeed, the impact of technical glitches may be largely behind Wells, but it will at least another half year before Wells’ earnings bottom out and start to show some improvement, said Tom Theurkauf, an analyst at Keefe Bruyette & Woods Inc.

“The second quarter should be another sluggish or sloppy quarter maybe even a down quarter as revenues continue to compress. I think Wells will stabilize in the second half and begin to grow next year,” he said.

In order to fuel that growth, however, Wells will either need to bring back some of its former customers or find new business elsewhere a task which could be difficult, Theurkauf added.

“Once you’ve shown a customer the door, it’s hard to get them back in. The problems that have occurred over the last few months will make it more difficult for them” to bring in new business, he said.