From law firms to sign makers to advertising agencies to charities, bank mergers are having a wide-ranging impact on Los Angeles not even counting the obvious fallouts from banking job losses and branch closures.
Some of the ripple effects are small, others are significant and in some cases, resourceful businesses have actually prospered.
There is no way to quantify the bottom-line effects on L.A.’s overall economy, and analysts are hesitant to paint too broad a brush on what the mergers could mean for the city. But based on a Business Journal survey last week of dozens of businesses and organizations, the consolidation in banking including last week’s announced merger of NationsBank Corp. and BankAmerica Corp. cuts across many sectors of L.A. business.
Examples of the potential impact:
* Since the 1993-94 fiscal year, the United Way has lost 15,000 donors in L.A. County in the banking industry through employee payroll deductions, said Todd Rosin, a spokesman for the United Way of Greater Los Angeles. That’s 3,000 more than the organization lost to aerospace cutbacks, he said, and translates into $3.2 million in lost donations.
* Advertising agency BBDO West lost up to $2 million in revenue when Glendale Federal Bank announced its merger with California Federal Bank, (though it made up the loss with other accounts), said CEO David Lubars.
* O’Melveny & Myers, L.A. County’s largest law firm, lost legal work when Security Pacific was acquired by BankAmerica in 1992 and when First Interstate Bancorp was acquired by Wells Fargo & Co. in 1996. But the law firm gained business from Bank of America.
* On the positive side, merger activity has bolstered revenues at accounting giant Arthur Andersen LLP in the last two years. Merger work accounts for 35 percent to 40 percent of financial markets business for the Western region, up from about 10 percent to 20 percent, said Jim Neckopulos, partner in charge of financial markets business for the Western region.
BofA officials say it’s premature to discuss what will happen in the wake of last week’s announcement of a mega-merger with Charlotte, N.C.-based NationsBank.
Because there is no overlap of the two companies’ branches in California, no branch closures are expected in the Los Angeles area. BofA’s commitment of $22.6 million in charitable giving for L.A. County and $17 billion in community lending both stand, said BofA spokesman Cary Walker.
“L.A. is going to be the largest market of the combined company,” he said. “Across the board you can look for the new bank to strengthen its presence in L.A.”
Nonetheless, changes are likely, not only at BofA but at many of the other financial institutions involved in a merger. And with so many L.A.-based banks being acquired, decisions on everything from what ad agency to use to what stationery to buy have been transferred to out-of-town companies which are looking to cut costs.
Irwindale-based H.F. Ahmanson & Co., parent of Home Savings of America, estimates that it spends $1 million a month on office equipment and supplies at its headquarters and branches much of which is expected to disappear as branches consolidate under new owner Washington Mutual Inc.
“The vendors are also victimized,” said Ron Wasilewski, assistant vice president of purchasing for Home Savings. “My guess is that amount won’t be spent, because they’re talking about merging branches. A lot of the efficiency of a merger is to eliminate redundancy.”
Glendale Federal Bank’s vendors will also feel some impact because of its merger with California Federal. “The expectation would be, you have two companies, they used two different vendors and only one is needed,” said Glendale Federal spokesman Ken Preston.
At the same time, L.A.-based companies, at least in theory, have an opportunity to do business with the new banks taking over.
“It does cut both ways. We hire some local vendors and maybe some things are consolidated here,” said Libby Hutchinson, spokeswoman for Seattle-based Washington Mutual, which bought Great Western in addition to its recently announced acquisition of Ahmanson.
For example, Washington Mutual has enlisted the services of L.A. public relations agencies Rogers & Associates and Abernathy MacGregor Frank.
Rogers is hiring two new employees because of the account and will have three people working full time on the Washington Mutual project, said Lynne Doll, executive vice president and partner with Rogers.
Sign makers also can be the beneficiaries of a merger as banks rush to change the names on branches.
At Superior Electrical Advertising Inc. in Long Beach, for example, business increased 5 percent as a result of the Wells Fargo-First Interstate merger and a redesign of Wells Fargo signs, said Jeffrey Stern, the company president.
“The nature of the sign business lately has been one merger to another merger and one chain to another chain,” Stern said. “What would hurt our business is if the economy were to change and these mergers and identifications of business were to stop.”
In the accounting world, firms that did audits for banks that are swallowed up may lose those accounts. But at Arthur Andersen, mergers have been a boon, Neckopulos said.
The firm works with merging banks to integrate various functions, including computers and business applications.
“We’re currently doing work for Washington Mutual, which acquired Home Savings and prior to that, we were doing work for Home Savings in a number of areas, helping them when they were in the process of bidding for Great Western, and when they acquired Coast Savings,” Neckopulos said.
Computer systems integration is a growth industry when it comes to bank mergers. Many banks actually use the merger as an opportunity to upgrade their computer technology.
For El Segundo-based Computer Sciences Corp., which consults merged banks on computers, merger mania has been a very good thing. Five years ago, the company did virtually no work in that area, but merger work now represents about 30 percent of its banking work, said Brian Barker, president of the banking and consumer finance division of the company’s financial services group.
“These are multimillion-dollar opportunities because these projects have to be done quickly and properly,” Barker said. “The strategic consultants are very happy about this.”
On the other hand, two banks that merge into one may leave some vendors in the dust, and civic organizations, such as the Chamber of Commerce, with fewer members. Plus, newspapers, radio and television stations have fewer sources of advertising revenue.
Those who create the ads also can feel the impact. BBDO West’s loss of up to $2 million from Glendale Federal, a mid-sized account, last fall “wasn’t pleasant, but no agency hinges on one account,” Lubars said.
“When we took them on, they were in Chapter 11. We helped restore them to the point where they were an attractive purchase,” Lubars said. “Competitors were copying our advertising.”
Saatchi & Saatchi Los Angeles does advertising for Sumitomo Bank, which was recently purchased by Zions Bancorp in Salt Lake City.
“We continue to do business as usual. It takes awhile before a buy takes place,” said Liz Andersen, account supervisor with Saatchi & Saatchi. “It really is up in the air if the situation will change.”
Law firms also feel the impact of bank mergers, but can often make up for the loss of work in one area. Overall, O’Melveny’s volume of banking work hasn’t declined despite the loss of First Interstate and Security Pacific, but the work derives more from out-of-state banks, said Matt Kirby, co-head of O’Melveny’s corporate department.
He thinks some California law firms might benefit from the Bank of America-NationsBank merger, if the company’s two investment banking firms, Robertson Stephens & Co. and Montgomery Securities, continue to be based in San Francisco.
“That’s good news for California lawyers in corporate finance,” he said.
Dena Bloom, a partner in Latham & Watkins’ finance department, said there are more opportunities for legal work as a result of the changes.
“With deregulation, there are a lot of lenders out there and specialty markets,” Bloom said. “If you look at the financial landscape, there are all sorts of players that didn’t exist before.”
At Morrison & Foerster, which does work for BofA and Nations, someone joked last week that the firm would be opening an office in Charlotte, since there’s an advantage to being located near a bank’s headquarters, said Kathy Johnstone, a partner.
The firm took a big hit several years ago when Crocker National Bank merged with Wells, and had to rebuild that practice.
“Over the short term, it has a slow-down effect if you’re not involved in the deal,” Johnstone said. “The total amount of lending work done is about the same, so to the extent you can maintain relationships, your workflow would tend to continue.
“In the short term, it makes us all a little nervous,” Johnstone added. “You have to be nimble in this business.”
Staff Reporter Daniel Taub contributed to this story.