CHASE-CHEMICAL MERGER BANKS ON CUTTING COSTS

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It was an odd prize for many New Yorkers attending a baseball game last week at Yankee Stadium: They were handed a commemorative Yankees pin, courtesy of Chemical Bank.

The pin might become a real collector's item, thanks to last week's announcement of the $10 billion merger between Chemical and Chase Manhattan Bank.

The merger created the biggest U.S. bank in history, but it means Chemical Bank will cease to exist, and its longstanding New York baseball sponsorship is in jeopardy.

The news also means the loss of 12,000 jobs as the banks consolidate functions to cut costs-and uncertainty for the pair's many agencies.

Analysts say the banks had to merge to survive ongoing brutal competition in the rapidly consolidating banking industry, which is being undermined by non-bank competitors.

"They had to merge because their revenues weren't growing, and now their earnings will go up because of the cost savings they'll realize in combining forces," said James P. Hanbury, a banking analyst with Wertheim Schroder & Co., New York.

Ad agencies are bracing for shifts, but it will be several months before any major changes, insiders say.

The merger will be a done deal around March, and despite last week's announcement by the Rev. Jesse Jackson that his Rainbow Coalition will try to block it, bank industry observers see no legal obstacles.

Meanwhile, Chase will be concentrating on carrying off a smooth transition in consolidating departments and moving Chemical customers over to the Chase banner. Officials at both banks insist it's "very premature" to speculate on agency shifts, and many shops seem to believe them.

"We've heard the bankers want to minimize chaos and not to expect any dramatic [agency] changes-especially in the near future," said an executive at a current agency.

Many insiders believe Wells Rich Greene BDDP has a better shot at remaining the primary agency of record, as lead shop for consumer banking at Chase, whose name will stay on the doors.

McCann-Erickson Worldwide is Chemical's lead consumer banking agency.

The acquiring bank's agency has prevailed in several previous bank mergers, including the retention by Ketchum Advertising, San Francisco, of the BankAmerica account in 1992 when its client acquired Security Pacific Corp.

Just this year Arnold Fortuna Lawner & Cabot, Boston, kept Fleet Financial Group after it agreed to acquire Shawmut National Corp., leaving Shawmut agency Houston Effler Herstek Favat with a zero balance.

Other agencies on the roster include: Hutchins/ Young & Rubicam, Rochester, N.Y., which handles Chase's upstate New York business; Grey Directory Marketing, New York, agency for Chase's direct marketing and Yellow Pages; Saatchi & Saatchi Advertising, which handles Chase in Europe; DDB Needham Worldwide, Chase's agency in Asia; and Messner Vetere Berger McNamee Schmetterer/Euro RSCG, which handles middle-market and private banking for Chemical.

Most big banks, including giant Citicorp, rely on several agencies; that may be the case in the Chemical-Chase merger.

But Chemical Chairman-CEO Walter V. Shipley will be running the new operation, with several of his top advisers in consumer banking and marketing reporting to him, which could give McCann-Erickson a leg up.

Recent retail advertising for both Chase and Chemical has focused on the convenience of available telephone and electronic banking services. Chemical's campaign theme is "ChemPlus," while Chase urges customers to "profit from the experience."

Despite the new bank's marketplace clout, analysts agree that banks are swimming upstream in the current intensely competitive and fragmenting financial services marketplace.

"It's the non-bank competitors-mortgage bankers, mutual funds, money markets and even non-bank credit card issuers- that are eating up banks' bottom lines," said Joel Gomberg, a banking analyst with Chicago-based Duff & Phelps. To survive, he said, banks need to be more promotional, "thinking like retailers" to attract customers through low-cost channels.

Chemical's thriving Shell/Chemical MasterCard co-branded consumer credit card, giving customers up to 3% of their total credit card charge volume back in free Shell gasoline monthly, is one example.

Customers ought to withstand the credit card name change without fleeing, say experts. This year alone there have been about 200 bank mergers, representing nearly $200 billion in assets altogether.

"Those who are happy with their accounts, the credit cards and their terms won't mind if the bank's name changes-there's less loyalty every day to bank brand names and more focus on rates, fees and perks," said John Stewart, president of Credit Card Management, a Chicago-based magazine that watches industry trends.

Mark Gleason contributed to this story.

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CORPORATE CLOSE-UP

Chase Manhattan Corp.

Headquarters: New York

Leadership: Walter V. Shipley, chairman-CEO; Thomas G. Labrecque, president-chief operating officer; Edward D. Miller, senior vice chairman overseeing regional and consumer banking; Donald Boudreau, vice chairman overseeing consumer banking; William B. Harrison, Jr., VP-global banking & private banking.

1994 ad spending: Pre-merger Chase spent an estimated $20 million, plus

$6 million to $8 million in direct marketing; Chemical spent $25 million

on media and $8 million to $10 million on direct mail.

Primary agencies: Chase: Wells Rich Greene BDDP and Grey Direct, both New York; Chemical: McCann-Erickson Worldwide, New York, for consumer banking; Promotional Campaigns, Houston, for co-branded credit cards; Adler Boschetto Peebles & Partners, for some corporate efforts.

Chase's recent successes: Steadily improved net income for the last four years by concentrating on stratetic growth areas, including consumer

retail banking and mortgage lending.

Chemical's recent successes: Scored more than 2 million new customers in last two years with Shell/MasterCard co-branded consumer credit card; trimmed operational costs by replacing branches with electronic banking systems; intensified global syndicated lending efforts.

Challenges: Soaring banking operational costs; organizational

difficulties in closing and selling regional branch operations; declining market share and revenues in both consumer and commercial sides due to increasing competition from nonbank competitors.

Source: Advertising Age and company reports

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