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Before there was an Internet land grab, there was a banking land grab. Before the Internet bubble burst, the banking bubble exploded.

Before there was an Internet land grab, there was a banking land grab. Before the Internet bubble burst, the banking bubble exploded.

By Jacqueline S. Gold
June 2001
Institutional Investor Magazine

Before there was an Internet land grab, there was a banking land grab. Before the Internet bubble burst, the banking bubble exploded.

Few banks did more grabbing, and few suffered more pain, than First Union Corp. In less than two decades, under the hyperventilating leadership of Edward Crutchfield, the Charlotte, North Carolina, bank transformed itself from a backwater regional institution to the sixth-largest banking company in the country, with $253 billion in assets and branches in 11 states. Not for nothing did Crutchfield, who engineered 81 acquisitions, earn the nickname "Fast Eddie."

First Union investors could have done without his last two big buys, the ill-conceived and poorly executed purchases in 1998 of CoreStates Financial Corp. and the Money Store. Crutchfield expected the deals for the Philadelphia-based regional bank and the second-mortgage specialist to cap his career. Instead, financial and operational disasters, they nearly crippled First Union, which had to restate earnings twice in 1999, a year in which its stock price fell 46 percent. Just as those problems were coming to a head, Crutchfield was stricken by lymphoma. In April 2000 he handed over the CEO reins to G. Kennedy Thompson.

The handpicked Thompson, 50, turned out to be the anti-Eddie. Soft-spoken, detail-oriented and happy far from the limelight, the First Union lifer and Crutchfield loyalist promptly stunned observers by repudiating his mentor's legacy, shutting down the Money Store and ringing up a $2.7 billion restructuring charge, a U.S. corporate record. As a result, First Union's net income plunged 97 percent in 2000, to $92 million. Thompson's responses included cutting the dividend in half, reducing the bloated board from 23 members to 14, laying off 7 percent of the staff and selling 90 branches as well as the bank's mortgage-servicing and credit card units.

Most notably, Thompson all but swore off big acquisitions, repeatedly reassuring Wall Street analysts that his emphasis would be on "execution." His avowals, plus a new management team and a return to decent profitability (in the first quarter net income of $584 million produced a return on equity of 15.6 percent) restored confidence. First Union's depressed stock jumped 19 percent during the first quarter, even as the Standard & Poor's bank stock index fell 4.8 percent and the S&P 500 index declined 12.1 percent, and Thompson enjoyed a honeymoon with investors. Even such a fierce critic of First Union as research-analyst-turned-hedge-fund-investor Tom Brown, whom Crutchfield had banned from the bank, turned bullish: "Thompson did surprise me. He has reestablished credibility both internally and externally. There were reasons that you wouldn't come in and change the company as he did. That takes guts."

Then a funny thing happened on the road to recovery. At a meeting of the board of overseers for Wake Forest University, Thompson ran into Leslie (Bud) Baker Jr., the CEO of in-state rival Wachovia Corp., who asked his fellow trustee if he wouldn't mind getting a drink and having a chat. It was April 5. Eleven days later Thompson appeared to be a changed man, announcing plans to pay $13.1 billion to acquire Wachovia. At $75.6 billion in assets, it would easily be First Union's biggest-ever acquisition and lift the company to No. 4 among U.S. banks (with a total of about $328 billion in assets).

So much for the anti-Eddie - and so much for Wall Street's warm embrace of First Union and its low-profile CEO. Shares dipped, and critics howled.

"First Union was making some progress, coming from a broken franchise a year ago," says Brown, who runs New York-based Second Curve Capital, which invests in financial companies. "There's no way it can operate on all eight cylinders when it's doing an integration of this kind."

Sanford C. Bernstein & Co. analyst Ronald Mandle put it bluntly: "If management doesn't do this right, they are going to be fired."

The topper, of course, came when Atlanta-based SunTrust Banks, an erstwhile suitor of Wachovia's, denounced the deal and made a counteroffer on May 14 for $14.7 billion. (Because of a decline in SunTrust's share price, that valuation quickly fell to about $13.5 billion.) When Wachovia's board reaffirmed the First Union deal, SunTrust initiated legal action challenging certain antibreakup provisions and is vowing a proxy fight.

Now Thompson finds himself under a white-hot spotlight that even Crutchfield never sought as the rival suitors square off in the kind of nasty battle not seen since Wells Fargo & Co. won its pyrrhic victory over the former First Bank System in the acrimonious fight for First Interstate Bancorp in 1996. But Thompson, who seemed to some a pale shadow of his feisty old mentor, is not about to back off. He's prepared to wage a battle for the hearts and wallets of Wachovia shareholders. Determined to see the deal through without raising his lower bid, Thompson argues that combining the two North Carolina-based banks will achieve greater cost savings short term and create more value in the long run.

"We're ready for a fight. We think the prize is awesome here. The combination of Wachovia and First Union is a once-in-a-lifetime opportunity worth fighting for," says Thompson, who would become CEO and president of the combined entity, which would take the name of Winston-Salem-based Wachovia but be headquartered in First Union's hometown of Charlotte. "I'm sure Wall Street would have liked to have seen us go five or six quarters before we did another large acquisition. But this deal will be accretive on day one. We can take out costs. I don't think we'll miss a beat in putting the two companies together."

Not surprisingly, Baker, who would be chairman for two years, agrees: "In the past, whenever I have considered the possibility of a merger, the possibility of the combination with First Union has always been my favorite. The only question was how could it be done in a way that made sense for our customers, our shareholders and our people."

Nonsense, say SunTrust and its numerous supporters - including many Wachovia shareholders. They point out that First Union's offer was at virtually no premium above Wachovia's stock price at the time of the bid. SunTrust offered a 17 percent sweetener, though that has since fallen to less than 5 percent. SunTrust's allies note its consistent record of earnings growth - and point to First Union's earnings restatements in 1999 and its record of special charges, strongly implying it is out of control.

SunTrust and Wachovia make for a better fit, insists SunTrust chairman L. Phillip Humann. Fewer branches will be closed; fewer employees will be laid off. "We are compatible in the way we deal with customers. It's relationship banking as opposed to product peddling. We will not denude their operations in North Carolina as First Union will," says Humann. "We continue to be stupefied as to why the Wachovia board voted against what is clearly a better proposal."

SunTrust and its supporters may think they have the better case, but they should not underestimate Thompson. His career, in many ways, prepared him for this moment. His rapid rise through First Union's ranks paralleled and benefited from the bank's explosive growth; he personally had a hand in three dozen of Crutchfield's 81 acquisitions, beginning with a pair he made on an eight-month assignment in Atlanta in 1985.

Calculating and shrewd, he's also patient and resolute. "Ken Thompson is a fighter and a competitor," says First Union board member Erskine Bowles, a former Clinton administration chief of staff and a founder of North Carolina merchant bank Bowles Hollowell Conner & Co., which Thompson bought in 1998. "I expect us to prevail."

Thompson's grit and determination were evident early in his youth in Rocky Mount, North Carolina. Short of stature, Thompson turned himself into a talented Little League shortstop. But his father, a manager in a textiles mill who coached local youth sports teams, kept him off of the all-star team. "He didn't want it to go to his head," recalls Page Lea, a childhood friend who is now a Virginia businessman. "There we were at nine years old, up against pitchers who, at 12, were much bigger and stronger. I'd get up to bat shaking like a leaf. But Ken, he'd be perfectly calm."

An academic go-getter, Thompson won a state public speaking contest (his topic: "Youth's Approach to World Forces") when he was 12 years old and as a teenager chaired a group that helped prepare for the last stage of racial integration at his high school. He won a prestigious Morehead Scholarship to the University of North Carolina at Chapel Hill and enrolled in the fall of 1969. Thanks to his number in the draft lottery, he avoided service in Vietnam. An American studies major with a conservative political bent, Thompson became a lifelong student of history, with a fondness for the founding fathers and Winston Churchill.

Graduating from college with no clear career goal in mind, Thompson returned to Rocky Mount to help his father tend to his mother, who was dying of cancer. In 1974, a year after his mother's death, he enrolled in the MBA program at Wake Forest's Babcock Graduate School of Management.

"He was an intense person," says Bernard Beatty, an associate professor of management and Thompson's accounting teacher at Wake Forest. Thompson excelled at problem solving. Beatty says he once dismissed a class 20 minutes early after Thompson parsed a difficult case study and proposed a series of astute recommendations for revamping a military base. "When he was finished, there was just nothing more to be added," Beatty says.

"He was not somebody who had to talk about himself a lot," says North Carolina Governor Michael Easley, a Democrat who grew up with Thompson in Rocky Mount and was a year ahead of him at Chapel Hill. Easley knows Thompson's loyalty firsthand. Though a Republican,Thompson not only voted for his childhood friend, but he also did some active campaigning. "He's somebody who believes that if you follow the rules and put one foot in front of the other, it will get you where you're going," says the governor. "He doesn't deviate from that, doesn't cut corners and doesn't take unnecessary risk."

Straitlaced, unassuming, risk-averse: What else could one want in a banker? Thompson interviewed with a number of companies that went to Wake Forest to recruit. But with First Union, he says, there was immediate chemistry. "It felt like it was a place where I could succeed, where performance would be rewarded."

For Thompson it was. On the fast track almost immediately, he was assigned to handle national accounts in Charlotte, then moved to New York after two years to handle the bank's corporate customers there. Three years later he was back in Charlotte as a manager in the commercial banking division, which then had just $2 billion in assets.

By 1985, at 34, Thompson had impressed Crutchfield enough to warrant a plum assignment: a transfer to Atlanta to take charge of one of First Union's first major initiatives outside North Carolina. It was a heady time for banking, and for First Union. The barriers to interstate expansion were falling as various states formed compacts allowing banks within their regions to open branches across state lines while barring outsiders - read, the New York money center banks - from doing so.

The Southeastern states were among the first to jump on the bandwagon. Indeed, the first merger enabled by a regional compact was of Sun Banks of Florida and Trust Co. of Georgia - now SunTrust.

First Union and Bank of America Corp., which was then known as NCNB Corp. and later NationsBank Corp., embraced the possibilities eagerly in the years before full nationwide branching became permissible in the mid-1990s.

"Our strategy was to make small acquisitions - buy a foothold and build a de novo bank," Thompson says. As president of the Georgia operation, he bought two banks, hired a team of corporate bankers and began the spadework of meeting with midsize customers to build a commercial book of business.

He didn't have much time to see the payoff. After just eight months he was summoned back to Charlotte, where Crutchfield wanted him to run the human resources department. The job held no appeal for Thompson, who loved the life of a commercial lender. But ever the loyal foot soldier, he accepted without question.

As it turned out, human resources was the place Crutchfield liked to put hot management prospects to see how they performed. That gave Thompson, reporting directly to Crutchfield for the first time, a topside view of First Union's efforts to stitch together a multistate operation.

"I was dealing with the senior managers of the banks that we acquired, making sure they became part of the team, evaluating which would stay and which wouldn't. I did some laying off. But mostly we spent a lot of time on technical and leadership training, spreading the First Union culture," Thompson says. "I learned at an early age how to run a big corporation."

During his 18-month stint in human resources, First Union made its crucial entry into Florida, beginning with the 1985 acquisition of $3.8 billion-in-assets Atlantic Bancorp. of Jacksonville. The man who negotiated the deal for Atlantic was B.J. Walker, who later became chairman of the Florida bank and a vice chairman of First Union. Walker was impressed with Thompson's knack for reassuring the employees of banks acquired by First Union.

"Bringing those people aboard when you are changing their lives" is no mean feat, Walker says. Thompson is "exactly what he appears to be. You spend any time with him, you like him. He's a gentleman." Yet he is a fierce competitor at work and, with his 13 handicap, on the golf course. Walker adds: "He's got one of the smoothest strokes in the world, especially on the last hole when the heat is on. And then he beats you with a smile on his face."

Impressing Walker and Crutchfield certainly didn't hurt Thompson's prospects. In 1987 Crutchfield decided to ship his protégé off to Florida as executive vice president and head of the state's general banking group. Over ten years Thompson led an acquisition drive that took First Union from $4 billion to $45 billion in Florida assets. Thompson, who later became president of the Florida subsidiary, had free rein, checking in with Charlotte only when a deal got outsize. "Primarily," says Thompson, "we hunted them in Florida, and we skinned them in Florida."

Pleased with Thompson's performance, Crutchfield brought him back to Charlotte in 1996 to take charge of the company's fledgling capital markets division. As in Florida, says Thompson, "we were in a growth mode. [Crutchfield] wanted me to make some acquisitions." Thompson dutifully negotiated the purchase of Richmond, Virginia-based Wheat First Butcher Singer and Charlotte neighbor Bowles Hollowell Conner, tying up both deals in 1998.

Despite the Russian financial crisis and the subsequent blowup of Long-Term Capital Management, which hit the capital markets group hard, Thompson managed to contribute 18 percent, 20 percent and 30 percent of First Union's total profits during his three years in charge.

The rest of the company, however, was not managing its traumas as well. Crutchfield's growth engine was about to come apart thanks to the CoreStates and Money Store acquisitions, as well as an ill-fated retail banking strategy dubbed Future Bank.

To fill out its East Coast footprint, First Union wanted Philadelphia-based CoreStates. First Union was already strong throughout the Southeast and had branches in New Jersey (the former First Fidelity) and Connecticut, but it paid far too much for CoreStates: $20 billion, or 6.2 times book value, for a bank that had, as it turned out, deeply entrenched technological problems. First Union rushed through integration to reduce expenses, but that only hurt service levels and encouraged customers to flee. Compounding these problems were wholesale staff departures from the old CoreStates - people who knew their customers and might have helped prevent the resulting decline in market share.

In the Money Store, a leader in home equity lending, First Union had seen a chance to enter the high-margin subprime lending business, serving finance company customers who tended to be rejected by banks. But the business turned sour as consumer bankruptcies escalated, imperiling First Union's $2.1 billion investment. "We were in the home equity business, and [the Money Store] looked like something that would fit and that we would have been able to handle," says Walker, who left First Union's board in 1998.

Adding to the misery, the Future Bank initiative backfired badly. The idea of this seriously misguided program was to move retail customers out of branches and onto phones, ATMs and the Internet. Rammed through at the same time as the CoreStates acquisition was being assimilated, it only succeeded in pushing horrified customers out the door.

By January 1999 First Union had to tell the Street that earnings estimates needed to be revised downward. A second profit warning came that June. A month later 52-year-old president John Georgius, who was closely associated with the CoreStates and Money Store deals, as well as Future Bank, took the fall and announced his retirement. First Union was beginning to reel.

When Bowles, now a general partner at Forstmann Little & Co., joined the First Union board in early 1999, he says, he was immediately concerned about the line of succession. Thompson, with his stellar record and position far from the company's problems, made an ideal choice. "I asked Ed about it and told him I liked this guy he had down in Jacksonville. Meanwhile, Ed was telling me he had somebody in capital markets in mind. Turned out to be the same guy: Ken Thompson," says Bowles, who had sold his interest in Bowles Hollowell Connor five years before First Union bought the merchant bank.

In Thompson's first six months as president, succeeding Georgius, First Union's deposits dropped by $9 billion, and the company's share price was off by 17 percent. In early 2000 Crutchfield walked into Thompson's office and told him he had a curable form of cancer and was about to ask the board to name Thompson CEO.

For Thompson the news about Crutchfield's illness was devastating. "My mother died of cancer, so I had an emotional reaction," he says. "I had spent a lot of time working with him."

Thompson moved quickly and decisively. First, he gathered a group of trusted managers around him, including David Carroll, who is in charge of e-commerce and corporate marketing; Benjamin Jenkins, who runs the general bank; and Donald McMullen, who heads capital management. Then Thompson launched an intensive review of the company's operations. With the help of outside advisers from Credit Suisse First Boston, McKinsey & Co. and Merrill Lynch & Co., the planned six-month process was finished in three months. The result was the bitter medicine he announced in June 2000, led by the decision to shut and write off the Money Store.

Says Thompson: "We bought into an industry that we thought was similar to ours, and it turned out it wasn't. And that market changed."

He had little trouble persuading his board to go along because, Bowles says, it was clear something had to be done. Thompson, Bowles says, "did an enormous amount of homework and really sold the board based on the facts. He faced up to it and admitted the problems."

Thompson also set ambitious goals: double-digit profit growth in 2002 and an 18 percent return on equity. To get there he worked quickly to build a more aggressive, hands-on management team. One crucial hire was chief financial officer Robert Kelly, a 19-year veteran of Toronto Dominion Bank, who was charged with reining in expenses and demanding more accountability from department heads. He succeeded Robert Atwood, who retired.

A blustery native of Halifax, Nova Scotia, Kelly wasted no time in bringing to Charlotte some of the cost and financial control measures of Toronto Dominion, which is known in Canada as the lean, mean, green machine. "It is very metrics-based, very quantitative," Kelly says of his former employer. "That is something I am trying to help First Union with today."

The old First Union flew too much by the seat of its pants, even when it came to financial reporting. Even people inside the bank found the disclosure practices unhelpful. "We didn't have systems that could clearly denote which businesses were profitable, which ones weren't and which were making a great return on capital," says Kelly. Now each of the company's 30 operating units is being accounted for in the same way and held to a single standard: a minimum 12 percent return on capital.

Kelly also helped devise a new stock ownership scheme to align management's interests with those of shareholders. Bonuses are now linked to specific growth targets; if those are not met, no cash. All executive vice presidents have to own at least three times their base salary in First Union stock, while vice chairmen must hold four times and the CEO five times (Thompson's holdings already far outstrip the minimum).

"It's one thing to have options; that's wonderful. But we also want you to be an owner in the company and have material upside and downside. The best way to do that is to own shares," says Kelly, who would remain CFO after the Wachovia merger. "We did not have a culture that people were proud of or that was focused on being very efficient. [Now] anything that we're doing that doesn't produce revenue or improve service or help reduce costs is fair game."

Ed Crutchfield sought to build a major national player out of a regional bank based in Charlotte. Ken Thompson's goals seem less ambitious but are no less daunting. Put simply, he wants to turn First Union into a first-class provider of capital markets products to midtier commercial clients and make the company a serious contender in brokerage and asset management.

The key to this strategy is leveraging the existing retail bank, whose branches blanket the East Coast from Connecticut to Florida. The branches provide the customers, and the capital markets and capital management groups manufacture the product. Hence the logic in buying Wachovia, which would add 4 million commercial and retail customers to First Union's current 16 million. Thompson expects to wring out $890 million in annual expenses starting in 2004. The deal would also eliminate a major competitor in the Carolinas and discourage others from entering the region. Thompson and Baker both say they had been chatting informally since last summer; but they got down to serious business in April.

"The fit with Wachovia made so much sense," says Bowles. "It is an in-market acquisition. It's an immediately accretive deal. It adds enormous management strength. Wachovia has a first-rate group of corporate clients, and First Union has a first-rate group of products to sell to those clients. It was an easy vote for a director of First Union to make in favor of the merger."

The deal came together quickly. In the weeks leading up to the mid-April agreement, SunTrust had been putting added pressure on Wachovia to sell. The two banks, after years of courtship, had nearly sealed a deal in December, but Wachovia executives say issues of trust got in the way. Their headquarters would have moved to Georgia, and despite promises to the contrary, Baker and his colleagues feared they would have been shunted aside. Wachovia shareholders and directors would have lost clout in what could not by any stretch be characterized as a merger of equals. (SunTrust, with $103.7 billion in assets, is almost one third larger than Wachovia.)

Mindful of these so-called social issues, Thompson was able to minimize Wachovia's discomfort by agreeing to use the Wachovia name and to provide equal board representation to both companies, even though Wachovia shareholders would own just 27 percent of the entity. He also gave Baker a sweetheart golden parachute for when he leaves after two years as nonexecutive chairman. (Skeptics promptly attacked the arrangement - which included such amenities as $2 million a year for life - and Baker agreed in May to a reduced payout of $1.5 million.)

First Union also backtracked on the potential size of a breakup fee in the event that its Wachovia deal failed. After SunTrust challenged the arrangement in a lawsuit, First Union placed a $780 million cap on the fee and said that distressed loans and real estate could no longer be applied to it.

SunTrust's Humann says he was unaware of the Thompson-Baker negotiations and thought he still had the inside track to Wachovia. He says he found out about the First Union-Wachovia deal from an investment banker on the Friday before it was announced. "It seemed so incredible," says Humann, "I thought he had the wrong names."

For Baker, even though he got much of what he wanted, the deal has to be bittersweet. He is the last in a long line of top Wachovia executives who built a sterling commercial banking franchise, distinguished for decades by one of the industry's most pristine balance sheets. But Wachovia did not adjust quickly enough as blue-chip customers shunned bank loans and went directly to the capital markets. Though it flirted for a time with consumer credit, creating a highly profitable credit card business, it was too small to make an impact on a market dominated by such giants as Citigroup and MBNA Corp. (Days before the First Union merger was announced, Wachovia agreed to sell its card business to Bank One Corp.'s First USA unit, echoing First Union's decision last year to sell its card operation to MBNA.) And Wachovia's corporate cash management and other fee-based businesses, though strong, couldn't offset the corporate credit problems that surfaced over the past year and a half.

Wachovia is by no means a basket case - it earned $832 million last year, for a 14.14 percent return on equity, after taking an unaccustomed $588 million in loan-loss provisions - but it has clearly lost the old luster. Cross-state rivals First Union and Bank of America suffered, too, from the secular decline in credit quality, but they had long since surpassed Wachovia in geographic reach and balance-sheet size and diversification. With SunTrust breathing down his neck, Baker had to make a hard choice.

Now he says that the merger with First Union is "the culmination of a strategic dream." The new Wachovia "will be a dominant force in the Southeast up into the Northeast," he adds. "We will have the products to serve our customers. This is a blockbuster of a deal, and it has immediate accretion for shareholders."

The deal was announced on Easter Monday, April 16, and stunned industry analysts, many of whom promptly started criticizing Thompson and his reasoning.

The proposed deal certainly shows that Thompson learned the hard way from Crutchfield. Wachovia, unlike CoreStates, has considerable market overlap with First Union, promising substantial cost savings. The low price, of course, triggered criticism from Wachovia shareholders. The size of the transaction, so soon after Thompson's disavowals of deals, prompted analysts to charge that he was overreaching.

No one was more taken aback than SunTrust's Humann. Almost exactly a month later, in mid-May, SunTrust entered the fray, offering $70.06 per share when Wachovia was trading at $60.90. The combined company would be called SunTrust and be based in Atlanta.

SunTrust anticipates cutting $500 million in costs and 4,000 jobs. Its proposed new SunTrust would have $180 billion of assets and $120 billion of deposits.

Humann points out that a SunTrust-

Wachovia merger had been talked about for more than a decade. It would extend SunTrust's reach into the Carolinas and bulk up Wachovia in Florida - all booming markets growing faster than the national average. "This deal will be mildly accretive in year one and grows to 7 percent accretion by year three," he says.

But most of the firepower in Humann's argument comes from his biting critique of the First Union bid. It is true that SunTrust has had better, more consistent earnings without special charges. And in a SunTrust deal, fewer branches would be closed and fewer workers laid off.

Once Wachovia reaffirmed its decision to go with First Union, the chief executives of all three banks moved into battle mode. First Union has taken out full-page advertisements criticizing SunTrust in The Wall Street Journal, The New York Times and American Banker; SunTrust has responded in kind.

The three CEOs are booking time on their corporate jets to wing around the country courting shareholders, particularly large institutions such as Wellington Management Co., which, with 12.6 million shares, has a 6 percent stake and is Wachovia's largest institutional shareholder; State Farm Mutual Automobile Insurance Co., which holds 3 percent; and State Street Corp., with 2 percent.

The battle, which looks likely to end August 3 with a proxy vote, promises to grow more bitter by the day. Thompson says he is willing to go all out to win Wachovia. "Our deal has been accepted by the Wachovia board," he says. "SunTrust and Wachovia have been talking to each other for 16 years and couldn't make it work for cultural reasons. We talked for eight or nine months and arrived at a merger."

Though SunTrust offers to pay more up front, Wachovia and First Union officials argue that, both in the near and long term, shareholders will benefit more from their combination. First Union has size and products; Wachovia has loyal customers. Together they expect to increase earnings - and the share price - immediately.

But amid the widespread agreement that for Thompson the price was right, there remains a persistent undercurrent of concern that his timing is terribly wrong.

"The company went through a gut-wrenching last year," says Steve Wharton, an equity analyst at institutional money manager Loomis, Sayles & Co. With the slowdown in the economy, it also faces a very difficult macro environment. "They are not really ready to take on Wachovia," he asserts. "They need more time to continue their restructuring before swallowing a merger of this size."

So why would Thompson agree to such a deal in the first place, after promising up and down to analysts and investors and anyone else who would listen that First Union was not going to do major acquisitions - at least not for a while?

Nancy Bush, director of financial institutions research at Ryan, Beck & Co., says that Thompson couldn't help himself. Despite all good intentions, he had been schooled at the knee of the CEO before him and absorbed those lessons. "Ken has really got to make the break with the past," says Bush. "There is still stuff to do. The retail system doesn't work right. There is a reputation to be repaired. Adding another integration on to a platform that is not working correctly makes no sense."

Thompson sees the deal as a once-in-a-lifetime opportunity. "This is clearly the most visible, highest-stakes situation I've ever gone through. But I'm a fighter, and I like to win. I don't feel any more trepidation than with other things I've found difficult," he says.

Brave words, but he must deliver. Not only does he now have to win the battle for Wachovia, he also had better find a way to assure a smooth integration of the two companies. Failing to do both could cripple his credibility with investors and leave his bank wounded - and vulnerable itself to an unwanted suitor.