Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 29, 1995 TAG: 9508290048
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Bloomberg Business News
DATELINE: NEW YORK LENGTH: Medium
The $10.7 billion merger will create the biggest U.S. bank, with $300 billion in assets.
Most of the other big bank mergers in the past 18 months - such as the previous record-holder, First Union Corp.'s proposed $5.4 billion purchase of First Fidelity Bancorp. - were designed to create bigger branch networks to capture customers across a broader geographic area.
These transaction hold out the promise of more revenue, but not much cost reduction. Because there's little overlap in operations, there's not much opportunity for the partners to close branches or cut jobs.
The combination of Chemical and Chase, by contrast, is almost nothing but overlap. With so many offices facing each other across the streets of New York, there's a chance for a huge cost cutting, expected to yield $1.5 billion in annual savings three years after the merger is completed. It also will cost 12,000 jobs.
Chase has tried to reduce its stubbornly high overhead expenses, which typically cost it about 70 cents for each dollar it generates in revenue. The nation's most efficient banks spend 55 cents or less to produce a dollar of revenue.
Chase and Chemical's top executives predicted Monday that the combined bank will be able to pare overhead costs to 50 to 53 cents, which would make it an industry star.
Cost reductions are what investors most want to see right now, analysts said.
``If you can do an in-market merger, and cut out that cost structure right away, the market's going to look at that very favorably,'' said Bill Field, an analyst for Pioneering Management Corp., a Boston investment firm.
That's exactly what happened with the proposed ``in-market'' merger of New York-based Chase and Chemical. Chase stock rose Monday by $6.621/2, closing at $59.621/2 a share, while Chemical shares rose $5.75, closing at $60.121/2 a share. Both stocks trade on the New York Stock Exchange.
The combined bank, which will use the Chase Manhattan name, will be have the biggest branch network in the New York area. But branch banking hasn't been the strength of the New York ``money center'' banks, better known for corporate lending and international financing.
Walter Shipley, Chemical's 59-year-old chairman and chief executive, will head the new bank. Thomas Labrecque, 56, chairman and chief executive of Chase, will be president and chief operating officer, the No. 2 spot.
The merger will create a bank with 46 percent of its revenue from consumer banking and 45 percent from institutional banking. It would be the biggest bank in syndicated lending, trading revenue, mortgage servicing, and No.1 in consumer deposits and branch banking in the New York area. It also will be the nation's fourth-largest credit card bank.
by CNB