THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, July 30, 1995 TAG: 9507280632
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 104 lines
For years, the consolidation among big American banks was a gradual process. But suddenly, the pace of bank mergers and acquisitions has become frenzied.
So far this year, a half-dozen giant banking companies, including First Union Corp. of Charlotte and Fleet Financial Group in Providence, R.I., have announced mergers worth at least $1 billion each. Two of the six transactions have values of more than $5 billion.
And several more billion-dollar deals are likely to materialize in coming months.
Last week, there were reports that Chase Manhattan Corp. and Chemical Banking Corp. were discussing a merger. A combination of these two New York-based giants would have almost $300 billion of assets and would surpass Citicorp, the country's largest banking concern, in size.
A spokesman said Chemical had no comment on the reports of merger talks.
The race to merge is part of an effort by large banks to generate additional revenue and spread their fixed costs over a broader market.
But there are drawbacks. Consolidations will further reduce the number of jobs in banking and speed up the substitution of technology for face-to-face service in branches.
To justify the cost of their acquisitions, several banks have announced plans to close branches and trim their work forces.
``Banks are suffering from overcapacity,'' said Stephen Brobeck, executive director of the Consumer Federation of America. ``They have found that the most effective way to reduce is to merge and then shut down redundant or unprofitable branches.''
To bolster their efficiency, surviving banks will make services more available to younger and affluent customers through home banking, telephone banking and more sophisticated automated teller machines, Brobeck predicted.
But the banks most aggressive at lining up merger partners have been the most aggressive at cutting costs.
``As a result, low- and moderate-income communities will lose bank branches,'' Brobeck said.
Arnold G. Danielson, a banking consultant based in Rockville, Md., figures consumers still will come out ahead. The industry consolidation will prompt big banks to offer a broader array of savings and investment products, Danielson predicted.
In Virginia and many other states, mergers have been routine since the mid-1980s, when longtime barriers against interstate mergers began crumbling.
What distinguishes the latest round of consolidations are the size and dollar value of these deals.
The combined value of 166 bank mergers announced so far this year has reached a record $24.5 billion, according to SNL Securities, a financial research concern in Charlottesville. That's almost twice the $13.2 billion value for 441 deals announced during all of 1994.
One key ingredient in this burst of merger activity has been the robust stock market. An acquiring bank's shares are the currency for most transactions. So a rising stock price provides the institution with additional buying power.
Another feature of this year's merger activity is geographic. Some of the biggest deals have involved institutions in New England, New York, New Jersey and Pennsylvania.
``The Northeast is far and away the least consolidated banking market in the country,'' said Danielson, the bank consultant.
Danielson attributed the activity in the Northeast partly to the push into that region by two North Carolina giants, First Union and NationsBank Corp.
``Suddenly you have some very large banks not afraid of putting something on the table and acting tough,'' Danielson said. For years, a handful of New York-based banks have talked about expanding in that region but did nothing, he said.
In June, First Union announced an agreement to acquire First Fidelity Bancorp Inc. in New Jersey for a record $5.6 billion worth of stock. Meanwhile, NationsBank reportedly has been interested in acquiring Bank of Boston Corp.
How will Virginia's banking landscape be affected by this activity?
Big institutions in Pennsylvania and New Jersey that might have considered acquiring banks in Virginia probably will stay closer to home, said Danielson, who works with banks in several mid-Atlantic and Southeastern states.
Danielson doesn't rule out further consolidation of major banks in Virginia. But much the action in coming months will be outside the state.
``The banks up north have got their hands full,'' he said. ``They have to protect their own turf.''
Despite all of the mergers, community banks will continue to have a role. Smaller institutions concentrating on a particular locality can deliver a level of service that is too expensive for much larger institutions, said Charles O. Meiburg, a banking professor at the University of Virginia's Darden Graduate School of Business Administration.
``The banks in a tougher position are those with assets of $2.5 billion to $20 billion'' because they lack the efficiencies of larger banks, he said.
``There will be a clutch of very large banks at one end of the spectrum and a whole lot of small ones at the other end and very few in between.'' ILLUSTRATION: Graphics
STAFF
BILLION-DOLLAR BANK MERGERS ANNOUNCED SO FAR THIS YEAR...
SOURCE: SNL Securities, Charlottesville
TEN LARGEST BANKING COMPANIES
SOURCE: The companies
[For complete graphics, please see microfilm]
by CNB