THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, November 5, 1995 TAG: 9511040452
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 135 lines
If it ever materializes, a NationsBank Corp. merger with BankAmerica Corp. would become more than the largest banking company in the country.
The $400 billion institution would be the fruition of a long-held goal for NationsBank Chief Executive Officer Hugh L. McColl Jr. - a banking organization that spans the country.
The prospects for such a merger attracted attention two weeks ago when the financial newspaper Barron's described talks between the two companies. The paper quoted an unnamed NationsBank director as saying that a NationsBank merger with San Francisco-based BankAmerica would be ``by far the best fit and make the most sense.''
But speculation about a possible marriage quickly lost steam, and several securities analysts downplayed the prospects of a merger between BankAmerica, the nation's second-largest banking company, and NationsBank, which ranks third in asset size.
The two companies have declined to comment on reports of a possible merger.
Any talks between Charlotte-based NationsBank and BankAmerica probably ``are history,'' said John J. Mason, a banking analyst in the Atlanta office of securities firm Interstate/Johnson Lane.
One reason is that parts of the California economy, especially home building and aerospace, still have not recovered from their difficulties, Mason said. Other analysts cited the difficulties of agreeing to a management structure for the merged company, which would have more than $400 billion in assets.
But Thomas F. Theurkauf, an analyst with the New York securities firm Keefe, Bruyette & Woods Inc., does not dismiss the possibility that a NationsBank-BankAmerica merger might eventually materialize.
``I don't think the door has been slammed shut,'' he said. ``I wouldn't rule out anything.''
That's because banking combinations that were inconceivable a few years ago have become routine in 1995. One, a pending merger of New York-based goliaths Chemical Banking Corp. and Chase Manhattan Corp., will become the country's largest bank holding company with assets of almost $300 billion.
So far this year, almost $50 billion worth of bank mergers have been announced. That's more than twice the previous annual record and almost four times the value of bank mergers announced in 1994.
The torrid pace of merger activity has been fueled partly by banks' determination to cut costs and generate additional revenue. When two banks with overlapping operations merge, they typically close branches and let go some employees.
The end-to-end merger of a NationsBank-BankAmerica combination wouldn't provide many opportunities for cost-cutting. The only place where the two have overlapping branches is in Texas. But there could be some savings from consolidating ``back-office'' operations like mortgage servicing and credit-card processing.
That could make NationsBank's card-processing operation in Norfolk vulnerable. The operation employs 1,600. NationsBank has 57 branches in Hampton Roads and 2,900 employees in the region, including those working in its card facility.
Like its predecessor NCNB Corp., NationsBank has developed a reputation for making shrewd acquisitions and then aggressively cutting costs.
In 1988, NCNB entered Texas by acquiring the state's failed First Republic banks and agreeing to manage their sour loans for the Federal Deposit Insurance Corp. In the process, NCNB gained billions of dollars in tax breaks.
NCNB expanded its geographic reach again in 1991 by merging with C&S/Sovran Corp., a company with a large Norfolk presence that had been hobbled by sour real-estate loans.
Two years later, NationsBank strengthened its hold in Maryland and Washington with a modest investment.
Through an agreement that included a gradual injection of fresh capital in MNC Financial Corp., NationsBank acquired the Baltimore-based parent of Maryland National Bank and American Security Bank in Washington. MNC's banks, like many operating in the Washington area, had been severely weakened by a collapse in the region's real-estate market.
And in Florida, NationsBank has bolstered its presence in recent years by buying thrifts and thrift branches at bargain prices.
But a dramatic improvement in the health of the nation's banking industry has reduced the availability of distressed banks and thrifts for bargain hunters like NationsBank.
``There are very few panic sellers today. It's a different market,'' said Theurkauf of Keefe, Bruyette & Woods.
In September, NationsBank surprised analysts and competitors by agreeing to buy an Atlanta banking company, Bank South Corp., for $1.6 billion in NationsBank stock. It was a price that many analysts considered rich, but NationsBank justified the offer by saying there were opportunities to slash costs by closing many of Bank South's branches and trimming jobs.
Investor concerns that NationsBank might undertake an expensive merger with such banking giants as First Chicago Corp., Chase Manhattan or Bank of Boston Corp. dampened enthusiasm for NationsBank stock for much of 1995.
Investors feared that the price NationsBank might pay in a large merger would depress the company's per-share earnings. Those worries were enough for the investment advisory service Value Line to mention in its analysis of NationsBank's stock in early September.
``NationsBank's name has been linked to almost every potential combination that the bank merger rumor mill has proposed in the past few months,'' Value Line said.
However, the price of NationsBank's shares climbed sharply in August and September because of declining interest rates and investor expectations of strong third-quarter earnings.
The industry's merger frenzy has been driven by more than banks' efforts to cut their costs and bolster their revenues. Some institutions are determined to build a nationwide presence.
In January, Edward E. Crutchfield Jr., CEO of Charlotte-based First Union Corp., told a Chamber of Commerce gathering in Chesapeake that his goal was to make First Union one of the 15 or so banks that will be doing business nationwide by the end of the century and have assets of $200 billion to $300 billion.
In June, First Union announced a $5.6 billion merger with First Fidelity Bancorp, a transaction that will give First Union a presence in New Jersey, Pennsylvania and other northeastern states.
``If you want to be $200 billion in asset size and you're only $85 billion in size, you're going to have to take some very big bites,'' Mason, the Interstate/Johnson Lane analyst, said of First Union's expansion drive.
Despite the frequent reports of its merger discussions, NationsBank doesn't have to rush into a marriage with BankAmerica or anyone else, Mason said.
``If you're $180 billion to $190 billion in asset size, you're under a lot less pressure. You can wait.'' ILLUSTRATION: Graphics
KEN WRIGHT/The Virginian-Pilot
NATIONSBANK STOCK PRICE
The price per share of NationsBank stock spiked at year's end after
a lessening of investors' fears that a large merger would hurt the
company's earnings.
BANK MERGERS
IN BILLIONS OF DOLLARS
SOURCE: SNL Securities Charlottesville
[For complete graphics, please see microfilm]
by CNB