|
Mergers make sense
|
 |
April 13, 1998: 2:51 p.m. ET
Analyst sees financial tie-ups as carefully planned, mutually beneficial
|
NEW YORK (CNNfn) - Banking analyst Hal Schroeder of Keefe, Bruyette & Woods says that the wave of consolidation that hit the financial services industry Monday wasn't just a spring burst of merger fever but the result of years of forethought and planning.
Schroeder is very positive about both the NationsBank/BankAmerica merger and the Banc One/First Chicago union, saying both tie-ups offer mutually enriching benefits to the partners involved and don't significantly risk the displeasure of regulatory forces.
Here is a transcript of his "Business Day" comments.
JOHN DEFTERIOS, CNNfn ANCHOR: You can never take a break in your business. The way things have been transpiring, one has to take a step back and think, "Are these [consolidations] really happening logically right now?" These marriages that are taking place, have they really been thought all the way through or is there a lot of pressure to make sure that transactions -- any transactions -- take place?
HAL SCHROEDER, BANKING ANALYST, KEEFE, BRUYETTE & WOODS: Well, the really good bankers are thinking years in advance, so these are well thought out. They know exactly what pieces of the puzzle they want to put together and, as I was told by one banker, "We never know which piece is going to fall next, but we want to be ready."
So, they really are pulling scripts off the shelf and saying that this or that deal works because of these or those reasons. They know the numbers. They know the players. They know what needs to be done, so they're not doing things randomly. It just seems that way sometimes when you get two deals in one day.
DEFTERIOS: I remember covering the BankAmerica (BAC)/Security Pacific merger out in Los Angeles and thinking that nothing else could happen out West, and that's probably the view of BankAmerica. They've done all they can in the West and it's time to look East -- this is just an example of that consolidation taking place.
SCHROEDER: Well, it's like Travelers (TRV) and Citicorp (CCI). They woke up one day and said, "Maybe we're not quite as big as we thought. If we want to do something that has an impact on our stock prices and impact on the banking industry, we need to strike today," and it was a time for these deals to start happening.
DEFTERIOS: OK, let's break down the two deals. First of all, BankAmerica/NationsBank (NB). [Nationsbank's] Hugh McColl has done a great job building a power in North Carolina. Do you like this marriage between the Southeast and the West? Does it make a lot of logical sense to you?
SCHROEDER: It makes a tremendous amount of sense. I mean, when you consider that NationsBank alone had 17 percent market share -- 17 million households -- throughout the entire U.S., when you put it together with BankAmerica, it's clearly going to have a dominant position in the industry. There's no question about that.
Now, let's look at the economics. The Southeast is vibrant, strong, fast-growing and I think the West Coast -- California in particular -- has come back very nicely. So, I think you've got two of the strongest, most densely populated areas in the country, and when you put them together, it's going to be a blowout franchise.
DEFTERIOS: Robertson Stephens and Montgomery Securities are both owned by these two banks. Both are investment banking houses that focus on technology and health care, so might that be one area we could see some layoffs?
SCHROEDER: I'm not so certain about that. They're both located out in San Francisco, so it'll make the integration a little bit easier. They also know each other, but I think we have to look more at critical mass when you put these two organizations together. They were both doing well by themselves.
I'm not so certain that you have a tremendous amount of layoffs. You may in the back office, but I think that's a relatively small number.
DEFTERIOS: It's really amazing how fast you can consolidate the banking industry, or perhaps maybe you can't. In the case with NationsBank, they took over Boatmen's and Barnett Banks recently in the last three years, and now they're going to do another merger here. Can you really consolidate that fast? Are we really that nimble on our feet now as a nation?
SCHROEDER: Well, we were actually starting to schedule takeovers at NationsBank. There's one every Labor Day for the last three years. So, you can say on the one hand, they are awfully good at it. They know exactly what they need to do and when it needs to be done. The other part about this is this is not a deal that's going to require a tremendous amount of costs to make it profitable.
It's basically a merger of equals, with no big premium being paid from what we've heard so far. So, putting these two together is not going to be that difficult. It's going to be a challenge, but it's not something that's insurmountable for either side.
DEFTERIOS: Meanwhile, in Ohio and Illinois, this merger between Banc One (ONE) and First Chicago (FCN) is going to be overshadowed, of course, because this other merger is double the size. But do you like the marriage of these other two players?
SCHROEDER: We like this one as well. When you combine the credit card operations, Bank One and First Chicago are two people in the backyard with each other. They're middle-market banking. I think this deal makes a tremendous amount of sense and, in fact, when we had a conference call last week with our accounts, these were two of the three deals that we talked about.
DEFTERIOS: I don't want to date myself, but I can remember back in the 1980s when First Chicago and Bank of America were on the brink of some very serious problems. BankAmerica, of course, needed a real last minute rescue from bad loans to Latin America. Things have really changed.
SCHROEDER: Well, the 1980s was the real shakeout period. We went through deregulation of the right hand side of the balance sheet with interest rates. We then got into computer systems. We're actually able to analyze banks. We started taking some of the fragmentation out of the marketplace.
It was a shakeout period for the banking industry as a whole. It was what needed to be done. It was like burning the underlying brush in the forest. It kind of helps rejuvenate the whole forest and that's what we have in banking.
DEFTERIOS: Then you don't see any regulatory problems here? That's the big question mark, and with Travelers and Citicorp and the insurance question, it keeps coming up. Citigroup has paved the way, at least in terms of negotiations with Mr. Greenspan and Mr. Rubin over at Treasury. How about these two?
SCHROEDER: The regulatory environment couldn't be friendlier. You've got a couple of different things going on. The regulators are all thinking about joining forces because of financial services modernization going on in Congress. And at the same time, you've got some very forward-thinking regulators who realize that for the banking industry in the U.S. to really survive and compete on an international basis, we're going to have to be bigger, stronger, and better. 
|
|
|
|
|
|
BankAmerica
NationsBank
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
