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Blockbuster bank deals set
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April 13, 1998: 10:09 a.m. ET
BankAmerica, NationsBank strike deal; First Chicago, Banc One link
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NEW YORK (CNNfn) - A week after Citicorp and Travelers Group shocked the world by agreeing to the largest corporate combination ever, two more blockbuster bank mergers, including a gigantic nationwide deal, further roiled the financial services landscape Monday.
In the larger of the two announced deals, BankAmerica Corp. and NationsBank Corp. said they will meld their operations in a stock-for-stock transaction valued at about $60 billion.
The merger would create a coast-to-coast banking powerhouse with $570 billion in assets, market capitalization of $133 billion, and the facilities of two of the nation's largest banks, one based in the Southeast and the other on the West Coast. The boards of both companies have approved the deal.
Shares of NationsBank (NB) soared 7-1/16 to 83-1/2 while BankAmerica's (BAC) stock was 7-9/16 higher at 94-1/16 in early Monday trading on the New York Stock Exchange.
In another deal, Columbus, Ohio-based Banc One Corp. and First Chicago NBD Corp. said Monday they had agreed to combine in a stock swap valued at $30 billion. The transaction, expected to close in the fourth quarter, will create the largest retail and commercial banking franchise in the Midwest.
The new company, to be called Banc One Corporation, will have more than 2,000 offices nationwide and assets of $279 billion.
Banc One stock (ONE) gained 2-1/4 to 64 while First Chicago NBD (FCN) was up 7 at 101 early Monday.
Shadowing both deals, Greenpoint Financial Corp. said Monday it planned to acquire BankAmerica Corp.'s Housing Services unit for $703 million. Greenpoint, a specialty home finance company, said it would pay BankAmerica a cash premium of $603 million plus $100 in net tangible assets.
The mammoth NationsBank-BankAmerica deal underpins the sweeping consolidation of the financial services industry, which hit a frenetic pace last week with the Citicorp, Travelers Group announcement.
The Citicorp-Travelers transaction, if approved, would create a financial services behemoth with $700 billion in assets.
The union of San Francisco-based BankAmerica and NationsBank of Charlotte, N.C., will create an entity with 5,000 branches in 24 states and roughly 15,000 automated teller machines.
David Coulter, BankAmerica's chairman and chief executive officer, who will initially serve as president of the new entity, said the combined company would benefit from "strong market share in 9 of the 10 largest and fastest growing states in the country."
Hugh McColl, NationsBank's chairman and chief executive officer, who will retain his titles to preside over the new company, was even blunter.
"Apart, BankAmerica and NationsBank are the two finest franchises in North America," said "Together, we will be America's bank - at home and around the world."
The latest merger frenzy, long predicted by analysts, comes as the banking sector is desperately scrambling to slash costs and diversify the services they offer their customers.
Whither the bedroom banks?
In just a few short years, the movement has cleaved the banking sector, opening a growing chasm between traditional banks that serve bedroom communities with limited services, and multiregional entities trying to break free of geographic constraints.
Hal Schroeder, a bank analyst with Keefe, Bruyette and Woods, suggested that the BankAmerica-NationsBank deal, which he called a "blowout franchise," is as much a defensive as an offensive gambit. (179Kb AIFF) or (179Kb WAV)
The mega-deals, while different in their details, coalesce around a single theme: offering more customers in a wider geographic area a better menu of services - all under a single financial canopy. The major question is whether this "one-stop shopping" concept will catch on with consumers.
Among the other looming questions is how far regulators and legislators will be willing to go to accommodate the new link-up in a banking world still largely governed by Depression-era laws separating commercial brokerage and banking services.
The latest deals, said Peter Solomon, an investment banker who runs a company under his own name, are superior to older link-ups in terms of savvier strategy, greater geographic breadth and nimbler use of technology.
The deals, in Solomon's view, will also help to rid the banking sector of a capacity glut that has grown much more acute in recent years. (97Kb AIFF) or (97Kb WAV).
McColl's childhood dream
For Hugh McColl Jr., NationsBank's chief executive officer, the deal is said to be the realization of a childhood dream to make his bank, already dominant in the Southeast, a truly nationwide franchise. BankAmerica has 1,800 bank branches dispersed throughout the West while NationsBank operates 1,900 branches from Maryland to Texas.
The mergers are expected to hasten the consolidation drive by banks seeking to offer financial services that include loans, bank accounts, investment services and insurance.
That drive began in earnest in 1997 with First Union's $17.1 billion acquisition of Corestates Financial and with NationsBank's own buyout of Florida-based Barnett Banks in a deal valued at $15.5 billion.
In the First Chicago-Banc One transaction, the new company's headquarters will be in Chicago. John McCoy, currently chairman and chief executive of Banc One, will become president and CEO of the combined company.
Verne Istock, chairman and chief executive officer of First Chicago, will serve as chairman of the combination.
Under the terms of transaction, common shareholders of First Chicago will receive 1.62 shares of Banc One common stock for each share of First Chicago NBD. Each company has granted the other a 19.9 percent stock option.
Current Banc One shareholders will own about 60 percent of the common equity of the new company while First Chicago shareholders will own about 40 percent.
Solomon and others said the NationsBank-BankAmerica deal differed in significant ways from the monolithic Citigroup combination.
"Unlike the Travelers Group-Citicorp deal, which is a revenue driven deal, this is a deal to put together a national firm," Solomon said. "Hugh McColl's been one of the great guys in this business. He's had a lot of vision about where the business is going, and he buys franchises - and this is a good buy."
NationsBank and BankAmerica's deal follows an earlier, reported effort to merge back in 1995. Those talks were said to have broken down when neither could agree on who should run the company.
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