The pace of bank mergers, which has slowed significantly from last year's record levels, may heat up again as other firms seek to emulate NationsBank's expansion into a major national force.
Norwest Corp and Banc One Corp have been cited as other "super-regional" firms that may be shopping for regional banks, said bank and merger experts. NationsBank Corp on Friday announced plans to buy Boatmen's Bancshares Inc. in a $9.5-billion transaction viewed as pricey and daring.
"This is going to cause a couple of people to go into action. Those who want to be national players recognise there are only a few opportunities out there," said Michael Turillo, partner in charge of the capital strategies group at KPMG Peat Marwick LLP. Neither Norwest or Banc One would discuss potential interest in regional acquisitions. "Our strategy is to add value to shareholders and acquisitions are one avenue to reach that goal," said Norwest spokesman Lawrence Haeg.
The aggressive move by NationsBank to buy Boatmen's is somewhat unusual in the latest wave of banking mergers because it will greatly extend the reach of the North Carolina-based bank. Many of the other transactions seen in the past two years have been in-market acquisitions that have resulted in large cost savings and branch closings. Experts noted that serious questions remain about the success rate of major geographical expansion through acquisitions. For example, First Union Corp's acquisition last year of First Fidelity, which employed the same strategy as NationsBank, has fallen short of expectations.
Indeed, bank merger activity has already been capped this year by high prices and widespread concern that expansion will reduce the ability to cut costs -- a strategy that has been key to corporate mergers in the mid-1990s.
"There aren't so many obvious combinations left," said Ed Dillon, banking merger analyst at SNL Securities. In the first half of 1996, bank merger activity tumbled 54 percent to $9.7 billion from $21 billion in the first half of 1995, according to Mergerstat Review, a unit of Los Angeles-based investment bank Houlihan Lokey Howard & Zukin.
"With so many huge deals from last year, a lot of banks are just now coming up for air," said Susan Michaelson, managing director of Michaelson Kelbick Partners Inc., a New York-based firm that assists banks with post-merger marketing and communications. Shares of regional banks rose sharply Friday on views that some of those banks may once again be acquisition targets.
