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The first American bank?
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April 13, 1998: 4:09 p.m. ET
The would-be BankAmerica Corp. aims to be the first nationwide bank
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NEW YORK (CNNfn) - For the men at the helm of the second biggest merger in American history, the proposed alliance between BankAmerica Corp. and NationsBank Corp. is more than just another mega-merger in a flurry of financial shake-outs: it is manifest destiny.
Or at least manifest destiny as foreseen almost a century ago by A.P. Giannini, BankAmerica's founder. "It is coming gentlemen, and there is nothing you can do to stop it," Giannini prophesied, looking ahead to the advent of the first truly nationwide bank.
A little late, perhaps, but the $60 billion merger between BankAmerica and NationsBank will, according to executives at both companies, create just such a mega-bank, a lending institution writ in superlatives: biggest, fastest, nimblest, smartest.
"I think California is awfully big and we like that economy, let alone the entire West. but there's a lot rationale for having a nationwide franchise," BankAmerica Chairman and Chief Executive Officer David Coulter told reporters Monday. "Actually the founder of BankAmerica, almost a hundred years ago, tried to put a nationwide bank together. We're a little bit slow but we're finally getting it done."
Industry analysts said the creation of a bank from sea to shining sea makes a lot of sense in the current merger-driven environment sweeping through the financial services sector.
"There's a lot of merit to put these banks together," Peter Solomon, an investment banker at Peter J. Solomon Co. "Unlike the Travelers-Citicorp deal, which is a revenue-driven deal, this is a deal to put together a national firm-- and it makes a lot of sense."
Indeed, the proposed $70 billion merger between Travelers and Citicorp, announced last week, underscores the need for banking firms to find partners quickly, or be left out.
"Looks like it's now going to be a race," said David Katz, market analyst at Matrix Asset Advisors. "Anybody that does not have a partner is going to be looking fast and hard to find a partner. a lot of people have had discussions over the last few years -- those discussions are going to accelerate."
As many as 8,000 positions to be cut
Like similar bank mergers, the proposed combination of NationsBank and BankAmerica will also result in hefty layoffs as the two banking giants try to combine their operations and wring costs savings out of the new company. Officials said as many as 8,000 positions could be eliminated.
By pulling together the resources of the San Francisco-based BankAmerica and NationsBank of Charlotte, the merger would spawn an entity with 4,800 branches and 15,000 automated teller machines in 22 states -- touching 29 million U.S. households. Executives of both companies are also betting the new company will be substantially brawnier than the sum of its parts. (Compare NationsBank with BankAmerica)
In terms of market capitalization, however, the combined firm would fall short of the Citicorp-Travellers deal. BankAmerica Corp. would surpass Citigroup, though, in total deposits and loans. Its branches will stretch from coast to coast, from Florida to Seattle.
BankAmerica would also far outstrip, in total assets, a $30 billion merger, also announced Monday, between Banc One Corp. and First Chicago NBD Corp., two of the largest banks in the Midwest. (Compare Banc One with First Chicago)
Coulter, who will initially serve as president of the combined company, said Monday the transaction would spawn "the nation's largest private clearinghouse for payment."
Coulter spoke at joint news conference in Manhattan flanked by his counterpart from NationsBank, Hugh McColl, and several other top executives from both companies.
Coulter described a bicoastal banking colossus able to tap into BankAmerica's dominance in California and much of the West, and NationsBank's strength in the Southeast.
"We are in absolute position to be the bank that moves into the Pacific century," Coulter said, noting that the new entity would be "ideally situated" on the nation's growth path. BankAmerica already enjoys a prominent or leading position in six of the fastest-growing states in the country, Coulter said.
Banks: 'Bigger is better'
Both Coulter and McColl emphasized the size and scope of the deal, echoing the increasingly common refrain in the financial services industry that "bigger is better." And BankAmerica will arguably be very big: it will boast 180,000 employees and will serve 2 million businesses in 39 countries.
The new bank will be the second-largest bank holding company in the United States, behind Citigroup but ahead of Chase Manhattan Corp. and J.P. Morgan. It will have $570 billion in assets.
Executives at both companies stressed they were aiming to forge a distinctly new type of operation than anything that has existed until now. McColl said he envisioned a one-size-fits-all lending institution with the wherewithal and resources to offer "a full range of banking products in every major financial center around the globe."
Goal is to offer 'one-stop shopping'
The goal is to be able offer consumers so-called "one-stop shopping" banking services. Whether the idea will catch on remains the biggest question surrounding the new mega-mergers.
For the banks, however, the combinations are clearly provide benefits beyond mere convenience to the customer: they also make budgetary sense.
At a time of growing diversification in the banking industry, lending institutions are rushing to provide their customers with a smorgasbord of services ranging from investment brokerage to insurance to traditional banking accounts.
NationsBank, pursuing an aggressive acquisitions strategy, has become the third largest banking company in America. In 1997, the company acquired Florida's Barnett Banks for $15.5 billion. That deal was second last year only to First Union's $17.1 billion buyout of Corestates.
All these link-ups are, ostensibly, at odds with Depression-era laws such as the 1930s Glass-Steagall Act that bar banks, commercial brokerages and insurance houses from uniting under a single canopy. But even critics of the mergers acknowledge that the laws are due to be revised.
Even the BankAmerica-NationsBank merger poses some thorny regulatory issues. In 1997, both banks acquired investment banking companies in the San Francisco area. Bank America bought Robertson, Stephens & Co. for $540 million and NationsBank paid $1.2 billion for Montgomery Securities.
So far, however, neither bank has seen its share of the market for underwriting business increase considerably. However, technology analysts said they were concerned about the possible fallout from the proposed merger of the two banking giants and their smaller investment banking divisions.
In the past Montgomery and Robertson Stephens competed for the best high-tech
underwriting deals. But some analysts said this will likely end when they are combined.
Coulter predicted the new company would generate revenues of $50 billion in the first year, and realize pre-tax savings of $2 billion, or $1.3 billion after tax. The executives also said they expected per-share earnings growth rates of 18 percent after the first year.
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