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Fleet Boston hedges its bets
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April 21, 1999: 2:11 p.m. ET
New England banking giant hopes forced branch sale won't hurt its dominance
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NEW YORK (CNNfn) - Fleet Financial Group Chairman Terrence Murray is not exactly enthralled with having a potential competitor enter his expansive footprint. He is even less excited about supplying a possible adversary the ammunition it needs to compete.
But that is exactly the scenario facing the New England banking giant if regulators are to approve its $16 billion merger with BancBoston Corp. (BKB) later this year.
Fleet officials are hoping to resolve federal antitrust concerns by auctioning off $13 billion in deposits and $5 billion in loans in three separate transactions later this year. Depending on who enters the bidding, the new Fleet Boston Corp. conceivably could play a direct role in creating the region's second-largest bank.
"[Fleet Boston Corp.] will dominate New England," said Gerald S. Cassidy, an analyst with Tucker Anthony in Portland, Me. "So if you are an outside bank coming up, you have to have the vacuum cleaner mentality so you can compete."
Controlling the assets
Still, the auction structure that will ultimately be approved by federal and state regulators should give Fleet (FLT) enough flexibility to discount any potential threats to its regional dominance.
Earlier this week, Fleet's chief financial officer disclosed he expected the bank to post a one-time gain between $700 million and $1.2 billion from the deposit and loan sale -- a relatively conservative figure in the eyes of most industry analysts.
That could be the first indication Fleet officials may be willing to compromise a little on price to ensure they don't provide much market share muscle to a hungry competitor.
Fleet followed a similar strategy in 1995 when it acquired Shawmut National Corp. and divested of $3 billion in deposits. Fleet ignored a higher bid from First Union Corp. at the time and instead sold $1 billion in deposits to a less-threatening thrift, Webster Financial Corp., for a modest 6.25 percent deposit premium
"Divestiture is a win/win situation for Fleet," said Arnold Danielson, a Northeast banking consultant scheduled to address Connecticut bank executives interested in the divestiture later this month.
"They get a slightly smaller retail base, but they also get to pick the best [deposits] of what they have," Danielson said. "And, they don't have to pick the highest bidder."
Source: SNL Securities
Fleet officials still aren't commenting publicly on the auctions, but privately they are insisting on as much control over the process as possible.
Fleet, which would like to break the auctions up as much as possible, seems to have found a happy middle ground with regulators who would like to create another large competitor to Fleet -- by offering to hold three auctions.
The largest portion is the expected divestiture of roughly 200 current Fleet branches in Massachusetts, BankBoston's traditional stronghold, which hold $7.5 billion in deposits. That sale is expected to draw the most high-profile bidders and, therefore, the most scrutiny from Fleet officials.
The list of probable bidders is headlined by several regional powers, including First Union, Chase Manhattan, Bank of America and Citizens Financial Group. Area bidders are expected to include Boston's State Street Corp. and UST Corp., New England's fourth- and eighth-largest banks respectively.
First Union Corp. will likely be a leading bidder for the Fleet Boston deposits.
But Danielson notes the last six large deposit divestitures have all gone to either thrifts or out-of-state banks to mitigate the competitive impact. Assuming Fleet Boston Corp. sticks to that strategy, the door could be opened to such dark horse candidates as Charter One and KeyCorp., two Cleveland-based banks eyeing the Northeast.
Since the sale offers a sizable retail base and little more, the most interested buyers would likely be banks already strong in commercial mortgages and fee income, since the deal does little to help either area. Conversely, Fleet will be hoping to find a bank weak in commercial lending so as not to disrupt its market dominance in that area.
"From a competitive standpoint, probably the most sensitive issues are in the Boston and Massachusetts areas," said Catherine Murray, an analyst with J.P. Morgan Securities in New York. "There's going to be some risk to Fleet's dominance there, but I'm not really concerned."
On a smaller scale, Fleet Boston is expected to divest approximately 30 BankBoston branches in Connecticut and nearly all of BankBoston's 45 Rhode Island branches. That would still leave Fleet with a nearly 47 percent market share in Rhode Island and a more than 25 percent share of the Connecticut market, according to SNL Securities.
Because those transactions involve sizably less retail weight, expect more mid-sized and community banks to get involved in the bidding.
Gene B. Graham, executive vice president of the Community Bank League of New England, said it is meeting regularly with regulators to try and assure that its members are allowed access to the process. But he admitted most community banks will have a difficult time coming up with the financial wherewithal to compete.
"We in there as much as we can be and with as much information as we have to date," Graham said. "We don't want to see all those branches and all those deposits turned over to one institution."
Among the larger regional players expected to compete for those deposits are Rhode Island's Citizens Financial Group Inc. and Connecticut's People's Mutual Holding Co. and Webster Financial Corp.
-- by staff writer Tom Johnson
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