Chemical N.Y. Will Acquire Texas Commerce in Biggest U.S. Bank Merger in History
In a move that signals both the Texas economy’s desperate straits and the inevitability of interstate banking, Chemical New York Corp., the nation’s sixth-largest banking company, announced Monday that it will acquire Texas Commerce Bancshares for $1.19 billion.
The deal is the biggest banking merger in U.S. history, surpassing the $1.07 billion that San Francisco’s Wells Fargo & Co. paid for Crocker National Corp. earlier this year.
The Chemical-Texas Commerce merger was not assisted by federal banking regulators, but Texas Commerce, based in Houston, clearly will be strengthened by the combination. The bank, which was one of the banking industry’s star performers in the 1970s and early 1980s, has recently been staggered by huge losses on energy and real estate loans.
Emergency Legislation
Texas Gov. Mark White signed emergency legislation in September allowing cross-border bank acquisitions in an effort to attract new capital to bail out the troubled Texas banking system. Analysts expect other major mergers involving Texas banks to be announced within the next year or two.
Officials of both banks characterized the deal as a friendly merger of equals in which Texas Commerce, the country’s 22nd-biggest bank, will retain its name and current management. But Chemical New York, parent of Chemical Bank, is much the stronger of the two partners, with three times Texas Commerce’s $18.9 billion in assets and far more manageable loan-quality problems. The proposed acquisition would raise Chemical’s assets to $75 billion, making it the fifth-largest bank holding company in the United States.
Although Texas Commerce is considered among the healthiest and best-managed Texas banking institutions, that only means it is not on the brink of failure in a state where federal authorities have closed 23 banks so far this year. The bank’s ratio of bad loans to total loans is the highest of any major U.S. bank.
Profits Off 53%
Texas Commerce’s third-quarter net income declined a drastic 53% to $10.1 million from $21.4 million last year. A 16-year record of uninterrupted profit growth was broken in 1985 because of bad property loans, the effects on some major borrowers of falling oil prices and large losses on personal and business loans to two oilmen who sat on the Texas Commerce board of directors.
Texas Commerce Chairman Ben F. Love, however, insisted that the takeover by Chemical is “not a rescue mission” but will allow the bank to be more competitive in commercial loans and expand services to retail customers.
At a Houston news conference Monday, Chemical Chairman Walter V. Shipley said he expects 15 to 20 large national banking companies to emerge from an industrywide consolidation now under way.
“The merger of Chemical and Texas Commerce brings together two institutions with strong corporate and institutional client relationships and strong regional banking franchises,” Shipley said. “Texas has had a long history of growth outpacing the overall U.S. economy, and we have great confidence in its longer-term prospects.”
The complicated Chemical takeover, valued at $1.19 billion, would exchange each of Texas Commerce’s shares for $7 cash and varying proportions of three different Chemical securities.
Shareholder and regulatory approval is still required for the proposed takeover, which Chemical’s investment adviser, Morgan Stanley & Co., values at $36 per share.
In addition to paying $7 in cash for each of Texas Commerce’s 33.3 million shares, each Texas Commerce share will be exchanged for 0.09 shares of Chemical common stock and one share of a new series of Chemical adjustable-rate preferred stock worth $12 per share.
The exchange also includes one share of a new Chemical Class B common stock for each Texas Commerce share, the value of which will be based on Texas Commerce profits over the next five years.
The deal also provides for the transfer of $300 million worth of face value of Texas Commerce’s bad loans--of a total of $840 million of such loans on the bank’s books--to a special entity whose stock will be given to Texas Commerce shareholders. The loans will be liquidated for whatever price the market will bear and the proceeds distributed to shareholders.
Shipley said the spinoff of non-performing assets provides protection against short-term risk for Chemical’s shareholders. And analysts said the deal would free Texas Commerce from having to devote all its energies to working out its problem loans.
The proposed acquisition had been rumored on Wall Street, where shares of Texas Commerce were up 75 cents to $27.25 on Monday after gaining $2.75 Friday.
Chemical Bank shares declined 87.5 cents to $43.50 on Monday after a drop of 67.5 cents on Friday.
Chemical, which before the takeover had assets of $57 billion, earned $138 million on revenue of $2.3 billion in the third quarter.
