Banc One Corp. of Columbus, Ohio, agreed Wednesday to take over 20 failed banks of MCorp, a Dallas-based holding company with $13 billion in assets, federal bank regulators said Wednesday.
Officials of the Federal Deposit Insurance Corp. refused to discuss details of the transaction before a news conference today, but private analysts believe that the deal will constitute one of the largest bank rescues ever, involving an infusion of about $2 billion in federal money.
The agency, which insures commercial bank deposits, said Banc One will assume management of the failed banks July 5. Its chairman, John B. McCoy, will assume the chairmanship of the McCorp banks under the name of Bank One Texas, it said.
In a written statement, FDIC Chairman L. William Seidman confirmed that Banc One had been selected in "a highly competitive process," but he did not elaborate. A number of other major banks considered making bids, including Wells Fargo & Co. in San Francisco.
Seized in March
FDIC spokesman Alan Whitney said Banc One is investing $500 million in the new Texas operation, but he declined to say how much the government is injecting. Many of the big banks in Texas have failed or been taken over because the state's real estate market collapsed after crude oil prices plunged in 1986.
Hammered by huge losses in 1988, the MCorp banks were seized by the government in March and have been operating under the name of the Deposit Insurance Bridge Bank. That new entity was formed when regulators declared 20 MCorp subsidiaries insolvent, leaving five subsidiary banks still operating under the private ownership of the original holding company.
If analysts are correct about the $2 billion in federal assistance, MCorp will become the nation's third-largest commercial bank failure, ranking behind Continental Illinois of Chicago in 1984 and First Republic Bank of Dallas in 1988. They required initial government pledges of $4.5 billion and $4 billion, respectively.
A Banc One spokesman in Columbus said it was not clear how much federal help or overall funds the deal would require. The bank has made an estimate of the cost, which he declined to disclose.
The FDIC will take over problem loans and "bring the balance sheet to a zero position," the spokesman said. Banc One, he added, will manage Banc One Texas for 120 days, identifying the problem loans and inflated assets, before the purchase is completed.
In addition to Wells Fargo, other prominent banks that showed interest in failed MCorp banks were NCNB Corp., based in Charlotte, N.C.; New York-based Chemical Banking Corp., the nation's sixth-largest banking company; First City Bancorp of Houston--itself the recipient of an earlier federal bailout, and the New York-based leveraged buyout firm Kohlberg Kravis Roberts & Co. It is not certain whether banks actually submitted bids for MCorp.
The announcement marks another setback in the expansion plans of Wells Fargo, which sent a team of auditors to inspect MCorp's books last December but reportedly never submitted a formal bid. Wells Fargo lost a bid last year to buy First Republic Bank, which was sold to NCNB. Wells Fargo officials could not be reached Wednesday.
Buddy Kemp, chairman of NCNB Texas, the new name of First Republic Bank, said his firm was disappointed with the FDIC's decision. He added: "We remain committed to serving the Texas market by expanding our franchise throughout the state."
Kohlberg Kravis said in a statement: "We are extremely disappointed. We've spent an enormous amount of time, resources and effort on this matter." It noted that its proposal would have maintained an independent bank in Texas.
Avoided Buyout Deals
Banc One, the 25th-largest banking company in the nation, has pioneered retail innovations. It was one of the first banks to offer automated tellers and has been a leader in the packaging of obligations owed by credit card holders to sell as securities to investors. It allocates more of its earnings to research and development than most banks.
Unlike other large banks, it has shunned participating in corporate buyout deals. Instead, its bread and butter has been credit cards, auto leasing and student loans. Still, it's had some missteps. An effort to create a computerized home banking network fizzled.
With the Texas acquisition, Banc One obtains an extensive branch network with offices in Abilene, Austin, Houston, Ft. Worth, Dallas and other cities in the state.