Bank Deal Will Not Affect Reform Bills in Congress : Regulation: The merger moves down the same path of consolidation that legislators are already considering.
While the coupling of Manufacturers Hanover and Chemical Bank will not have an immediate impact on banking reform legislation now before Congress, it reflects the hopes of the Bush Administration for mergers and acquisitions that will strengthen the ailing industry.
The creation of the new banking giant with $135 billion of assets also shows that the reality of the market often moves faster than government. Interstate banking is gradually becoming a reality even as Congress dawdles over legislation that would allow it.
“We’re in favor of mergers that will improve productivity and cut costs,” said L. William Seidman, chairman of the Federal Deposit Insurance Corp., which has been grappling with a wave of bank failures in recent years.
“This one will do that, although we had nothing to do with it. We need major consolidation in the industry and the market is moving in that direction.”
The big merger of two giant New York banks moves down the same general path Congress is traveling, toward the abolition of traditional barriers that keep banks from moving freely across state lines. The new institution, in addition to its focus on New York, also would have significant operations in Texas and New Jersey.
The House Banking Committee has passed a bill to provide full interstate banking in three years. The Senate Banking Committee staff will unveil a proposed bill today that features liberalized interstate banking.
House Banking Committee Chairman Henry B. Gonzalez (D-Tex.), an avowed populist who is wary of the economic power of big banks, was unhappy with the merger but acknowledged that it appears to be the wave of the future.
“With the likelihood that the banking industry will gain the right to branch across state lines and the authority to engage in a wide range of new activities, the concern about economic concentration of economic power will grow,” Gonzalez said.
“This requires that both the banking agencies and the Justice Department watch these new mergers carefully and not allow concentrations that will be anti-competitive and destructive to the free flow of credit and banking services throughout the country.”
The combination of Chemical and Manufacturers Hanover will be a “monster bank,” Gonzalez said in his request for a Justice Department review of possible antitrust concerns.
The Justice Department was noncommittal about the merger, with a spokesman saying only, “We’re aware of the proposed acquisition. We may take a look at it.”
On the Republican side of the Banking Committee, a key committee aide welcomed the merger.
“This is long overdue,” the aide said. “Anyone who didn’t expect a merger among money center banks hasn’t been paying attention. The foolishness of having such big institutions with so little capital is absurd, and they become impossible to regulate.”
Full interstate banking, and the ability of bank holding companies to consolidate their operations in various states, could yield large savings to the banking business.
“What happens with consolidation is, you have the opportunity for the industry to save $5 billion to $10 billion a year,” said Mark Leggett, vice president of NCNB Corp., which is pursuing a merger with C&S;/Sovran that would create the third-biggest bank in the nation.
The 14,000 reports filed by NCNB’s separate banking units in North Carolina, Florida and Texas would be reduced to 2,000 if legislation permitted consolidation by eliminating state barriers, he said.
Interstate branching and consolidation are more important to banks than the “new powers,” permission to enter fully into the business of securities and insurance, said Lowell Bryan, a banking expert with the McKinsey & Co. management consulting firm. “The cost savings are dramatic,” he said.
For the banking industry itself, Monday’s merger whets the appetite for congressional action. The ability to move across state lines is vitally “needed and desired,” said Alfred M. Pollard, Washington vice president for Security Pacific. The merger “doesn’t alter the need for the legislation,” he said.
Top Banks The merger of Chemical Banking Corp. and Manufacturers Hanover Corp. would create the nation’s second-largest banking company. Assets in billions* 1. Citicorp, New York: $216.986 2. BankAmerica Corp., San Francisco: $110.728 3. Chase Manhattan Corp., New York: $98.0644. J.P. Morgan & Co., New York: $93.103 5. Security Pacific Corp., Los Angeles: $84.731 6. Chemical Banking Corp., New York: $73.019 7. NCNB Corp., Charlotte, N.C.: $65.285 8. Bankers Trust New York Corp., New York: $63.596 9. Manufacturer’s Hanover Corp., New York: $61.53 10. Wells Fargo & Co., San Francisco: $56.199 11. First Interstate Bancorp., Los Angeles: $51.356 *At end of 1990 Source: American Banker
Interstate Banking Forty-seven states and the District of Columbia have enacted legislation to allow acquisitions of banks by out-of-state bank holding companies. The Bush Administration is pushing legislation that would eliminate all barriers to interstate banking by 1994. Here is how individual states regulate interstate banking now: National: Permits virtually unlimited acquisitions by out-of-state banks. Limited National: Allows acquisitions by out-of-stat banks, if the state of the acquiring institution has reciprocal laws. Regional: Permits banks of neighboring states to buy in-state financial institutions, provided the acquiring bank’s state allow the same action. Regional-to-national: Allows acquisitions among neighboring states with reciprocal laws. As of a specified date or event, these states will permit acquisitions by any out-of-state banks whose home state allows the same action. International regional: Permits acquisitions between Hawaii and selected Pacific Ocean island groups. None: Prohibits interstate banking.
