Southern Firms Merge, Creating 3rd-Biggest Bank : Finance: NCNB and C&S-Sovran; will have the clout of money-center institutions in New York and California. It’s the latest in a series of industry consolidations.
NCNB Corp. and C&S-Sovran; Corp., once bitter rivals in the South, announced plans Monday to merge and create the nation’s third-largest banking company, with operations stretching from Maryland to Texas.
The merger, valued about $4.3 billion, will form the nation’s premier regional banking superpower--NationsBank. With an estimated $118 billion in assets and 1,900 branches, it will have the clout to compete with huge money-center banks in New York and California.
The combination comes just a week after Chemical Banking Corp. and Manufacturers Hanover Corp. said they would merge. Only Citicorp and the merged Chemical will be larger than NationsBank, which will operate in nine Southern states.
The marriage of NCNB of Charlotte, N.C., and C&S-Sovran;, which has a dual headquarters in Atlanta and Norfolk, Va., is part of the continuing consolidation of the banking industry. The nation’s large banks have been struggling because of overcapacity and problem assets, particularly troubled commercial real estate and Third World loans.
At a press conference, NCNB Chairman Hugh McColl called the new institution “a bank with a Southern accent with truly a national influence.” He said it was ready to “meet needs from Main Street to Wall Street.”
McColl also said the planned merger would mean up to 9,000 job losses, mostly through attrition. That would represent 15% of the combined payroll of about 60,000 workers. The firms did not say how many branches they expect the merger to eliminate.
Kathryn Bissette, a bank analyst for Interstate/Johnson Lane of Atlanta, said the proposed merger is on “the cutting edge” of what is happening in an industry that will “undergo significant consolidation over the next few years.”
She said the new bank’s size is less important than the synergy between the two parties. “What is most important is that they have a good market share,” Bissette said of how NationsBank performs in several growing Southern markets.
NCNB, now the nation’s seventh-largest bank with assets of $65.3 billion, has 900 branches in North Carolina, South Carolina, Florida, Georgia, Texas, Virginia and Maryland. C&S-Sovran;, the nation’s 12th-largest bank with $51.2 billion in assets, has 1,000 branches in Virginia, Maryland, Tennessee, Kentucky, Georgia, South Carolina, Florida and Washington, D.C.
After the merger, NationsBank will have the largest market share in Georgia, North Carolina, South Carolina, Texas and Virginia, will be second in Florida and third in Maryland and Tennessee.
The merger is expected to result in as much as $350 million in savings over three years--through elimination of duplicate operations and layoffs, bank officials said.
Analysts generally said the tax-free transaction was good for investors. Under terms of the agreement, C&S-Sovran; common shareholders will receive 0.84 of a share of NCNB stock for each share of C&S;/Sovran, an estimated value of $4.3 billion.
Wall Street greeted the news with mixed reactions: NCNB stock closed down $2 at $35 on the New York Stock Exchange; C&S-Sovran; stock closed at $27.38, up $1.50.
The merger agreement marks a significantly changed relationship between the two banking institutions. Two years ago, NCNB Chairman McColl approached Atlanta-based Citizens and Southern Corp. about a merger, but was quickly rebuffed. Five months later, C&S; merged with Sovran Financial Corp. of Richmond, Va.
That combination ran into problems, however. Many of Sovran’s commercial real estate loans in the Washington area soured. After C&S-Sovran;’s stock fell, Chairman Bennett Brown became amenable to a merger.
“What a difference a year makes. What a difference two years makes,” Brown said at a press conference in Atlanta to announce the merger. Asked why he agreed to it now, he said, “The timing is right to bring these two organizations together.”
Brown will be chairman of the board of NationsBank, while McColl will be president and chief executive. Bank officials declined to say where NationsBank will be based, though it is widely expected to be at NCNB’s home in Charlotte.
The merger is subject to the approval of shareholders of both companies and regulators. NationsBank officials said they expect it to be completed around the end of the year after shareholder meetings in the fall.
The consolidation trend is generally healthy, analysts said, because the banking field is so crowded. “I think there are too many people sharing the system,” said J. Richard Fredericks of Montgomery Securities in San Francisco. “But there is still enough equity for all to benefit.”
“The industry has had significant overcapacity for years,” said Sandra Flannigan of Alex Brown & Sons in Baltimore. “For banks to increase profits, I think you will see more and more consolidation.”
Reuters also contributed to this report.
The Merger at a Glance Here is a look at the merger between NCNB Corp. of Charlotte, N.C., and C&S-Sovran; Corp., which has a dual headquarters in Atlanta and Norfolk, Va.
Main Elements
The stock-swap agreement will forge the third-largest U.S. bank, called NationsBank, based in Charlotte, N.C. With 1,900 branches in nine states and the District of Columbia, NationsBank will hold $85 billion in deposits, the largest domestic deposit base in the United States.
Under the deal, C&S-Sovran; shareholders will get 0.84 share of NCNB stock for each share of C&S-Sovran; stock. Based on Friday’s closing price of $37 for NCNB, the deal will be worth $31.08 a share, or nearly $4.3 billion.
The merged bank could eliminate between 4,800 and 6,000 jobs through attrition and hiring freezes, but the number of workers to be laid off is unclear. Potential savings are estimated at $350 million over a three-year period.
NationsBank will have $118 billion in assets, making it the No. 3 U.S. bank behind Citicorp with $217 billion and the combined Chemical Banking Corp. and Manufacturers Hanover Corp. with $135 billion.
Bennett Brown, C&S-Sovran;’s chairman and chief executive, will be chairman of NationsBank, while Hugh L. McColl Jr., NCNB’s chairman and CEO, will serve as NationsBank’s president and CEO.
For consumers, it’s business as usual until the merger is approved, which is expected in early 1992. A bank spokeswoman says consumers can continue to use their NCNB or C&S-Sovran; checks, credit cards or other accounts.
Obstacles
C&S-Sovran; has $1.26 billion in troubled real estate loans and property holdings, mostly in Washington. It’s unclear when the problem loan situation will improve. In addition, a number of senior C&S-Sovran; executives are expected to leave because of the sharply different corporate culture of NCNB.
Bank Mergers The five largest U.S. bank mergers of the past four years. The acquisitions are rated accordingto the amount of the assets the absorbed bank now holds. Buyer: Chemical Banking Corp., New York Seller: manufacturers Hanover Trust Corp., New York Date: 7/15/91 $61.3 billion Buyer: NCNB Corp., Charlotte, N.C. Seller: C&S-Sovran; Corp., Norfolk, Va. Date: 7/22/91 $49.2 billion Buyer: Bank of New York Co., New York Seller: Irving Bank Corp, New York Date: 1988 $24.2 billion Buyer: Sovran Financial Corp., Norfolk, Va. Seller: Citizens & Southern Corp., Atlanta Date: 1990 $23.0 billion Buyer: Chemical New York Corp., New York Seller: Texas Commerce Bancshares, Houston Date: 1987 $19.2 billion Source: Alex Sheshunoff & Co.
