Hints of Further B of A Expansion Worry Investors : Banking: BankAmerica stock drops on a report that the company is interested in a New England institution.
BankAmerica’s proposed $4.5-billion merger with Security Pacific doesn’t appear to have sated its desire for acquisitions elsewhere in the country, but investors are worried that the bank’s appetite may be bigger than its ability to digest its numerous recent purchases.
BankAmerica on Friday declined to confirm or deny a published report that it was talking with Shawmut National Corp., a bank holding company with $22.7 billion in assets based in Hartford, Conn., and Boston. Shawmut, the second-largest bank in New England with branches in Rhode Island, Connecticut and Massachusetts, also declined comment.
But after the Wall Street Journal reported in its Friday editions that BankAmerica was talking about a possible acquisition of Shawmut, BankAmerica’s stock closed down 37.5 cents per share at $41.875.
“I think people are taking a pause; acquiring too many banks too quickly could cause problems,” said Gerard Cassidy, a banking analyst with Tucker Anthony. Investors took a positive view of the Security Pacific deal, which sent shares of both stocks up. But with at least half a dozen smaller acquisitions in Texas, New Mexico and other states so far this year, even before the Security Pacific deal, some observers believe that BankAmerica’s plate is full enough for now.
BankAmerica Chairman Richard M. Rosenberg told a luncheon audience in San Francisco on Friday that his company had the ability to continue acquiring banks across the country. “We believe we have the human resources. We believe we have the management resources. And, we believe we have the capital to look beyond Security Pacific,” he said.
He added, however, that “we’re not going to bite off more than we can chew and mess up what is a very, very important merger to us.”
While analysts agree BankAmerica would have plenty of capital left over for smaller purchases if the Security Pacific deal is completed, they argue that it will have to concentrate its management resources carefully to carry out the merger successfully.
Analysts expressed surprise and some concern over the reported merger talks. BankAmerica “had best focus on integrating (their Western) franchise,” said Thaddeus Paluszek, a banking analyst at Kidder Peabody. “I’d hope they maintain a course of prudence.”
Along with Southeast Bank in Miami and Houston-based First City Bancorporation of Texas, Shawmut is one of a number of banks that analysts in recent months have considered prime targets for Rosenberg’s drive to establish a national network.
BankAmerica earlier this year showed a serious interest in expanding into New England with its bid for troubled Bank of New England. It lost out to Fleet/Norstar Financial Group, a strong Northeastern regional bank.
“If an acquisition of a New England bank made sense in April, it would still make sense now,” said Don Livingstone, director of the Western U.S. banking practice at accounting firm Arthur Andersen.
A BankAmerica spokesman said the bank was not necessarily intent on expanding in New England just because it had made a run for Bank of New England.
“We are actively looking for opportunities in the West. We may take a look very selectively outside Western states as they come up. There is not a feeling that we want to be in a specific region,” spokesman Peter Magnani said.
Analysts said BankAmerica need not hurry. Some of its chief competitors in the race to national banking, primarily Citibank, are constrained from expanding their networks by lack of capital. And there seems to be a plentiful supply of troubled banks and thrifts across the country that will continue to be available for purchase.
Shawmut is also reportedly talking with the Bank of Boston about a possible merger. A bid by BankAmerica could derail that potential deal.
Shawmut could be an attractive target for BankAmerica because of its 340-branch network in New England. Analysts believe that the bank may be beginning a turnaround from recent losses, which are expected to increase to $185 million this year from $133 million in 1990 and $129 million in 1989. The bank had $1.7 billion in non-performing assets, or 11.6% of total loans, at the end of the second quarter.
Although the deep recession and real estate slump in New England are not expected to brighten soon, the market would be an important foothold for BankAmerica in a region where competitors in the race for national banking, including Citibank, NCNB and Banc One, do not have a presence.
BankAmerica clearly hopes to expand its powerful Western franchise into nationwide business, analysts say. But, they note that the banks it ends up acquiring may not be the ones that are the topics of rumor. The huge merger with Security Pacific was kept a tight secret until it was announced Monday, catching most industry experts by surprise.
