BankAmerica to Acquire Continental Bank : Finance: The proposed deal is just one more example of institutions riding a wave of consolidations.
BankAmerica’s announcement that it wants to buy Continental Bank Corp., the venerable Chicago financial institution, is only the latest in a wave of consolidations and interstate combinations of lenders squeezed by intensifying competition.
The $1.9-billion acquisition would give BankAmerica entree to the Midwestern corporate lending market at a time when loan revenues from its bread-and-butter retail branch network in California and nine other western states is declining amid recession and low interest rates.
But the deal, which would create a banking powerhouse with $209 billion in assets, is also a major step by BankAmerica to shed its regional image as the rules against interstate banking are gradually relaxed. Although it has six commercial loan offices spread around the country, the company has concentrated its energies in the West.
The proposed merger--and with it the disappearance of Continental Bank--is one of the more graphic examples of an industry consolidation that has cut the number of commercial banks nationwide by 20% since 1987. The consolidation is being driven by improved technology and the need to cut costs in the increasingly competitive financial services market.
Over the last 15 years, virtually every state in the country has signed reciprocal interstate banking agreements, known as compacts.
These have enabled financial institutions to set up operations in other states, either by obtaining charters under their holding corporations or by acquiring established banks. Pending legislation, which is strongly backed by the Clinton Administration and about to go before Congress, would relax those rules even further.
One proposal, known as the interstate branching bill, would “be the last step in the process” and would do away with requirements that out-of-state banks maintain separate charters and boards in each state, said Kenneth A. McLean, former chief of staff of the House Banking Committee and now a Washington-based consultant.
The mergers into fewer but larger institutions are expected to continue because the industry is broadly perceived to be, in industry argot, overbanked. Last year, 279 banks with $123 billion in assets were acquired by outside concerns, according to SNL Securities of Charlottesville, Va.
Many of the 1993 deals were interstate transactions, most notably the merger of KeyCorp of Albany, N.Y., and Society Corp. of Cleveland, which created a financial institution with $60 billion in assets.
Banks are going interstate because U.S. financial institutions are feeling competition from all directions--from foreign banks and Wall Street for commercial borrowers, and mutual funds and mortgage bankers for consumer customers. Over the last 20 years, U.S. banks have seen their share of the lending and deposit markets plunge.
The pressure has been especially heavy in commercial lending because borrowing by corporations has dropped since 1990 due to the recession and because regulators have made banks adopt more conservative loan practices, said James Chessen, chief economist of the American Bankers Assn. in Washington.
What has surprised many is that the most acquisitive banks are not the New York money-center banks that many local bankers feared would lay waste to their markets. The big banks have been too preoccupied with cleaning up their loan problems in the Third World, McLean said.
Rather, it has been the so-called super-regional banks such as BankAmerica, NationsBank and Banc One that have been most active on the acquisition front, McLean said. BankAmerica alone has entered into deals to buy about two dozen financial institutions since late 1989, all but five of which were out-of-state deals.
BankAmerica’s proposal to buy Continental is not typical, however.
Most of its acquisitions in recent years were used to expand the retail operations by acquiring more branches and deposit accounts. By buying Continental, it is acquiring no retail branches, and it steadfastly insists that it has no intention to open a retail network in Illinois.
What BankAmerica is acquiring is a blue-chip roster of corporate borrowers as clients at a time when it has embarked on a strategy of building on its increasingly lucrative corporate loan business, said David Smith, a banking consultant with KPMG Peat Marwick of Los Angeles. Corporate loans accounted for 50% of BankAmerica’s profit of nearly $2 billion last year.
If the deal goes through and is successful, BankAmerica could make similar acquisitions in other major cities, said Charles Hebert, a banking consultant with Ferguson & Co. in Irving, Tex.
Buying a Midwest Giant
BankAmerica Corp.’s $1.9-billion acquisition of Continental Bank Corp. would further extend BankAmerica’s reach nationwide and move it closer to overtaking Citicorp as the largest banking company in the United States.
Nation’s Largest Banking Companies
By assets as of Sept. 30:
Rank, Company, Assets (in billions)
1. Citicorp: $221.3
2. BankAmerica/Continental*: 209.7
3. Chemical Banking Corp.: 149.4
4. NationsBank Corp.: 139.4
5. J.P. Morgan & Co.: 129.3
6. Chase Manhattan Corp.:100.6
7. Bankers Trust New York Corp.: 84.6
8. Banc One Corp.: 76.5
9. First Union Corp.: 71.4
10. First Chicago Corp.: 53.2
The Deal at a Glance
--BankAmerica to give Continental 21.25 million shares of BankAmerica common stock and $939 million in cash. Deal valued at $1.9 billion, based on BankAmerica’s closing stock price Friday of $45.375 a share.
--The merger, which requires regulatory approval, would strengthen BankAmerica’s presence in the Midwest and the corporate banking market.
--The deal would have no impact on Bank of America’s consumer depositors in California. Bank of America retail branches in California would not be affected.
--Between 500 and 800 jobs at both banks nationwide could be eliminated.
--Continental’s name would be changed to Bank of America Illinois.
--Thomas C. Theobald, Continental’s chairman, would step down after merger. Theobald, a former Citicorp executive, is highly regarded for taking over a troubled Continental in 1987, three years after its federal bailout, and returning the bank to profitability.
* Combined assets of both companies
Source: Keefe, Bruyette & Woods Inc.
*
BankAmerica already has branch operations in California and nine other states: Alaska, Washington, Oregon, Idaho, California, Nevada, Arizona, New Mexico, Texas, Hawaii
BANKAMERICA CORP.
Chairman and Chief Executive: Richard M. Rosenberg
Headquarters: San Francisco
Assets: $187 billion
Rank: California’s largest banking company and nation’s second-largest, behind Citicorp
Operations: Owns Bank of America, California’s largest bank. Branches in nine other states and numerous countries. Owns Seattle-First National Bank, the largest bank in Washington state. Acquired Security Pacific Corp. in 1992.
Employees: 96,000
1993 profit: $1.95 billion, up 31%
CONTINENTAL BANK CORP.
Chairman and Chief Executive: Thomas C. Theobald
Headquarters: Chicago
Assets: $22 billion
Rank: Nation’s 33rd-largest banking company
Operations: Specializes in wholesale banking, or meeting the financing needs of medium and large corporations nationwide. Does not have a retail branch network.
Employees: 4,200
1993 profit: $258 million, up 16%
