Urge to Merge : First Chicago-NBD Deal Underscores Banking Trend

Banking’s latest merger wave gained strength Wednesday as two big Midwest banks, First Chicago Corp. and Detroit-based NBD Bancorp Inc., announced the second-largest union in U.S. banking history.

The $5.3-billion deal would create the nation’s seventh-largest bank-holding company, with assets of $120 billion. The new company is expected to be called First Chicago NBD Corp. and would clearly be the dominant banker in Illinois, Michigan and Indiana.

But the announcement reverberated well beyond the Midwest. The deal is another dramatic example of how banks this year are forming “super-regional” financial powerhouses. And analysts are predicting more of these kinds of mergers, particularly in California.

Banking has undergone periodic merger waves for the past 15 years--BankAmerica Corp. bought Security Pacific Corp. in 1992 for $4.7 billion--because the 10,200 commercial banks in the United States are considered far more than the country needs.

But the mergers have accelerated again in 1995 after legislation allowing full-scale interstate banking was passed last year, making it even easier for banks to rapidly gain market share by purchasing rivals in other states.

In addition, banks are “bulking up” in anticipation that Congress might repeal the Glass-Steagall Act, the 62-year-old law separating commercial banking from securities underwriting, said Bert Ely, a banking consultant in Alexandria, Va.

Repealing that law could unleash a frenzy of mergers between banks, brokerage firms and insurance companies. By undertaking more regional mergers now, the banks “are making defensive plays” to become “so big that they can’t be taken over,” Ely said.

Yet for all of the dramatic reshaping of the banking industry, the impact of these changes on consumers and business borrowers should not be nearly so dramatic, experts say.

Based on past mergers, individuals are likely to see mixed results. Some may find their nearby bank branch office is closing or that their credit decisions are being made by anonymous bank officers out of state.

But others may enjoy the convenience of having a bank account that crosses state lines. They also might get investment products, such as mutual funds, that were previously unavailable through their banks.

First Chicago and NBD Bancorp--formerly known as the National Bank of Detroit--also hope to save $200 million a year from eliminating overlapping functions, allowing them to offer slightly lower interest rates than their smaller rivals.

Many of the banks’ employees won’t fare as well. About 1,700 jobs are expected to be eliminated as First Chicago and NBD combine operations and close branches, mostly in the Chicago area, the banks said.

The First Chicago-NBD proposal came only three weeks after Charlotte, N.C.-based First Union Corp. unveiled the largest bank merger ever, a $5.4-billion offer to buy First Fidelity Bancorp of Newark, N.J. That combination would create an East Coast giant stretching from Connecticut to Florida.

And early this year, two other big Eastern banks, Fleet Financial Corp. and Shawmut National Corp., agreed to merge in a $3.6-billion deal.

The First Chicago-NBD merger is significant, however, because it will combine leading banks in two major metropolitan areas, said George Salem, an analyst with the investment firm Gerard Klauer Mattison & Co. in New York.

“This was the bell ringer for the latest consolidation that we’ve been expecting” in cities such as Los Angeles and San Francisco, Salem said. “It will force all banks in the country, of all sizes, to rethink their strategies” regarding whether they want to merge or try to stay independent, he said.

The West Coast is fertile ground, because banks such as Los Angeles-based First Interstate Bancorp and San Francisco-based Wells Fargo & Co.--once among the top 10 giants of the industry--are rapidly becoming second-tier players as competitors grow through mergers.

If nothing else, these mid-size banks might now entertain merger plans simply to avoid being taken over against their will. That’s just what First Chicago, long a rumored takeover target, was widely thought to have done.

First Chicago’s deal is “a defensive consolidation that turned them into the largest fish in the Midwestern pond,” said Howard Adler, a banking specialist for the law firm Gibson, Dunn & Crutcher in Los Angeles.

All of which helped explain why First Interstate’s stock jumped $1.625, to a close of $83 a share, after the First Chicago deal was announced, Salem said. Wells Fargo edged up 87.5 cents to $183.75. Both trade on the New York Stock Exchange.

The new First Chicago NBD Corp. would be based in Chicago. In the merger, First Chicago investors would get 1.81 shares of the new company for every share they now hold, and NBD holders would make a one-for-one exchange.

First Chicago would own 50.1% of the new company’s 313 million common shares outstanding, and NBD would own the rest. The deal, which needs regulatory and stockholder approvals, is expected to close early next year.

Based on their closing stock prices Wednesday, the exchange gives the deal an indicated value of $5.3 billion. NBD’s stock closed at $34.375 a share, up $1.875, and First Chicago gained 87.5 cents, to $61.50, both on the Big Board.

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Emerging Regional Banking Powerhouses

The recent wave of banking mergers, including the planned combination of First Chicago Corp. and NBD Bancorp Inc. announced Wednesday, has added to the regional clout of several major banking companies. Among them:

BankAmerica Corp.

* Headquarters: San Francisco

* Retail banking operations: 1,944 branches in 10 states (California, Washington, Texas, Arizona, Oregon, Nevada, New Mexico, Hawaii, Idaho and Alaska)

* Assets: $223.2 billion

First Interstate Bancorp.

* Headquarters: Los Angeles

Retail banking operations: 1,167 branches in 13 states (Alaska, Arizona, California, Colorado, Idaho, Montana, New Mexico, Nevada, Oregon, Texas, Utah, Washington and Wyoming)

* Assets: $57 billion

First Chicago Corp.

* Headquarters: Chicago

* Retail banking operations: 85 branches, all in the Chicago metropolitan area

* Assets: $72.4 billion

Banc One Corp.

* Headquarters: Columbus, Ohio

* Retail banking operations: Company holds 1,408 branches in 11 states (Arizona, Colorado, Illinois, Indiana, Kentucky, Ohio, Texas, Utah, West Virginia and Wisconsin)

* Assets: $87.8 billion

NationsBank Corp.

* Headquarters: Charlotte, N.C.

* Retail banking operations: 1,902 branches in the District of Columbia and eight states (Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas, Virginia)

* Assets:$183.9 billion

First Union Corp.

* Headquarters: Charlotte, N.C.

* Retail banking operations: 1,304 branches in the District of Columbia and seven states (Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas)

* Assets: $77.3 billion

Fleet Financial Group Inc.

* Headquarters: Providence, R.I.

* Retail banking operations: 800 branches in six states including, Connecticut, Maine, Massachusetts, New Hampshire, New York and Rhode Island)

* Assets: $47.8 billion

Note: Data is as of March 31, 1995, and thus does not include the addition of some yet-to-be-completed deals, such as Fleet Financial’s pending acquisition of Shawmut National Corp. and First Union’s pending purchases of First Fidelity Bancorp.

Sources: Bloomberg Business News, Company representatives, Times reports. Researched by JENNIFER OLDHAM / Los Angeles Times