BANK MERGER FEVER : NEWS ANALYSIS : NationsBank and B of A: Is Bigger Really Better?

TIMES STAFF WRITER

A merger of BankAmerica Corp. and NationsBank would create a U.S. banking behemoth blanketing much of the nation with branches, credit cards, mortgage loans and other services.

But is bigger necessarily better? That was the question analysts and others wrestled with Monday while the two parties remained silent, refusing to comment on reports that merger talks have taken place over the summer.

The new bank would have to convince investors that the combined entity would generate enough cost savings to outperform smaller, nimbler institutions. It would have to convince its executives that the new, far-flung bank would offer a consistent corporate culture. And it would have to assure customers they will get better service from a behemoth.

"At some point, you become so large that you can't outperform the market because you are the market," said bank analyst Ray Soifer of Brown Bros. Harriman & Co. "It would be very hard for a giant national bank to have anything other than a mediocre performance in line with the overall industry."

On the other hand, merger proponents see an opportunity for the combined bank to become the first to establish a national name brand on the order of Merrill Lynch and American Express, to cut overall costs by 5% or more, and to gain huge profit by blending both banks' national credit card and mortgage banking powerhouse operations. It would have a staggering 7% of nationwide bank deposits and rank as the world's ninth-largest bank, with about $410 billion in assets.

"They'd be the 900-pound gorilla in regional banking, with a strong presence in all the fast-growing states in America in the Sun Belt and all up the Pacific Coast," said David Berry of the banking securities firm Keefe, Bruyette & Woods. "You'd be in touch through a retail branch system with more customers than anyone else."

If it happens, the BankAmerica-NationsBank merger would go against the trend of "in-market mergers" that have so far characterized the latest bank merger mania. Institutions with "redundant" operations in the same region have merged to cut costs by laying off employees, closing down branches and relying on high-technology to deliver services.

Because the only geographic overlap shared by BankAmerica's Bank of America unit and NationsBank is in Texas, there will not be the major cost savings seen in other deals. By bridging BofA operations in 13 western states with NationsBank's network in nine states in the East and Southeast, the merger that the two are discussing would be a "market extension" deal designed to increase sales.

"In a merger of equals like this one, you don't get the benefit of a more efficient organization taking over the less efficient one. The cost savings are not as attractive," said Jim Chessen, chief economist with American Bankers Assn. in Washington.

But Berry said it is an error to assume banks save costs in mergers only "if you have branches across the street from each other. . . . Both banks spent a lot of money setting up deposit and credit card management systems. You could combine those. They both serve national corporate customers and you don't need two people calling on Procter & Gamble."

Even if BofA wanted to, it would have a tough time doing an in-market merger, simply because there are few significant independent banks left now that Wells Fargo & Co. and First Interstate Bancorp may combine.

Also, BofA sources said the bank came close to buying Bank of New England and nearly combined with Chase Manhattan. Even before it bought Security Pacific Corp. in 1992, BofA has been on an aggressive program of using mergers to expand into more states.

The deal reportedly being discussed may be a "merger of equals," but most outside observers saw no circumstance under which NationsBank Chief Executive Hugh McColl, a blustery ex-Marine, would accept anything less than the chief executive spot. Speculation on possible headquarters locations centered on "compromise sites," including Dallas and Washington.

Will the deal come off? With the banking industry amid a full-on merger frenzy fed by high stock prices and greased by interstate banking laws, analysts who might have dismissed the deal six months ago will not rule it out now. More than $54 billion in merger agreements have been signed so far this year, more than twice the amount for all of 1994.

The two banks have been talking informally for years about merging and may feel a new sense of urgency after last week's announcement that Wells Fargo would attempt a hostile takeover of First Interstate, said bank analyst Bert Ely of Alexandria, Va.

Ely rated the chances of a BankAmerica-NationsBank merger at about 50-50. Berry of Keefe, Bruyette & Woods said that although most of the merger interest was coming from the NationsBank side, he would never say never.

"I don't know if they are going to come together or not, but it has been a loser's game to bet that rumored mergers won't happen," Berry said.

Investors at least seemed to give the rumored merger a tentative vote of approval Monday. BankAmerica stock closed up $1.50 at $64.125 while NationsBank added 75 cents at $70.75, both in New York Stock Exchange trading.

The sheer size of the merger in geographical terms raised doubts about the resulting corporate culture: How would the new bank ensure that employees are "singing from the same hymnal?" as Ely put it.

"The culture issue is the reason I don't think it's a slam dunk," Ely said. "It's important, because you don't want a schizophrenic organization."

That could be difficult with top executives as different in style as BankAmerica's conservative David Coulter, who takes the chief executive reins Jan. 1, and NationsBank's risk-taking McColl. However, observers saw scenarios under which McColl would be chief executive of the combined entity until he retires in 1997, then hand the reins to Coulter.

Problems could come in merging BankAmerica's "fundamentally conservative and bureaucratic culture" with that of NationsBank, a freewheeling organization reflecting McColl that has grown through nearly 50 mergers over the past 12 years, Berry said.

Times staff writer James Bates contributed to this report.

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Banking Behemoth

A combined BankAamerica and NationsBank would be the largest bank in the United States and the and the ninth-largest in the world. Here's what each bank brings to the table:*--*

BankAmerica NationsBank Assets (in billions) $227 $184 Deposits (in billions) $156 $101 Branches 1,927 1,855 Employees 80,300 59,633

*--*

Note: All figures are as of June 30. Source: Ely & Co.

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