B of A Outlines Plans for Merger With NationsBank

By THOMAS S. MULLIGAN and DEBORA VRANA

April 14, 1998 12 AM PT

TIMES STAFF WRITERS

NEW YORK —

BankAmerica Corp., parent of Bank of America, and NationsBank Corp. on Monday detailed plans for a $62.5-billion merger that would create America’s second-largest banking company and its first coast-to-coast branch network, with full-service offices in 22 states from California to North Carolina.

The deal immediately drew criticism from consumer advocates who said it would lead to higher fees and less competition, but officials of the two banks countered that the merger would reduce costs and boost convenience.

The announcement also renewed speculation that still more mergers of large financial institutions will ensue, ultimately leading to a few dominant nationwide banks much like those in some European countries.

NationsBank, which has operations in much of the Southeast and parts of the Midwest and Southwest, has very little geographical overlap with BankAmerica, which operates in the West and Southwest. The combined bank would be the biggest in three of the most populous and fastest-growing states--California, Texas and Florida. Both are major issuers of credit cards and have extensive branch networks in their markets.

The combination of the two to create a vast banking network would come close to realizing Bank of America founder A.P. Giannini’s vision of a truly national bank, but at an ironic cost to California.

The banks said as many as 8,000 jobs would be eliminated between them to achieve $2 billion in cost savings, and BankAmerica would lose its San Francisco headquarters--becoming the latest major California corporation to move its base out of the state.

The merged company would be based at NationsBank’s Charlotte, N.C., headquarters, although it would retain the BankAmerica corporate name and a significant presence in San Francisco.

Coming on top of last week’s record merger agreement between Travelers Group and Citicorp, which would create the nation’s largest banking firm, the BankAmerica-NationsBank deal adds yet more momentum to a powerful consolidation wave in financial services.

In fact, the announcement almost completely overshadowed a second huge deal also confirmed on Monday--Banc One Corp.’s planned $29-billion purchase of First Chicago NBD Corp., a combination that would create the dominant bank in the Midwest.

As recently as 10 days ago, the Banc One deal would have been the biggest merger in U.S. banking history and the second biggest corporate merger ever, behind WorldCom Inc.’s pending $37-billion purchase of MCI Communications Corp. But instead it ranks a distant No. 4.

Bank Merger Tied to Industry Survival

BankAmerica and NationsBank officials said they plan to merge because they believe that size is crucial in making the technological and marketing investments needed to survive against increasingly larger and more sophisticated competitors. Company officials also cited the stability that comes from geographic diversification and the ability to create a nationwide brand.

“Together, we will be America’s bank--at home and around the world,” NationsBank Chairman Hugh McColl said. “We will set a new standard for choice, convenience, value and market presence.”

BankAmerica Chairman David Coulter added that the company’s No. 1 status in most of its important domestic markets and product lines will make it well poised to compete overseas in what he called “the Pacific Century.”

Consumer groups’ reaction to Monday’s announcements was sharper than those that greeted the Travelers-Citicorp deal.

Critics predicted higher fees and indifferent service for small customers, and an overwhelming--perhaps impossible--task for the federal and state regulators trying to oversee the new giants.

Gail Hillebrand of Consumers Union in San Francisco said the group is worried that bank decision makers would be located in Charlotte, a long way from California customers.

“Bigger banks charge higher fees,” she said, noting that NationsBank last year charged customers $1 to make a deposit if they’d forgotten to bring a deposit slip. “This is not a good sign for the average consumer who does not keep a lot of money with the bank.”

Nevertheless, lawyers who follow the regulatory scene--and the four banks themselves--predicted relatively easy approval.

“These are exactly the kinds of deals you would have seen 20 years ago if the recommendations of regulators had been followed,’ said Chuck Muckenfuss, regulatory partner at the law firm of Gibson, Dunn & Crutcher in Washington, D.C.

Few Legal Obstacles Are Foreseen for Firms

The Travelers-Citicorp merger raises more difficult issues because it is currently illegal for a bank holding company to own an insurance-underwriting business, such as those contained under the Travelers umbrella.

No change of law would be required for the two deals announced Monday. At most, analysts said, some “fringe divestitures” may be required in states such as Indiana, where Banc One and First Chicago have broad overlap and regulators might consider their combined market share a threat to competition.

The Federal Reserve Board and other banking regulators long have held that regional barriers are bad for consumers and bad for the banking business, Muckenfuss added, so “these deals are a logical extension of that policy. The only wonder is that they’ve taken so long to happen.”

One reason for the delay may be that consumers have yet to be convinced that there is any major benefit for them in multi-state banks or multi-product financial supermarkets.

“That’s a beautiful fantasy, but unfortunately that’s not the reality,” Jon Golinger, consumer products director with nonprofit CalPIRG, said of so-called universal banking. “Coast-to-coast banking sounds great for consumers, but [the banks’] own track record shows that’s not always the case.”

Citicorp-Travelers and the two bank deals announced Monday all were negotiated independently over the last six weeks.

BankAmerica’s Coulter and NationsBank’s McColl, for example, hatched their deal in late March in meetings at San Francisco’s Mandarin Hotel, after NationsBank officials first broached the idea in phone conversations, Coulter said Monday.

Under the merger agreement, McColl, 62, would be chairman of the combined company, and Coulter, 50, would be president and would take over the company upon McColl’s retirement, presumably at age 65. Coulter would keep his office in San Francisco.

The next big merger, however, may be in reaction to these latest deals.

“This is what they’re talking about today in every bank boardroom in America, I guarantee you,” said John B. McCoy, chairman and chief executive of Columbus, Ohio-based Banc One.

Although nobody expects small and medium-size banks to disappear from the American scene, many experts believe that within a few years, a handful of emerging giants will come to dominate the U.S. financial-services scene, offering one-stop shopping for credit cards, insurance, mortgages, mutual funds and merger-and-acquisition advice.

“There were 14,000 banks just five years ago, and clearly we didn’t need that kind of fragmentation,” said Tom Burnett, founder of Merger Insight, a merger-analysis firm in New York. “We had way too many banks and we’ve moved back to the middle now. Where it stops, who knows?”

Monday’s deals prompted new speculation on Wall Street about who might get involved in the next mega-deal.

Banking companies seen as likely merger candidates include Wells Fargo & Co. in San Francisco, J.P. Morgan & Co. and Bankers Trust New York Corp., and such “super-regionals” as Fleet Financial Group and BankBoston Corp. in the Northeast, First Union Corp. in the South and US Bancorp in the Midwest.

Donaldson Lufkin & Jenrette and Paine Webber Group Inc. are two securities firms mentioned as likely targets of banks or insurance firms. And given the size of the latest deals, giants such as Merrill Lynch and American Express Co. also were mentioned as probable players in the merger game.

The new BankAmerica would stop short of being a complete financial supermarket because it lacks an insurance-underwriting component. It would have a strong investment-banking franchise because of recent acquisitions by the two partners.

NationsBank owns Montgomery Securities, and BankAmerica owns Robertson Stephens & Co. Both investment banks are based in San Francisco and are known for organizing initial public stock offerings of high-tech companies.

Online Commerce Seen as Key Growth Area

Analysts expect layoffs to hit hard at the two investment-banking operations, which together employ about 2,500. As longtime cross-town rivals in a similar niche but with clashing corporate cultures, the two firms might also be difficult to combine without internal strife.

Another motivating factor in the NationsBank-BankAmerica deal is that both companies consider electronic commerce to be a key growth area for their businesses, said Edward E. Furash, a Washington, D.C., banking consultant.

That includes not only online consumer banking, which many banks offer, but also helping companies achieve secure transactions over the Internet or other electronic networks.

Doubts about security have hindered the growth of electronic commerce.

“This is the next wave after ATMs and kiosks, and these two companies are at the forefront,” Furash said.

Mulligan reported from New York and Vrana from Los Angeles.

* THE BIG QUESTIONS

A look at how the merger will affect various accounts. A16

* WHITHER SMALL BANKS?

Mergers drive customers to smaller institutions. D1

* RELATED COVERAGE: D4-5, D14-16

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Banking Powerhouse

The $62.5-billion merger would create the country’s first coast-to-coast bank under the BankAmerica name.

The Impact