Merger Market Steps Up in Banking Industry

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SAN FRANCISCO -- Regional banks such as PNC Bank, KeyCorp, Wells Fargo and Fleet Financial Group may be the next transaction candidates as the white-hot bank merger market reaches a new level of intensity.

To avoid being dwarfed by larger rivals, First Union could buy Fleet, and there could be a merger of equals between Wells Fargo and U.S. Bancorp, analysts said.

First Union Chairman and Chief Executive Edward Crutchfield "is probably calling (Fleet Chairman and CEO) Terry Murray as we speak," said James McDermott, chairman of Keefe, Bruyette & Woods, a brokerage specializing in bank stocks. "And U.S. Bancorp and Wells to me is a natural combination." Just about every regional bank becomes a merger candidate after Monday's announcements that BankAmerica would merge with NationsBank and Banc One with First Chicago NBD, analysts and investment bankers said. And last week's agreement of a Citicorp and Travelers Group combination put the heat on major New York-based banks to link with investment banks or insurers. "Everybody will feel the need to consider becoming big," said Lawrence Cohn, an analyst at Ryan, Beck. "The large super- regionals, those are the guys who will feel most that they have to do something." Analysts said they expect Chase Manhattan, currently the largest U.S. bank, to speed up its pursuit of brokerage giant Merrill Lynch. And J.P. Morgan, whose profits have lagged due partly to Asia's financial crisis, could attract a major investment bank such as Morgan Stanley Dean Witter that wants entree to the lending market. "I'm sure Chase will make a move," McDermott said. Recent banking mergers reinforced the view that size is vital to compete. Only a very large bank has the resources to invest in new technologies and dominate markets, analysts said. With the advent of online banking and electronic commerce, and the need to spend tens of millions of dollars preparing computers for the year 2000, technology investment has become especially critical. …