Banks Stake out an Interstate Future

Fraust, Bart, American Banker

NEW YORK -- In recent years, a number of large bank holding companies have staked claims on out-of-stake banks in anticipation of possible changes in interstate banking laws.

They have done so in a variety of ways.

The easiest is to buy 4.9% or less of the outstanding common stock of the target bank. Regulatory approval is not required for this type of investment, and often the purchases are can't-lose situations.

The investing bank has an inside track on acquiring the target. But if another suitor is chosen, the investor gets bought out at a premium.

Sometimes, these investments include "informal cooperation" or "enriched correspondent banking relationships" between the banks. Texas commerce Bancshares of Houston has made this kind of investment in banks in colorado, Wyoming, Arizona, Oklahoma, amd Louisiana.

Other banks, though, buy 4.9% stakes purely for investment purposes, and bankers say Provident National Bank of Philadelphia and its chairman, Roger A. Hillas, are the kings of the hill of this type of deal.

A more complicated method of staking a claim on an out-of-state bank is to make a maximum 24.9% investment in its equity capital.

The investments include nonvoting stock that is converticle into or has warrants for common stock. The stock cannot be converted or warrants exercised until federal and/or state laws are changed.

Marine Midland Banks Inc. of Buffalo, N.Y., has this type of arrangement with Centran Corp. of Cleveland and with Industrial Valley Bank & Trust Co. of Philadelphia.

Other examples are Mercantile Texas Corp. of Dallas and Utica Bankshares of Tulsa, Okla.; and Bank of Boston Corp. and Chittenden Corp. of Burlington, Vt.

So far, the Bank of Boston is the only banking company that has successfully converted nonvoting equity …

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Publication information: Article title: Banks Stake out an Interstate Future. Contributors: Fraust, Bart - Author. Magazine title: American Banker. Volume: 149. Publication date: April 2, 1984. Page number: 1+. © 2009 SourceMedia, Inc. COPYRIGHT 1984 Gale Group.

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