Banks Stake out an Interstate Future

Article excerpt

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 arrangements into actual merger agreements that can be completed under current laws.

New England's largest bank holding company last year signed an agreement to acquire Colonial Bancorp Inc. of Waterbury, Conn., which had received a capital infusion from the Bank of Boston.

Casco-Northern Corp. of Portland, Maine, another beneficiary of bank of Boston's largesse, also eventually agreed to become a subsidiary of the Boston bank.

Incidentally, Bank of Boston turned a 4.9% investment in RIHT Financial Corp. of Providence, R.I., into an agreement to merge. In doing so, it outbid CBT Corp. of Hartford, Conn., another company that held 4.9% of RIHT's stock.

A variation is a 24.9% investment plus an agreement to merge once the law is changed.

Examples of this type of deal include Chase Manhattan Corp. of New York and Equimark Corp. of Pittsburgh; First Bank System Inc. of Minneapolis and Banks of Iowa inc. of Cedar Rapids; Chemical New York Corp. and Florida National Banks of Florida Inc., Jacksonville; and U.S. Bancorp of Portland, Ore., and Old National Bank Corp. of Spokane, Wash.

The most recent stakeout, First Union Corp. of Charlotte, N.C., in Florida Coast Banks Inc. of Pompano Beach, Fla., is another example.

Bank of New York Co. Inc.'s arrangement with Northeast Bancorp Inc. of New Haven, Conn., is different in that there was no initial equity investment, only an agreement to merge once the law is changed. Merger of Equals

Another type of interestate stakeout is the "merger of equals," in which banks agree to make investments in each other with the understanding that when the law is changed, they might do something bigger.

One example is the three-way deal among Trust Company of Georgia, Atlanta; AmSouth Corp. of Birmingham, Ala.; and South Carolina National Corp. of Columbia. The three invested $2 million in each other's stock.

The agreement between Southeast Banking Corp. of Miami and First Atlanta Corp. is another example. First Atlanta has acquired preferred stock and convertible debentures of Southeast, and Southeast has agreed to make a similar investment in First Atlanta later. …