How Much Longer Can Virginia's Independent Banks Hold On?
Kaplan, Daniel, American Banker
Virginia banks, long expected to be fodder for encroaching superregionals, so far have defied those assumptions.
There are six banks in Virginia with asset sizes ranging from $1 billion to $14 billion. But analysts differ on how long banks like Crestar Financial Corp. and Central Fidelity Banks Inc. can hold on.
It is largely a dispute centering on the importance of interstate banking, and what the impending national legislation and recently passed state laws will mean for the dissolving Southeast Compact.
"We expect the onset of national interstate banking and increased competition from superregionals and nonbanks to accelerate the pace of acquisitions in Virginia, prompting several of these super-community banks to sell within two years," said S.G. Warburg Pincus analyst Francis X. Suozzo.
"Although the share prices of these banks reflect the fact that they are currently viewed as acquisition candidates, Virginia's midsize regionals could be acquired at a 30% premium to current market prices with modest per-share earnings dilution," he said.
For example, assuming a 15% savings on expense reductions from any given merger, Mr. Suozzo believes Banc One Corp. could buy Crestar at a 30% premium, and actually have the deal be accretive to earnings. However other analysts disagreed heartily. "I am not sure there are any willing sellers," one analyst said, who requested anonymity.
"Everybody has been waiting for something dramatic, but it has been nothing but silence in terms of anybody coming from out of the region," added John Coffey of Robinson Humphrey. "We expected that. We subscribe to the theory that healthy banks are sold and not bought, and Virginia banks are a healthy lot."
These analysts place the time for any takeover activity at least two years out.
After the state assembly passed reciprocal interstate banking legislation earlier this year, observers expected rapid consolidation of the state's banking industry.
A state growing both demographically and economically, Virginia has low unemployment by national standards and has thus far been immune from defense cutbacks.
Yet save for some minor acquisitions, the state's banking industry has remained little changed, and in fact some of the state's mid-tier banks have embarked on solid acquisition sprees of their own.
"It may take a deal to get some excitement," said David M. West of Davenport & Company of Va.
Like last month's merger in North Carolina of BB&T Financial Corp. and Southern National Corp., it may take the acquisition of Crestar to spark a takeover boom in Virginia, Mr. West said.
But such deals are hardly likely with companies like Crestar and Central Fidelity healthy and acquiring banks of their own.
David Stumpf of Wheat First, Butcher & Singer said despite the advent of nationwide branching, southern banking was still a gentleman's industry, and hostile takeovers remain unlikely.
But Mr. …