NEW YORK -- In the biggest bank merger ever, BankAmerica Corp. said it would acquire Security Pacific Corp., creating one bank that will dominate the western United States and shove the banking system a giant step forward in its race to consolidate.
The new BankAmerica, with $190 billion in assets, will be the second-largest U.S. banking company, after Citicorp, but with the biggest domestic branch system. It will have a commanding position from Arizona to Alaska, a region that represents more than a quarter of all the personal income and employment in the country.
For other banks, yesterday's news of the merger -- the third big deal in a month -- raises a red flag, warning many that they probably can not afford independence much longer. It was only last month that Chemical Banking Corp. and Manufacturers Hanover Corp., with assets totaling $135 billion, agreed to combine their operations, as did NCNB Corp. and C&S-Sovran Corp. with assets totaling $118 billion.
"It's like a game of musical chairs; when the music stops, everybody has to scramble for a partner," said Con Hurley, a banking consultant with Secura Group. "A certain critical mass" used to guarantee independence, added Frank Barkocy, an analyst with Advest Inc. "Now that comfort level is no longer there. [Banks have to] make the hard decisions."
The BankAmerica deal also makes obvious that while Congress is mired in debate over bank reform, the industry is barreling ahead with a de facto restructuring of its own, one likely to protect big banks' interests, possibly at the expense of consumers and smaller institutions.
Some analysts see a two-tier bank system emerging, with global or regional banks at one end and smaller community or niche banks at the other. Bank specialists differ on whether this will ultimately mean a healthier system. Inevitably, though, the path from here to there means dramatic disruption, with tens of thousands of banking jobs eliminated and ripple effects on everything from real estate to advertising.
The new BankAmerica, created in a $4.1 billion stock swap, will leapfrog over every other completed or proposed merger, gaining on Citicorp, which has $216.9 billion in assets. Together, the recent mergers show an industry carving the nation into major chunks dominated by what one analyst called "mega-super-regionals."
But the "big is beautiful" equation is what worries smaller banks and consumers, especially as they see the banks moving faster than the government.
The Consumer Federation of America, for example, has been pushing for a consolidation "cap," which would prevent banks from owning, say, more than 10 percent of the assets in the country as a whole, or 30 percent of assets in a given state, says its banking representative, Peggy Miller. But if such a rule even survives the legislative process, many banks may already have grown past it, "grandfathered in" by mergers already completed.