Wave of bank mergers could make region a backwater

August 05, 1992|By David Conn | David Conn,Staff Writer

The mid-Atlantic region is turning into a banking backwater; welcome the financial meccas of the future: Charlotte, N.C., Pittsburgh and Columbus, Ohio.

That's the banking world according to Arnold G. Danielson, president of Rockville-based Danielson Associates Inc., a consulting business that released its latest Middle Atlantic Banking Report this week.

It's a world in which mergers will continue among regional and super-regional banking companies; smaller banks that avoid being acquired will grow to the point that they become pTC irresistible targets; and only the smallest community banks will remain independent.

Last month's announcement of a proposed acquisition of MNC Financial Inc. by NationsBank Corp. of Charlotte marked the "early stages of the closing act" of the region's banking consolidation, Mr. Danielson wrote in the latest version of an occasional report he produces on industry trends.

"Any thoughts of Washington or Baltimore becoming significant regional banking centers are being washed away in a wave of acquisitions," according to Mr. Danielson's report. "The much smaller Richmond can still cling to such hopes, but it is probably a forlorn dream."

If NationsBank triggers the second phase of its two-step "stakeout merger" with MNC, the combined company would have more than 18 percent of the domestic deposits in the Middle Atlantic market, comprising Virginia, Maryland and the District of Columbia.

Crestar Financial Corp. and Signet Banking Corp., both based in Richmond, would move up to second and third place, respectively, and Dominion Bankshares Corp. of Roanoke, Va., and First Maryland Bancorp of Baltimore, would round out fourth and fifth place.

Despite the heavy concentration of market share -- more than 38 percent among only five banks -- "Middle Atlantic banking will not be that different for the customer," Mr. Danielson's report states. "The big banks with the new names will be just as impersonal, or even less so, in delivering their services as the banks they replaced."

Mr. Danielson considers the consolidation "a natural progression the deregulation" that started in 1980, as well as the introduction of interstate banking and, most important lately, the region's real-estate- driven recession.

The recession, in particular, has made winners of banks based in three states: North Carolina, with NationsBank, Wachovia Corp. and First Union Corp.; Pennsylvania, including Mellon Banking Corp. and PNC Financial Corp. of Pittsburgh, and CoreStates Financial Corp. of Philadelphia; and Ohio, whose Banc One Corp. is rapidly headed toward the top tier of the nation's banking industry.

"If North Carolina and western Pennsylvania had experienced the insatiable developer demand for loans that occurred in the Washington area while the local real estate market was dormant," Mr. Danielson wrote, "it would have been First Union, NCNB [NationsBank's predecessor], Mellon and PNC that would surrendering their independence to the likes of C&S/Sovran and MNC; but that was not to be."

The next wave in the consolidation likely will come from Pennsylvania, whose big banking companies now fear being shut out of the wealthy Baltimore-Washington market, according Mr. Danielson. Stockholders in Dominion, Crestar and Signet all have reason to expect a sale, if not to Pennsylvania acquirers then to Wachovia or First Union of Charlotte.

The secondary targets will be the ailing companies, those with high levels of non-performing assets, low capital, or both, such as Washington's First American Corp. and Riggs National Corp., Chevy Chase Federal Savings Bank and Baltimore Bancorp.

Although most of those companies, left to their own devices, would recover in time, the cost advantages enjoyed by the largest banks will put pressure on the smaller ones to sell, Mr. Danielson said. That's because the high costs of carrying troubled assets, coupled with the competition from the healthy super-regionals such as NationsBank, won't allow the smaller ones to make enough profits to both pay dividends and grow.

What's left? Mr. Danielson believes "there will be a myriad of small banks providing the ultimate in personal service," and entrepreneurs will continue to raise money and start their own banks. Just last week a group of investors announced their intention to open a bank on the Eastern Shore.

Where the money is

Share of deposits of *mid-Atlantic region banking companies

Bank... ... ... ... 1991... ... ... ... ... 1980

NationsBank... ... .9.9%... ... ... ... ... 3.3%

MNC... ... ... ... .8.5%... ... ... ... ... 4.1%

Crestar... ... ... .7.2%... ... ... ... ... 4.2%

Signet... ... ... . 5.4%... ... ... ... ... 2.6%

Dominion... ... ... 3.8%... ... ... ... ... 3.1%

First Maryland... . 3.3%... ... ... ... ... 2.3%

Central Fidelity... 3.2%... ... ... ... ... 2.3%

First Virginia... . 3.2%... ... ... ... ... 2.1%

First American... . 2.9%... ... ... ... ... 2.8%

Chevy Chase... ... .2.6%... ... ... ... ... 0.6%

Mercantile... ... . 2.6%... ... ... ... ... 1.8%

Riggs... ... ... .. 2.5%... ... ... ... ... 2.8%

Baltimore Bancorp.. 1.9%... ... ... ... ... 1.5%

All other

commercial banks.. 12.2%... ... ... ... .. 26.1%

All S&Ls... ... .. 21.7%... ... ... ... .. 34.1%

All credit unions.. 9.1%... ... ... ... ... 6.3%

* = Virginia, Maryland and District of Columbia

SOURCE: Danielson & Associates' "Middle Atlantic Banking Report"

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