Two banks announce acquisitions First Union buys Va.'s Dominion

September 22, 1992|By New York Times News Service

Continuing the industry trend toward fewer but larger banks, BankAmerica Corp. announced plans yesterday to acquire $7.5 billion of deposits from First Gibraltar Savings, a Dallas-based savings and loan, and First Union Corp. said it would buy Dominion Bankshares, a $9.4 billion banking company based in Roanoke, Va.

Both BankAmerica, which operates large banks in seven states, and First Union, which will now have large banks in six states, are old hands at acquiring other companies. Analysts expect them to move quickly to improve the profits of their new acquisitions by cutting costs. Each bank has smaller operations in other states, including Maryland, as well.

BankAmerica already has about $4 billion of deposits and 130 branches in Texas, mostly from its acquisition this year of Sunbelt Savings. It faces the task of converting those deposit-rich but loan-poor offices into more conventional bank offices with more lending and more checking account customers.

First Gibraltar is the descendant of five failed Texas savings and loans that federal regulators sold in 1988 to the Ronald O. Perelman for $315 million. Mr. Perelman, who was given $900 million in federal tax breaks, bought the company as part of the "Southwest plan," under which federal regulators were trying to stave off the collapse of the savings and loan deposit insurance fund by hurriedly selling failed savings institutions on favorable terms to private investors.

Mr. Perelman, who also controls Revlon Inc. through his investment company, MacAndrews & Forbes Holdings, which also owns First Gibraltar, was never expected to be a long-term owner of the bank. He has been negotiating the sale of various parts of the company for months.

For First Union, of Charlotte, N.C., the new acquisition is an important move into markets where it had little presence, in Virginia, Tennessee and the District of Columbia.

First Union, whose appetite for acquisitions in the 1980s gave its chairman, Edward A. Crutchfield Jr., the nickname Fast Eddy, felt it was now able to handle a large new purchase because it had completed its acquisition of Southeastern Banking Corp., a failed Miami-based company it acquired a year ago.

Many investors were unhappy with First Union because it paid high prices for acquisitions in the mid-1980s. But the company recently pledged to limit itself to purchases that will be quickly profitable, and yesterday it forecast earnings of $487.5 million for this year, 70 percent higher than in 1991.

Dominion has been hit hard by losses on commercial real estate loans in the past two years. But its financial condition is not so weak that it is considered a candidate for takeover by government regulators.

The stock of First Union, which agreed to pay 0.58 of its shares for each Dominion share, closed yesterday at $37 a share, down $1, making its offer worth $855 million. Dominion's stock rose $3.25 a share, to $19.625.

BankAmerica did not disclose the total cost of its First Gibraltar acquisition, but told analysts that it paid about $110 million for the 130 branches and their deposits.

BankAmerica stock was unchanged yesterday at $47 a share. The opportunities to cut costs after mergers have been the catalyst for American banks to announce, thus far this year, the acquisition of $98.9 billion of deposits from other banks, plus an additional $67.2 billion from savings institutions, according to SNL Securities of Charlottesville, Va.

The most acquisitive banks are generally those like BankAmerica and First Union that retained their financial strength through the recent downturn in real estate prices and the economy. In banking, the rich are getting richer, as acquisitions of weaker institutions lead to higher profits and greater financial strength, which make it easier to arrange the next acquisition.

"The process of merger and acquisition among banks can feed on itself," said Ronald Mandle, a banking analyst at Sanford C. Bernstein & Co. "Once a bank is established in a market, additional acquisitions become more likely, since they would be part of the bank's existing market and have the potential for large cost savings."

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