Banks' merging mania Who's next?: Deal-making has exploded in Maryland in recent years, and jockeying continues in today's 'buy or be bought' market.

October 22, 1995|By Bill Atkinson | Bill Atkinson,SUN STAFF

Most people hate being the subject of rumors, but Jeffrey R. Springer has come to expect it.

"Everything you hear in the market is no more than speculative gossip," said Mr. Springer, president of Citizens Bancorp in Laurel. "You wonder if people are just bored."

Twice in the last four months, Citizens' stock has surged on rumors that the bank was about to be bought. And twice, it was just talk.

But that hasn't stilled the rumor mill. It's working at a high pitch these days in Baltimore and other cities -- and with good reason. More than 300 banks have merged this year in deals valued at a record $48.5 billion, double the amount last year even though there were 563 mergers, according to SNL Securities LP, a Charlotte, Va.-based bank and thrift consulting firm.

What's more, three of the largest mergers in the industry's history have been announced this year, led by the $11.4 billion Chemical Banking Corp.-Chase Manhattan Corp. merger.

"Everybody is jockeying for position," said Mary P. Quinn, a bank analyst with Keefe Bruyett & Woods. "That leads people to believe the time is now."

And there has been plenty of jockeying in Baltimore.

Since NationsBank Corp. acquired MNC Financial Inc. in October 1993, the deal-making here has exploded, and Baltimore has suddenly found itself the financial colony of Charlotte, N.C., and Richmond, Va. Ten years ago, Baltimore had nine independent banks and thrifts with assets of more than $500 million each and deposits totaling nearly $16 billion. Today, there are only two independent banks left with more than $1 billion each in assets and total deposits of $6.5 billion.

The reason: Out-of-state banks such as NationsBank, First Union Corp. and Crestar Financial Corp. have rushed in to amass as much market share as possible in Baltimore, which is viewed as a key mid-Atlantic market. Last November, for example, First Fidelity Bancorp. snapped up Baltimore Bancorp. Then in June, First Fidelity became the acquiree -- agreeing to merge with First Union.

The deals haven't stopped. Earlier this year, Pennsylvania's Susquehanna Bancshares Inc. bought two area thrifts, and it is on track to buy a third by year's end; and in May, Crestar Financial Corp. agreed to buy Baltimore's largest independent savings and loan, Loyola Capital Corp.

"It's a buy or be bought market," said Bill Tignanelli, who heads the Richmond Federal Reserve Bank's Baltimore branch.

The question is: Who's next? In a market that has proved any merger is possible, there is no precise way to predict the next bank merger, but analysts and bankers are sure there are more deals to come.

The reasons are numerous. Stock prices of banks -- the currency used to do acquisitions -- have held up, making it attractive for shareholders of weaker institutions to sell. Also, acquirers are paying hefty prices for their targets. Baltimore Bancorp, for instance, was bought for more than twice its book value. And with banks able to enter almost any market they want, weaker banks fear they will be swamped by the competition so many are looking to sell.

"I think a lot of banks are taking a look at what they have and are saying, 'Jeez, it is getting harder and harder to compete,' " said Vernon Plack, a bank and thrift analyst with Scott & Stringfellow Inc. But most banks simply don't put up a for sale sign in front of the main lobby. In fact, one thing that independent banks all say is that they are not for sale, but it is their duty to entertain any serious offer.

Analysts say that of the banks with large positions in Baltimore, Mercantile Bankshares Corp. and First Maryland Bancorp are the least likely to be acquired.

Crestar Financial Corp. and Signet Banking Corp. are strong enough to survive independently, but they remain on many takeover lists. The banks that are prime for takeover, analysts say, are Provident Bankshares Corp. and Citizens.

Here's why:

Provident Bankshares

Analysts believe the $2.5 billion-asset Provident is an obvious target because they view it as the most vulnerable. While its profitability and credit quality have improved, analysts see it losing out to larger banks that can invest millions of dollars in new technology, hire the most talented executives and offer more products and services.

Some analysts, like Alex C. Hart, at Ferris, Baker Watts Inc., said the company relies too heavily on consumer and mortgage lending, and doesn't make enough business loans, which return larger yields.

"That is the problem, it [the loan portfolio] looks more like a thrift than a commercial bank," Mr. Hart said.

He's not impressed with Provident's earnings despite sizable increases, either. Shareholders earned 10 cents for every dollar they invested in equity in the first six months of the year. The return pales in comparison with the 15.31 cents banks with assets ranging from $1 billion to $10 billion returned to their shareholders, and the 14-cent average Maryland banks registered.

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