Merger mania assessed Uncertainty persists, but downsizing pain may be easing

Economic outlook

November 21, 1997|By Jay Hancock | Jay Hancock,SUN STAFF

As the corporate merger wars continue to rob Baltimore of power and jobs, area business leaders got several general's-eye reports on the conflict yesterday. The dispatches were mixed.

At BT Alex. Brown Inc., "The only moves of which I am aware are moving business this way," said A. B. "Buzzy" Krongard, vice chairman of Bankers Trust New York Corp.

Bankers Trust bought Baltimore-based investment bank Alex. Brown earlier this year. Since then, Krongard said, "all of the people and movement have come this way" as Bankers Trust has shunted jobs to Brown's Timonium operations.

"We're not a factory that's going to be closed down and have our assets moved to South Carolina," he said.

Krongard was one of three area executives -- each from a merger-rocked industry -- addressing members of the Greater Baltimore Committee in downtown Baltimore. The meeting's broad theme was the economic outlook; its immediate motif, by virtue of its speakers, was mergers and downsizing.

"Basically in Maryland, in the banking business, the game is over. There isn't much left" in the way of locally based institutions, said Carl W. Stearn, chairman and chief executive of Baltimore-based Provident Bankshares Corp. "Our business is now in the process of becoming like the rest of the world" -- with a few nationally dominant banks rather than many regional ones, he said.

In the health care business, the story is similar.

"We have enormous excess capacity," said Michael R. Merson, chief executive officer of Helix Health, an area hospital system. "Consolidation is accelerating in every layer of the health care industry -- horizontally and vertically."

Not only does the country have too many hospital beds, Merson said, it also has too many doctors in some specialties.

"There's a sea change in our overall health care system in this country," he said. "We're in the early innings" of an industry rationalization that traces its roots to 1981.

Economists blame downsizing on deregulation, competition, pressure from shareholders to increase profits and pressure from customers to cut costs. While it increases productivity and frees up labor resources for other ends, downsizing is often painful for workers and communities.

Maryland and Baltimore have been hurt this decade by shrinkage not only in banking but in defense, federal government and manufacturing.

The good news is that much of the pain is over.

While banking, investment banking and insurance companies may someday merge, it's "highly unlikely" that banks will merge with nonfinancial institutions such as railroads and factories, as they did in the last century, Stearn said.

Meanwhile, there are few Baltimore-based banks left to be bought, he said.

Likewise, "we don't have here that many factories to lose," Krongard said. Many have already closed.

While Alex. Brown now reports to a New York-based banking company, its investment banking expertise isn't as portable as other jobs, Krongard said. A Bankers Trust spokeswoman was unable to say how many jobs the company has added in Timonium.

Although local-loan management is now being sent to Charlotte, N.C., and other bases of the megabanks, "I don't think there is going to be a problem for businesses in this state to get credit," Stearn said. However, he added, "I really doubt whether, in these mergers, the larger banks really bring more service to the community. I think that would be available in any event."

Merson predicted greater involvement of Wall Street and for-profit companies in the future of health care.

And Baltimore and Maryland, all three executives made clear, should expect continued uncertainty.

"We're probably, net, going to be gainers," Krongard said. "But don't bet the farm on it. I certainly wouldn't."

Pub Date: 11/21/97

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