Few worry about mergers

Local firms don't see themselves targeted in wake of deregulation

November 06, 1999|By Bill Atkinson | Bill Atkinson,SUN STAFF

Executives who run some of Baltimore's biggest financial institutions say they worry little that their companies might become takeover targets in the wake of Congress' overwhelming approval of legislation to dismantle strict Depression-era rules governing the banking industry.

"I don't see this being earthshaking or even earth-trembling," said H. Furlong Baldwin, chairman and chief executive of Mercantile Bankshares Corp., Maryland's largest independently owned banking company. "It does not change one thing I am doing."

Some analysts, however, argue that the landscape here and across the country will change rapidly as banks, insurance companies and brokerage firms link up in a frenzy of mergers.

"The surge in mergers and acquisitions will certainly not bypass local firms," said Louis Galambos, professor of business and economic history at the Johns Hopkins University. "It will change the local setting."

Once President Clinton signs the bill repealing the Glass-Steagall Act of 1933, Galambos said, the value of target companies will rise as it becomes easier and cheaper for commercial banks, securities houses and insurers to enter each another's businesses.

"In the short run, those that are targets of merger and acquisition, are likely to enjoy an increase in price," he said.

Amy S. Butte, a financial-services industry analyst at New York-based Bear Stearns & Co., said asset managers such as Legg Mason Inc., which have wealthy clients and trust operations, will be sought out.

"I think trust-related businesses will become more valuable," she said. "They [the companies] will be in greater demand."

Local executives expect little impact from the repeal of Glass-Steagall, which was based on the theory that separating bankers and brokers would reduce speculative stock frenzies of the kind that preceded the Depression.

They argue that mergers between banks and brokerage houses, and between banks and insurance companies have been accomplished because of loopholes in the law and liberal interpretations by the Federal Reserve Board.

Examples abound. In September 1997, Bankers Trust Corp. completed its acquisition of Alex. Brown Inc., the Baltimore-based investment banking and brokerage house.

The deal, which was announced in April, sparked others, including the acquisition by Bank of America Corp. -- then NationsBank -- of Montgomery Securities in October 1997, and First Union Corp.'s acquisition of Wheat First Butcher Singer Inc. in February 1998.

The most notable deal, announced in April 1998, was between banking giant Citicorp and insurer Travelers Inc. The combination created a global financial powerhouse.

Raymond A. "Chip" Mason, chairman and chief executive of Legg Mason, said the theory that mergers and acquisitions will sweep the country is "the current rhetoric of the press."

"I really don't think anything new happens," he said. "Nothing in this legislation is probably a big deal from our standpoint."

Mason did say, however, that the repeal should make it easier for European companies to buy American ones.

"The Europeans have always struggled to buy things in the U.S. This may ease that," he said.

George Roche, chairman and chief executive of T. Rowe Price Associates Inc., said the new law will "legitimize more mergers" among banks, insurance companies and brokerage houses.

"But since desirable companies were desirable before, I don't know that this makes them any more desirable," he said.

This week, Price, the nation's seventh-largest publicly traded mutual fund company, was the subject of rumors that a European company was targeting it.

"We don't comment on rumors," Roche said.

Companies found ways around the law over the years, but Glass-Steagall still had teeth. It prevented banks from acquiring securities companies that were of equal size, and brokerage firms were barred from owning banks that were smaller. Banks also were barred from owning insurance underwriters.

"The only thing that was possible was to have a very large bank acquire a smaller securities firm," said Robert Davis, director of government relations at America's Community Bankers, a Washington bank and thrift trade group.

Davis said a liberal interpretation of the law by the Fed allowed big banks to buy small brokerage firms.

Some executives think Glass-Steagall's demise will open up opportunities. "I have always had an interest in Ferris, Baker Watts buying a bank," said Louis Akers, chief executive of the brokerage firm, which is based in Baltimore and Washington. "This opens the door."

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