Mega-Mergers in Banking: NationsBank and BankAmerica Unite

Strategic Insights -

The banking industry is on the cusp of a significant shift, as two major players, NationsBank Corp. and BankAmerica Corp., prepare to merge, creating the nation's first coast-to-coast bank. The deal, which will result in a stock-for-stock transaction, will make the combined corporation the second-largest bank holding company in terms of total assets. This move comes on the heels of a recent Citigroup merger, which has put pressure on other banks to merge and compete.

Key Takeaways:

  • The merger between NationsBank and BankAmerica will create a coast-to-coast bank with a total of 1,800 branches and deposits of over $200 billion, making it the largest in terms of assets and the second-largest bank holding company in the US.
  • The combined corporation will be led by Hugh L. McColl Jr., NationsBank's CEO, as chairman, and David A. Coulter, BankAmerica's chairman and CEO, as president.
  • The merger has been in the works for years, with talks previously broken off in 1995 due to disagreements over who would run the combined company.
  • NationsBank will gain a significant presence in California, where BankAmerica is the dominant institution, filling the "big hole" in McColl's national franchise.
  • The deal values BankAmerica at approximately $30 billion in stock, with Banc One shareholders owning 60% and First Chicago shareholders owning the remaining 40%.
  • The merger will result in a more efficient marketing and computer processing system, allowing the banks to lower costs through the use of network television advertising.

Statistics:

  • NationsBank has 5,300 employees in the St. Louis area, slightly more than the 5,200 employed by Boatmen's Bancshares, which NationsBank acquired for $9.8 billion in 1997.
  • NationsBank oversees 22% of the region's bank and thrift deposits, while BankAmerica has no branches in the area but makes corporate, small-business, and housing loans.
  • The deal between First Chicago and Banc One values Banc One at approximately $30 billion in stock, with shareholders receiving a share of the new company for every existing share.
  • The combined company will be headquartered in Chicago, with Verne G. Istock, First Chicago's chairman and CEO, expected to become chairman of the new company.

Sources:

  • New York Times
  • Wall Street Journal
  • Lehman Brothers
  • National banking analysts