1932

Savings Bankers Told How to Meet Bank Runs

May 21 — The elements necessary to meet a bank run were told to the Mutual Savings Banks Convention on Friday by Judge E. S. Richards, president of the East New York Savings Bank, Brooklyn, whose bank was subjected to a major run last January.

"No matter how long one's experience in the banking fraternity may be," Judge Richards said, "until he has had a run 'he don't know nothing.' The things that are needed at a time like that are cash, courage and good friends. For the first day it does not make so much difference about courage and good friends, so long as the bank has the cash. After that, if you keep up your courage, you will find your good friends coming to your rescue, and your frightened depositors will begin to lose their fear and leave their money. We estimate that not more than 5% of our depositors ran the bank and perhaps 50% of our depositors helped us, without our knowing it, in stopping the run. Of course, one of the chief sources of our strength was the wonderful co-operation of a courageous superintendent of banks. The president of the State association, our own Brooklynite, Harry Kinsey, and the secretary of the association, Paul Albright, were on the job at once, and over night we had the backing of every savings bank in Group V. The next day, when word went out to the savings banks in New York that help might be needed, they, too, came forward with their offer of assistance. Our commercial bank depositories were prompt and efficient. Perhaps the most effective thing that was done was the issuance of a statement signed by all savings banks in the city indicating their faith and confidence and willingness to back this institution.

"The storm of depositors seemed to come up almost over night. The run lasted but two days and subsided almost as abruptly as it started. We were fortunate in having the cash. The great help which we received from every source gave us the courage. The credit for the winning of the battle goes to a multitude of good friends. Today, in the estimate of our depositors and the community, we are stronger than ever."

1994

Clinton Signs Interstate Bill, Calls It a First Step

Sept. 30 — President Clinton signed the interstate branching bill into law Thursday, flanked by two bankers who praised him for attacking what they described as outmoded banking laws.

"You recognize that the world is changing and laws passed in the 1920s don't work anymore," said Norwest Corp. chairman Richard M. Kovacevich.

Chase Manhattan Corp. chairman Thomas Labrecque said the bill, along with legislation implementing new trade treaties, "shows a sustained commitment to make the United States more competitive and effective in the global economy."

For his part, the President highlighted the measure as part of his continuing effort "to reinvent government," and promised more banking legislation to come.

"Our work is far from over," he told a group of lobbyists, regulators, lawmakers, and congressional aides who assembled for the ceremony in the Department of Treasury's ornate Cash Room.

The interstate branching bill represents a significant victory for the banking industry and particularly for the trade groups and big banks that kept the bill alive when it appeared hopeless.

Moreover, the bill was kept "clean" free of the restrictions banks feared they would be saddled with. Of particular concern was an amendment restricting bank insurance powers and a measure expanding Community Reinvestment Act requirements.

"We said all along that if the bill included any negatives, we would fight it," said Edward L. Yingling, chief lobbyist for the American Bankers Association.

Meanwhile, to improve the consistency of interstate bank regulation, Comptroller of the Currency Eugene A. Ludwig appointed a task force Thursday to find ways to improve the agency's structure and information systems. Steve Weiss, deputy comptroller for corporate activities, will chair the seven-member group.

One year from now, banks will be able to make acquisitions in other states, even in jurisdictions that now bar out-of-state institutions. The law does not give states the right to refuse to participate in interstate banking.

On July 1, 1997, interstate organizations will be able to consolidate their holdings into a single branch network — the interstate branching part of the bill.

The law does give states the right to opt out of interstate branching before the new rules take effect in 1997 by passing new laws or regulations. However, institutions based in jurisdictions that opt out will not be able to branch into other states.

Though the law was widely hailed, it includes minor provisions most banks opposed like requiring regulators to consult with community organizations before permitting an interstate organization to close a branch in a low-income area.

1981

Bigger, More Daring M&A Deals Ahead

Oct. 19 — Bank merger and acquisition fever keeps rising — prompted by an amalgam of developments.

Recent court rulings, changes in state banking laws, dramatic economic growth in some regions and a slowdown in others, growing financial and competitive pressures on small banks, and the anticipation of interstate banking have all contributed to a significant rise in merger and acquisition activity in the first six months of this year over the same period in 1980.

And although most of those deals involved small banks, some observers see a trend toward bigger, more daring, and sometimes more acrimonious transactions.

Those conclusions are based on an analysis of merger and acquisition.

applications received by the banking agencies during this period, a review of recent announcements, and interviews with dozens of bankers, regulators, analysts, and consultants around the country.

In the first half of 1981, the Federal Reserve Board received 111 applications from bank holding companies seeking to acquire additional banks, a 37% increase over the 81 received through June 30 of last year. About 22% of the filings involved a proposed new bank. Similarly, the Fed, the Federal Deposit Insurance Corp., and the Comptroller of the Currency received a total of 69 new merger requests in the first six months of 1981, one-third more than in the corresponding period in 1980.

The Federal Reserve acts on all bank holding company acquisitions, whereas the Comptroller, Fed, and FDIC review merger applications from national banks, state-chartered member banks, and state-chartered nonmembers, respectively.

Activity Confined to Few States

Most of the new activity was confined to a few states. Although the numbers themselves were not always large relative to the total number of banks in each state, sharp increases in mergers and acquisitions occurred in Texas, Colorado, Connecticut, Maryland, and Alabama. Acquisition activity also remained strong in Michigan, Missouri, Iowa, Wisconsin, and Ohio.

Although most of the merger filings from Florida institutions earlier this year concerned internal consolidations, the pace of merger proposals involving the state's largest bank holding companies has accelerated dramatically in recent months. And in at least two recent instances, the takeover attempts have been unfriendly.

Most of the latest filings from New Jersey and Virginia were intended to achieve internal consolidations or branch sales. Despite the inclusion of this internal activity in the application data, these figures are probably the best available leading indicator of bank expansion activity, for two reasons: first, they precede by as much as six months consummated mergers and acquisitions, and second, 96% of all filings are ultimately approved, according to a Fed official.

Many observers also attribute the increase in both numbers and size to what they believe is a more benign view of bigness by the courts, the Department of Justice, and other government agencies than may have existed in the past. As evidence of this shift in attitude, some observers cite two recent court rulings which ordered the Fed to reconsider its earlier denials of proposed bank holding company mergers in Texas and Missouri.

Merger Decision

In the Missouri case, involving a proposed merger between two St. Louis-based bank holding companies, the $325 million-asset Bancshares and $589 million-asset County National Bancorp, the court held last September that the Board had applied more stringent antitrust standards than were called for by federal law.

Then, in February, the Fifth Circuit Court of Appeals in New Orleans instructed the Fed to reconsider its rejection of an application by Mercantile Texas Corp. of Dallas to acquire Pan National Group Inc. of El Paso.

Nevins D. Baxter, a managing associate with Golembe Associates of Washington, says those rulings have caused "potential and even existing competitors in the same communities to talk about combinations that before would have been unthinkable. The courts are saying, in effect, that you can't deny a transaction just because of size but rather must find a specific antitrust violation. Other criteria, such as community convenience and needs, must also be considered."

Underlying these developments, Mr. Baxter adds, is the "ongoing drive by the industry to consolidate, in order to obtain the technology and get up to a size where they can be competitive in the long run."

Largely because of similar banking rules and economic conditions, certain states exhibited common patterns of expansion.

Take for example Texas and Colorado, two high-growth unit banking states that permit multibank holding companies.

Texas: Bank Acquisition Country

Nowhere was the expansionary trend more pronounced than in Texas, where the energy boom and sharp population growth has made banking a highly profitable enterprise. Applications from Texas bank holding companies accounted for 28, or 25%, of all the acquisition requests received by the Federal Reserve during this period, exactly double the number from Texas institutions in the first half of 1980. Texas contains some 10% of the nation's 14,600 commercial banks, more than any other state.

Texas also led the nation in new charters, with 35. California was second with 18, Colorado third with 14, and New York fourth with 13. Technically, a bank holding company establishing a new bank acquires the stock in that bank and must also file for a new charter, so there is often some duplication in the figures for acquisitions and new charters.

Only four of the state's holding companies — Texas Commerce Bancshares Inc., Republic of Texas Corp., Southwest Bancshares Inc., and First International Bancshares Inc. — were responsible for one-half of the Texas filings. Michael C. Connor, a senior vice president with the bank stock firm of Keefe, Bruyette & Woods Inc., attributed the surge of Texas acquisitions directly to the strength of the stock prices of the large bank holding companies. Those stocks have been selling at up to three times book value.

John Cater, chairman of the $4.1 billion-asset Southwest Bancshares — the state's sixth largest bank holding company — cited two main reasons for the acquisition increase. "On the positive side, they are valuable to us because of their high earnings. In this period of high interest rates, small banks that are liquid and sell federal funds at high rates are doing quite well. On the negative side, many want to sell out exactly because of high interest rates. The owners of those banks often borrowed the money to start or buy the bank and cannot afford to carry the debt anymore. They sell, therefore, for cash-flow reasons."

Mr. Cater added that in the last 120 days he has received more calls from small banks about acquisitions than in the last two or three years. He projected that within five years "12 holding companies will control maybe 85% of the state's deposits."

Referring to small banks generally, Keefe Bruyette's Connor echoes Mr. Cater's observation in saying that "no longer do you see the big guy putting his arm around the little guy and trying to coax him into selling out. Now the little guy is saying to the big guy, make me a deal that won't embarrass me in front of my stockholders."

A principal target of the holding companies is the "metroplex" area between Dallas and Fort Worth. Southwest Bancshares has a total of $1.4 billion in deposits in 11 metroplex banks and in those acquisitions in the area now pending for approval.

And in Colorado

To a lesser degree, Colorado, another energy boom state, exhibited a similar pattern for many of the same reasons. A single Colorado bank holding company, Affiliated Bancshares, applied to acquire six small independent banks in the energy-rich western slope of the state, accounting for six of the 12 filings from Colorado bank holding companies in the first half of the year. That was more than double the figure through June 30 of last year. Five of the applications were for de novo banks.

Affiliated Bancshares vice president Harry Hess explained that the company chose to establish a presence in the fast-growing western region through acquisition to avoid the expense of starting new banks. All six of Affiliated's targets, while independent institutions, are owned by two stockholders.

Armed with a $30 million war chest, United Banks of Colorado is also reportedly planning to step up its acquisition program.

In states like Texas and Colorado, only multibank holding companies can generally acquire additional banks. Mergers, on the other hand, are usually prohibited since this form of expansion essentially results in branches.

While an acquisition, as the regulators define it, involves the purchase of a bank by a bank holding company in which the acquired bank retains its corporate identity, a merger occurs between two banks (one or both of which may be subsidiaries of holding companies) and results in a single corporate entity. Mergers may also take place between two bank holding companies, but they occur less frequently.

Florida's Merger Mania

But in Florida, another fast-growing, highly profitable banking market, nearly every major bank holding company has become involved in merger discussions with other holding companies in the last several months. According to Mr. Connor, those transactions point up a trend toward bigger and more acrimonious transactions. He suggests that the court reversals of Fed denials have emboldened these and other institutions to propose more ambitious deals.

On Oct.14, stockholders of the $1.1 billion-asset Century Banks Inc. of Fort Lauderdale approved a $16 per share, $111 million merger offer by the $3.3 billion-asset Sun Banks of Florida Inc. If consummated, the deal would produce a $4.42 billion-asset company that would be nearly as large as second-ranked Barnett Banks of Florida, which has assets of $4.431 billion.

Century Banks had opposed a $13 per share unsolicited tender offer for 25% of its shares by Marvin L. Warner, a former U.S. Ambassador to Switzerland who has interests in two other Florida banking companies and an Ohio savings and loan institution. Mr. Warner has pulled out of the proxy contest but continues to challenge the deal in court.

Meanwhile, Barnett Banks is seeking to acquire the $466 million-asset First Marine Banks Inc. of Palm Beach County. And last month Southeast Banking Corp. of Miami, the state's largest bank holding company, offered $32 per share in stock and cash for Florida Natinoal Banks of Florida, the fourth largest bank holding company in the state. It was the third offer in six months for Florida National. Southeast described its bid as an attempt to forge a vital Florida banking system to fend off out-of-state competitors trying to enter the rich Sun Belt market.

The Florida merger data for the first six months of the year, however, primarily reflected a July 1980 change in the state banking law that permits mergers across county lines, and thus statewide, provided that both banks are more than three years old. That allowed for the type of consolidation which Sun Banks has achieved. Four years ago Sun Banks had 40 banks in 17 counties. Since the law became effective, that number has been reduced to 15 subsidiary banks in 17 counties.

Sky-High Prices in Calif.

Astronomical prices, not numbers of deals, has been the salient feature of merger and acquisition activity in the California market lately. According to Mr. Connor, most of the interest is coming from foreign banks seeking to consolidate their positions in the Los Angeles area. In one recent deal, Istituto Bancario San Paolo di Torino of Turin, Italy, agreed to pay three and a half times book for the $234 million-deposit First Los Angeles Bank.

Similarly, Mitsui Bank of California, a subsidiary of the giant Mitsui Bank of Japan Ltd., in July paid stockholders of Manufacturers Bank of Los Angeles more than three and a quarter times book for their shares in the $795 million-deposit bank. Now known as Mitsui Manufacturers Bank, the merged institution has $1.2 billion in deposits and ranks among the 12 largest banks in California.

Two major consumer finance companies, Household Finance Corp., a subsidiary of Household International Inc., and Associates First Capital Corp. of Dallas, a subsidiary of Gulf & Western Corp., are also acquiring small California banks to gain a toehold in the lucrative California retail banking business.

While dynamic economic growth in Texas, Colorado, and Florida has spurred a surge in acquisition activity there, weak economic conditions in Michigan, Wisconsin, and other Midwestern states have also kept the pace of acquisitions at relatively high levels, according to Mr. Connor.

Michigan banks, in particular, have suffered because of the troubles of the auto industry, a situation that has given rise to a number of small bank acquisitions at soft prices.

Generally, small northeastern and midwestern banks selling out to large institutions are currently getting book value or a slight premium above book, Mr. Connor notes. But in a deal that points up what Mr. Connor sees as a trend toward declining prices for "Snow Belt" banks, the $696 million-asset TNB Financial Corp., parent of Third National Bank of Springfield, Mass., late last year accepted a bid by the $2.8 billion-asset New England Merchants Co. Inc. of Boston that was then about 70% of TNB's stated book value. "This was the first instance," he says, "in which the market value of the consideration was less than the stated book value for a sizable bank, not under regulatory pressure, and paying a 'safe' dividend." The holding company merger, in which TNB's affiliates became subsidiaries of New England Merchants, took effect Sept. 30.

According to Mr. Connor, the Fed's approval of relatively large deals like TNB, coming in the aftermath of the agency's court setbacks in the Mercantile and Pan National case, also suggests that the "Fed has given up on potential competition. New England Merchants," he says, "certainly had the wherewithal to go into Western Massachusetts on its own."

The potential competition doctrine, the basis for the Fed' earlier denials of other large acquisitions, generally holds that future competition in a banking market may be reduced if a major outside competitor enters that market, unless its entry is restricted to either acquiring a small existing bank or starting a new one.

Anticipating Interstate Banking?

Unlike their counterparts in the Snow Belt, institutions in California, Texas, and the Rocky Mountain and Sunbelt states are commanding a healthy premium over book except in unusual instances, Mr. Connor says.

Expectations of interstate banking may underlie the spate of merger activity in Connecticut and Maryland which allow statewide branching as well as multibank holding companies.

Connecticut's recent spate of mergers may reflect fears of a future invasion by bigger institutions from bordering states. Says one analyst who follows Connecticut bank stocks: "Connecticut's proximity to the money center banks of New York and Boston has created the expectation among bankers that when interstate banking arrives, they had better be ready either to compete or be bought."

Fears of this out-of-state invasion apparently prompted the proposed merger between Hartford National Corp. and Connecticut National Bank of Bridgeport. Signed Aug. 31, the deal followed a summer-long bidding war which also involved First Bancorp of New Haven and CBT Corp., parent of Connecticut Bank & Trust Co., the state's largest bank. The purpose of the merger, say bank analysts, was to protect and increase the two banks' stake in the lucrative Fairfield County market — also sought after by the big New York banks.

The merger agreement is not yet consummated, and a major shareholder at Hartford National is challenging the deal.

Speculation that "interstate banking may be tested first" in the Washington D.C. metropolitan area may underlie a rash of recent mergers in Maryland, suggested Joseph R. Crouse, the state bank commissioner. Because so many people work, live, and bank in up to three jurisdictions, the need for interstate facilities is obvious, he said.

The $1.8 billion-deposit First National Bank of Maryland has been involved in several transactions, including mergers with First National Bank & Trust Co. of Western Maryland, Cumberland, and Cecil National Bank, Port Deposit.

While Maryland's banks grow larger — taking, perhaps, more and more of the District of Columbia's white-collar workers who live in Maryland into their fold — Washington banks are consolidating their resources for a jump into Maryland and Virginia.

That was at least part of Joseph Riley's reasoning when his National Savings & Trust Bank, Washington, made an acquisition bid for Security National Bank. Joining NS&T was James Madison Ltd., parent of Madison National Bank, and Washington Bank NA. Madison dropped out first, then NS&T. Security's shareholders have yet to vote on the merger with Washington Bank, but it is expected to go through.

Mergers Exceed Acquisitions

Mergers exceeded acquisitions in those and most other states which allow both mergers and acquisitions on a statewide basis. There are several reasons for this.

First, because there are more independent banks in the majority of branching states (and in most others, for that matter) than banks under holding company control, merger is still the only means of expansion available to most institutions there.

Second, given a clear choice, it is usually more advantageous to expand by merger than by acquisition, since a merger typically yields operational efficiencies, more capital, and a higher lending limit for the surviving institution. Nevertheless, some bank holding companies, recognizing the value of name recognition and management continuity, will choose to preserve an institution's independence while purchasing its assets.

Finally, some bank holding companies whose subsidiary institutions are regulated by the FDIC and Comptroller, one Fed official suggests, may have chosen to go the merger route to avoid what they believed to be the Fed's "tougher" treatment of an acquisition filing. But as noted earlier, there are those who believe this tough stand is softening.

And in Alabama…

In Alabama, while the numbers were by no means large, there was an increase in both merger and acquisition filings in the first half of the year. Most, however, involved institutions that were small, troubled, or both.

The Comptroller of the Currency recently approved a hotly-contested merger between the troubled $445.7 million-deposit Merchants National Bank, a Mobile-based subsidiary of Southland Bancorp, and one of 20 banks controlled by the $1.9 billion-asset First Alabama Bancshares.

Sheldon L. Morgan, Merchants senior vice president for marketing, says that while the Merchants deal had "nothing to do with current trends, activity has picked up because of pressures on small banks to maintain performance and keep up with technology."

Changes in banking laws in Illinois and Virginia have generated new activity there.

In Illinois, a unit banking state that until recently had banned multibank holding companies, a new law permitting limited multibank expansion will become effective Jan. 1. This event has already spawned a flurry of acquisition announcements.

The $4.2 billion-deposit Northern Trust Co. of Chicago in August became the first major bank holding company to announce that it would seek to form a multibank holding company saying it planned to acquire the $118 million-deposit O'Hare International Bank NA. Later, Continental Illinois Corp. said it would also form a multibank holding company and acquire two small banks near Chicago once the new law takes effect. These plans were not, however, reflected in the first half 1981 data.

One result of the new law, according to Northern Trust president Charles H. Barrow, will be that a number of suburban chain banks will consolidate into multibank holding companies to achieve economies of scale.

Although Virginia banks filed six merger applications in the first half of the year, compared with only one in the same period last year, most appeared to represent internal consolidations ("internal housekeeping," as one Virginia Bankers Association official put it) of previously acquired affiliates by statewide multibank holding companies. This move was made possible by a 1979 amendment to Virginia's banking law.

Nevertheless, some were precipitated by the weak financial condition of the acquired institutions. Says C. Garland Hagen, senior vice president of corporate planning at the $2.8 billion-deposit United Virginia Bank of Richmond, anchor bank of United Virginia Bancshares, "Most of the acquired banks are fairly small country banks feeling the pinch of high interest rates. When added to a large fixed-rate mortgage portfolio, that leads to an earnings crunch. Others realize that there is no market for their stock and want the added liquidity of holding marketable holding company shares. And some are just afraid of the future — it requires just too much technical support to operate profitably in the changing financial environment."

In May Alabama passed a similar measure that promises to spawn a wave of multibank consolidation in that state.

The 11 new filings from New Jersey institutions under the Bank Merger Act were twice the number for the first half of last year, but only two represent combinations of previously independent institutions. Yet Robert E. Norton, an analyst with Ryan, Beck & Co. of West Orange, observed that "while these merger applications may largely reflect branch sales, they do suggest the high level of state merger activity in that some of them represent divestitures required for previously announced mergers."

As for future areas of growth in merger and acquisition activity, experts say that states like Oklahoma, Indiana, and Pennsylvania will open up as soon as prohibitions on multibank holding companies are eliminated. There has been discussion in all three states of such changes.

Mr. Connor, for one, expects to see increased interindustry consolidation of banks and thrifts, more testing of Federal Reserve competitive standards, mergers of more institutions in the same community, bigger deals involving more than two parties, and possibly unilateral relaxation by some capital-poor states of restrictive banking statutes that block out-of-state banks from doing business there.