Investors Warm to Banc One's Pricey Card Deal

After some initial misgivings, investors Tuesday began to grow more comfortable with the hefty price tag for Banc One Corp.'s deal to buy First USA Inc.

Shares in the Columbus, Ohio, superregional bounced back from a $3.50 decline triggered by Monday's news and gained $1.62, to $43.25, as analysts sang the deal's praises.

"Banc One is paying an arm and a leg to get First USA, but in the long term, it's a smart move," said analyst Michael Ancell of Edward D. Jones & Co., who reiterated his "buy" rating on Banc One stock.

Credit card specialists such as First USA "have had to show the banks how that business can be done well, and Banc One decided that if you can't beat 'em, join 'em," Mr. Ancell said.

Analysts pointed to the opportunity Banc One will now have to cross-sell the card, consumer finance, and investment products. Several said the combination would make First USA into a "true virtual financial services company."

Gerard Cronin of John Hancock Funds added that the transaction makes Banc One into a "truly national consumer lender with a powerful product line."

Shares of Capital One Financial Corp., Advanta Corp., and MBNA Corp. maintained the gains they scored on the merger news, amid mounting speculation that more such combinations would happen very soon.

Monday, First USA soared $8.75 a share; Advanta, $5.9625; Capital One, $4.875; and MBNA, $2.375.

In Tuesday trading, First USA continued its climb, rising $2.25, to $47.87, while Capital One shares gained 62 cents, to $39, and Advanta surged $1.312, to $50.

Analysts at many major Wall Street firms endorsed the increases, showering the card stocks with upgradings.

Analyst David Hilder, who upgraded Banc One to "outperform," explained that, after conceding the card business to the specialty companies, banks would seek acquisitions that let them back into the game.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER