Regional banks got a boost Wednesday on heightened takeover speculation following First Union Corp.'s $16.1 billion deal to buy CoreStates Financial Corp.
"Everyone is looking at what's out there, where they want to be, and what it will take to get there," said Frank J. Barkocy, banking analyst at Josephthal Lyon & Ross. "You don't want to be too late to the party."
Banks that operate independently in larger markets are likely to see their "scarcity premiums" rise as their numbers further dwindle, Mr. Barkocy said. "If there are more limited opportunities to enter particular markets the trend would be to have to pay up."
Investors appeared to be betting on Summit Bancorp, Princeton, N.J., the last large independent bank in the state. Its shares rose 93.75 cents, to $45.75 Wednesday. Mercantile Bancorp, St. Louis, was up 31.25 cents, to $49.6875.
Also, First Tennessee National Corp., Memphis, was increased by 93.75 cents to $58 and First Security Corp., Salt Lake City, rose $1.6875, to $34.5625.
But, Mr. Barkocy said, larger banks would do well to avoid simply rushing in with buy offers and "look at things on an individual situation basis."
Indeed, not every regional bank rose. New Orleans-based Hibernia Corp., looked at as a takeover target because of its network in Louisiana, stayed at $17.5625. And Commercial Federal Corp., Omaha fell 68.75 cents, to $48.3125 after NationsBanc Montgomery Securities repeated a "buy" rating.
Overall, bank shares rose in tandem with broader markets as they absorbed anti-inflationary news about October housing starts.
The Standard & Poor's bank index was up 1.86% and the Dow Jones industrial average rose 0.58%. The Nasdaq bank index increased by 0.24% and the S&P 500 was up 0.67%
In the wake of the merger announcement, shares of First Union fell 75 cents, to $49.50 and CoreStates was off 93.75 cents to $78.0625.
Analysts had mixed views of the deal. Nancy A. Bush at Brown Brothers Harriman cut her short term and long term expectations for First Union. The company was also downgraded to "neutral" from "outperform" by Bear, Stearns & Co.'s Lawrence R. Vitale.
CoreStates also came in for reevaluation from Gerard Cassidy of Tucker Anthony who lowered his rating to a "sell" from "hold" based on the deal's structure and the current value of shares.
But Interstate/Johnson reiterated a "strong buy" recommendation and Smith Barney repeated its "buy" recommendation for the shares.
First Union "is a proven consolidator," as evidenced by the job it did with First Fidelity Bancorp, said Henry Dickson of Smith Barney. "The CoreStates acquisition is consistent with First Union's overall strategy" and should be accretive to earnings within 18 months.
Among other activity, KeyCorp rose 93.75 cents, to $64.125 after Gary Allen, head of its banking subsidiary, said he was confident it will meet earnings forecasts.
Mr. Allen, speaking in New York at a conference sponsored by Piper Jaffray, said the Cleveland banking company is "on-target" for 1997.
