Shares of First Virginia Banks Inc. jumped 6% Monday as investors bid up what will soon be Virginia's largest independent banking company.
First Virginia was the center of attention after SunTrust Banks Inc., Atlanta, announced a $9.5 billion deal to acquire Crestar Financial Corp., Richmond, Va.
The deal leaves First Virginia as the "only meaningful franchise in Virginia," said analyst David C. Stumpf of A.G. Edwards. And a ripe target for acquisition.
"They have missed earnings estimates a few times," said Michael L. Mayo of Credit Suisse First Boston. "And you do not have the luxury of doing that for very long in a consolidating industry. Investors believe there will be a domino effect given the announced merger between SunTrust and Crestar."
Shortly after SunTrust's deal with Crestar was unveiled Monday, rumors circulated about a potential pairing of BB&T and First Virginia, Falls Church.
The speculation sent shares of $9 billion-asset First Virginia rocketing upward by as much as 6.45%, while other bank stocks languished with the general market. Its stock closed Monday at $57.875, up $3.625.
The Standard & Poor's bank index fell 0.72%, while the Dow Jones industrial average dropped 0.45%. The Nasdaq bank index rose 0.57%, and the S&P 500 climbed 0.22%.
Officials at First Virginia could not be reached for comment. Robert Denham, a BB&T spokesperson, declined to talk about merger rumors, but said that his company's strategy is to buy companies in Virginia, Tennessee, Alabama, or Georgia that have assets of $250 million to $10 billion.
Market experts were not surprised by the intensity with which investors bidded up First Virginia's shares. "The company should have been sold two years ago," said one observer who declined to be identified.
Meanwhile, David M. West of Davenport & Co., Richmond, said First Virginia would probably say it is not for sale.
"However, behind closed doors there has got to be talk," said Mr. West. "Four or five years ago First Virginia was head and shoulders above its peers. But with the turnaround in the industry, it would be hard for the company" to argue for continued independence.
Bank analyst William Katz at Merrill Lynch & Co. pointed out that there is some pressure on First Virginia to sell. A merger of SunTrust and Crestar means First Virginia would face a "deeper-pocketed company with greater technology, sales acumen, and marketing."
Though analysts were doubtful that a deal was imminent, many said a merger between First Virginia and BB&T would make be a good fit.
"There would be considerable franchise overlap and savings in the back room," said Mr. West.
Shares of CCB Financial Corp., Durham, N.C., also surged on speculation that it would be a potential takeout target for the combined SunTrust- Crestar. CCB Financial's shares rose $2, to $112.25.
