NationsBank Corp. and BankAmerica Corp. could be nearing the end of the acquisition trail, thanks to a federal law banning any company from holding more than 10% of U.S. deposits.
Their proposed merger, unveiled Monday, would give the beefed-up company $292 billion in domestic deposits-8.1% of the country's total.
The company-bearing the BankAmerica name and led by NationsBank's chairman, Hugh L. McColl-would face sharply limited choices in merger partners should it continue on its expansionist course.
While the new BankAmerica would span 22 states from coast to coast, it would have gaps in the Northeast, Upper Midwest, and Plains States.
To realize Mr. McColl's much-discussed dream of building a nationwide bank, BankAmerica would "have to be very selective about what kind of banking assets it acquires," said Brian L. Eisenbarth, an analyst with Collins & Co., Larkspur, Calif.
To avoid bumping up against the limit, the new BankAmerica would have to limit future acquisitions to banking companies with deposits of $68 billion or less.
That would leave Fleet Financial Group, with $63.8 billion of deposits, just within reach. But other appealing combinations that would plug geographic and business gaps-such as acquiring KeyCorp ($45 billion of deposits) plus State Street Corp. ($38.2 billion)-would be untenable.
Unlike some other large banks, BankAmerica and NationsBank rely heavily on domestic deposits. For instance, J.P. Morgan & Co. has nearly five times more assets than deposits and Chase Manhattan Corp. has twice as many assets as deposits. BankAmerica and NationsBank have about 1.5 times more assets than deposits.
The 10% deposit cap is a creature of the 1994 interstate banking law, formally known as the Riegle-Neal Interstate Banking and Branching Efficiency Act. It prohibited any merger that would give a bank control over more than 10% of domestic deposits. An institution could grow internally above the cap, but once over 10% it could not acquire any banks.
Rep. Bruce F. Vento, the Minnesota Democrat who sponsored the provision, said it "was put in place with the concern that we did not end up with extreme concentration. We felt that was not desirable for competition."
A BankAmerica spokesman criticized the cap, saying it does not reflect "the realities of the financial services industry" because it excludes credit union deposits and mutual fund balances.
The spokesman declined to discuss how the bank will grapple with the limit, but at a press conference earlier Tuesday, BankAmerica officials the bank plans to expand its overseas operations, especially in the Pacific Rim.
"That's going to be our bread and butter long-term market," BankAmerica chairman and chief executive David A. Coulter told reporters.
Banking lawyers said Tuesday the law leaves regulators little leeway to let BankAmerica grow bigger.
"I'm not sure there is any wiggle room," said Robert L. Clarke, the former Comptroller of the Currency who is now a partner at the Bracewell & Patterson law firm. "This is one of those things that needs to be fixed by legislation."
"There really is no way to manipulate that 10%," agreed Gilbert T. Schwartz, a partner at the Washington law firm Schwartz & Ballen.
But one prominent New York lawyer, who asked to remain anonymous, said the law is loosely written and could be interpreted to include in the base all deposits held by overseas branches of U.S. banks. That would mean BankAmerica's share of the national market would be smaller.
Rep. Vento said Tuesday, however, that including deposits at foreign branches would violate the intent of the law.
Unless the law is ease, observers said, BankAmerica could be limited to transactions that would look fairly modest, at least by the last two weeks' standards.
"There will be things that come up like $5 billion, $10 billion, or $15 billion deals to fill in or extend existing markets," said R. Jay Tejera, an analyst with Dain Rauscher in Minneapolis. But, he added, "You are not going to see them do any more major transactions."
Banks in Idaho, Utah, Colorado, and Texas are likely future targets, according to Mr. Tejera. "That moves you into much faster-growing demographics that are much more logically connected to the markets you are already in," he said.