In the past year and a half First Union Corp. has boosted its presence throughout the Southeast - and is now within $5 billion in deposits of overtaking Barnett as the biggest bank in Florida - without buying a single bank.
What the North Carolina superregional has bought are thrifts - and in a big way.
With last Tuesday's announced acquisition of RS Financial Corp., North Carolina's largest savings institution, First Union has bought or agreed to buy nine private thrifts, four Resolution Trust Corp. thrifts, and $1.8 billion of Florida thrift deposits since the start of 1994.
More than any other bank, First Union has forgone bank acquisitions in favor of buying low-cost thrifts.
All told, the company has agreed to buy $6.7 billion of thrift assets since the start of this year alone, or 26% of all thrift assets sold in 1995, according to SNL Securities Inc.
The strategy has won rave reviews from analysts and shareholders who note the low purchase prices relative to banks and the market domination the acquisitions have brought First Union.
But the strategy has had some drawbacks politically. The bank has gained a reputation for ruthlessness in the communities where it has acquired thrifts, quickly closed most of the branches, and laid off most of the employees.
"The issue of their ruthlessness is a result of their immediately merging bank statements and operating systems," said Thomas Theurkauf, an analyst with Keefe, Bruyette & Woods Inc. "It is immediate and dramatic in terms of the cost takeout and the formula has worked for First Union very well."
Observers say some discontent may be inevitable, particularly in Miami, where First Union announced big acquisitions in December and January. Together, the two thrifts, the area's largest, had nearly $6 billion of assets.
"Typically if you are buying a fill-in, then it probably means more layoffs and branch closures," said an M&A strategist at a major bank.
There are rumors that First Union is set to close all 34 branches of $2.5 billion-asset Coral Gables Fedcorp, one of the Miami-area acquisitions, and local press reports highlighted complaints by disgruntled employees that First Union had lied to them about their employment prospects.
Similar feelings have followed two other banks - Crestar Financial Corp., and AmSouth Corp. - that have gobbled up thrifts, though not as many as First Union.
In contrast, such acquirers as Banc One Corp. grant more independence to the banks and thrifts they buy, and fewer layoffs result.
First Union is a well-oiled machine when it comes to completing deals and shutting down redundant operations, analysts said.
After Thursday's closing on the Coral Gables purchase, analysts said First Union can be expected to immediately merge operating systems and to initiate massive layoffs.
And if past thrift purchases are any indication, interest rates on certificates of deposit and savings accounts will likely drop, analysts said. First Union declined to comment for this article.
First Union's strategy by its nature results in overlapping branches, and it would be self-defeating to keep branches open, said Deborah Beylus, a bank analyst with J.W. Charles in Boca Raton, Fla.
"They are basically buying market share in markets in which they already have a significant presence," she said. "It is a very good strategy because they are buying an existing franchise that is directly competing against them. They are just buying the competition and it is very effective."
And while runoff in deposits usually exceeds 60% in First Union's thrift takeovers, the strategy pays off in market domination, she said.
In Florida, where First Union has made the bulk of its thrift acquisitions, the company has paid on average 1.45 times book value for the thrifts. Banks usually cost between 1.8 and two times book. The national average for thrifts is 1.6.
If First Union finally decides to expand out of the Southeast, would it use a thrift as an entry vehicle?
Analysts say no. While thrifts are useful for gaining customer lists and distribution channels, when entering a new market, a bank is still the best route.