At Midpoint of Food Chain, Hibernia Eyed by Bigger Fish

Now that the biggest banks in Arkansas and Mississippi have agreed to sell, some on Wall Street are betting that Hibernia Corp., the biggest in Louisiana, will follow suit.

In the past two weeks investors anticipating a takeover have bid up Hibernia shares 14%, to $20.375, and trading volume has doubled the previous daily average.

Though Hibernia executives prefer to think of their company as a buyer of banks rather than a target, analysts say the company's strategy of buying community banks cannot provide it with the size necessary to compete in today's rapidly consolidating industry.

This lack of size may be starting to hurt as Hibernia's bigger rivals snap up other banks.

People close to First Commercial Corp. of Little Rock-which recently agreed to sell to Regions Financial Corp. of Birmingham, Ala.-say the Arkansas bank rejected an offer from Hibernia because the $11 billion-asset New Orleans bank was too small.

With a rapidly dwindling number of banks that it could expect to buy, some feel Hibernia should follow First Commercial and Deposit Guaranty Corp. and put itself up for auction.

Analysts and investment bankers say Amsouth Bancorp and Mercantile Bancorp-two other unsuccessful bidders in the recent auctions for Deposit Guaranty of Jackson, Miss., and First Commercial-are both likely to be interested in Hibernia. Analysts peg Hibernia's takeover value at around $28 per share.

"There are a lot of dissatisfied would-be buyers out there looking to make deals," said Thomas H. Hanley, a veteran analyst at UBS Securities. "Are they going to want to travel to New Orleans? I'd say yes."

Stephen A. Hansel, president and chief executive of Hibernia, who turned around Hibernia from a $2 moribund stock into a spry $20 issue, says his bank has not made a big acquisition because it hasn't found one that is both "strategically and financially compelling."

As for the big prices rival Southern banks are paying or receiving nowadays, Mr. Hansel recalls: "When I was at Barnett in the mid-Seventies, we traded at 24 times earnings and bought a lot of banks with that paper. Then our stock went from $48 to $60 to $8. I think that could happen again for these buyers."

Some analysts counter that Hibernia doesn't have to sell. Earnings grew an astounding 22% in 1997, and as long as growth remains in the double digits, investors will be happy, said Credit Suisse First Boston analyst Michael Mayo.

Analysts add that the pending combination of First Commerce and Banc One, Hibernia's biggest rivals in New Orleans, gives the bank a chance to seize more customers.

Hibernia has bought 21 banks since mid-1994 in Louisiana and eastern Texas. Furthermore, these deals have not diluted its stock price.

Tuesday's announcement that it would buy Peoples Holding Corp. of Minden, La., is typical of Hibernia's cautious moves.

The $228 million-asset bank is the size Hibernia likes to buy.

But many Wall Streeters think a big move would solidify its future.

Many question whether even a high-earning $11 billion bank with a solid balance sheet such as Hibernia can survive today's merger mania.

To survive in today's banking scene, analysts say, great size is needed to keep up with the lending needs of big commercial customers and for banks to retain their attractiveness as takeover targets.

"You've got to be a $20 billion bank, it looks like, to be on people's radar screens," UBS' Mr. Hanley said.

Mr. Hansel says he is mindful of this financial climate, and says his bank has looked at buying Deposit Guaranty, First Commercial, Magna Bancorp., and even old Worthen Banking Corp. of Little Rock. But no deals were struck.

People close to First Commercial, a $6.9 billion bank, say the bank rejected Hibernia's pitch because the bank was too small.

"Hibernia just wasn't big enough to make a serious offer," a source close to First Commercial said.

"If Hibernia had bought First Commercial, First Commercial would have owned half the new company, and the board didn't want that."

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