BankAmerica Corp. is trying to transform its feeble Texas bank into an urban cowboy.

The San Francisco-based company late last month disclosed plans to sell its entire network of 68 branches in small towns and midsize cities in the Lone Star State, and to focus exclusively on major metropolitan areas, where it has more than 150 branches.

By saying forsaking places like Quitman, Abilene, and Corpus Christi, Bank of America Texas will "best serve the majority of our customers and at the same time provide the greatest return to our shareholders," said Ronald G. Biagi, chief executive of the Texas bank.

BankAmerica said it plans to concentrate on Houston, Dallas-Fort Worth, Austin, and San Antonio.

Outside observers, noting that big-city competition is tough and that prices in the branch sales could be low, were more circumspect.

"Revisit it in 12 to 18 months and see if they need more" restructuring, said Dean Witter Reynolds Inc. analyst Anthony A. Lombardi.

BankAmerica, a relatively late entrant in the big-bank rush to Texas, spent $268 million in 1991-93 to buy branches, loans, and deposits from one failed bank, two failed thrifts, and First Gibralter Bank. The result is a Bank of America Texas unit that had $7.3 billion of assets and $6.5 billion of deposits at yearend 1995, making it the state's fourth-largest institution. With 222 locations, it also had the largest branch network in Texas.

But the failed thrift base on which the Texas bank was built made it a lackluster money-maker.

From 1991 through 1994 Bank of America's Texas bank lost a total of $103 million, according to Sheshunoff Information Services Inc.

It went into the black in 1995, but even then, its net income of $21.7 million earned only a .27% return on assets, the lowest of 66 comparable banks tracked by Sheshunoff, and well below BankAmerica's overall ROA of 1.17%.

BankAmerica executives, including retired chairman Richard M. Rosenberg who engineered the Texas expansion, have said the weak returns were expected and worth it, since the deals were BankAmerica's best opportunity to enter a strategic market.

But new chairman David A. Coulter, who succeeded Mr. Rosenberg this year, is said to be less patient with underperformers. The planned Texas branch sale is said to be the first fruit of his efforts to prune or sell- off marginal operations, and move capital into more profitable areas.

"It's part of management's overall approach of focusing more on increasing returns than the company has in the past," said Ronald Mandle, a bank analyst with Sanford C. Bernstein & Co.

Bids for the 68 branches, which are being offered in 10 geographic groups throughout the state, are due by Aug. 9. Winners are to be selected by yearend, and the sales are expected to be completed by the first or second quarter of 1997.

Market sources said potential bidders could include Minneapolis-based Norwest Corp., which entered Texas in 1994 with a small-town focus. It now has a total of 106 branches with $6 billion of deposits in the state. Norwest officials wouldn't comment specifically on the BofA branch sale, but acknowledged a general interest in buying more banks in Texas, especially in rural areas.

Indeed, on Tuesday, a well-placed source said Norwest had agreed to buy $1.1 billion-asset Franklin Federal Bancorp of Austin.

Other big banks are said to be so focused on big-city markets that they probably won't make strong bids. That means that some of the most aggressive bidders may be community banks.

"I think it would be mostly local banks," said James B. Gardner, president of Service Asset Management, a Dallas-based investment bank.

Mr. Gardner and other sources added that pricing could be relatively low, with predicted deposit premiums ranging from 2% to 6%, well below the more than 8% premiums paid in recent big branch sales in New York and California. A package of 25 small-town branches that BankAmerica sold last year in its first stab at restructuring its Texas bank netted only a 3% deposit premium, knowledgeable sources said. BankAmerica has never officially disclosed the sale price.

The reason for the low pricing expectations is that the branches are believed to be generating few loans. Also, many of the branches are said to be in rural areas bearing the brunt of a severe drought that is disrupting cattle and feed markets.

"We hear rumors that a lot of these branches are not profitable," said Thomas R. Mecredy, an investment banker with Austin's Hoefer & Arnet.

The big cities in which BankAmerica plans to focus are dominated by the Texas subsidiaries of such tough competitors as Chase Manhattan Corp., Banc One Corp, and NationsBank Corp.

But BankAmerica officials said they are confident that they will fare well against these banks. Indeed, they plan to grow their urban network by opening another 23 in-store branches this year in Kroger Food Stores, and by opening off-premise automated teller machines at a clip of one a week in shopping malls, airports, and college campuses.

"With the products we have, and the expertise we have in competing against these people, we'll do quite well in those cities," said Bank of America Texas spokesman Randy Hicks.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.