Bank One Corp.'s recent management shakeup and sagging stock price have put the company in the unaccustomed position of being talked about as a takeover candidate.
David S. Berry, an analyst at Keefe, Bruyette & Woods Inc., is touting Citigroup Inc. as the most likely acquirer. Citigroup, with assets of $689 billion and market capitalization of $173 billion, is one of only a handful of U.S. companies big enough to afford the $264 billion-asset, Chicago-based Bank One.
Mr. Berry said the New York company's stock has been trading at a high valuation and its management has "a track record of buying properties cheap and improving their performance."
To be sure, there is no hard evidence that the company is in play. But the talk is nevertheless noteworthy, because it demonstrates how recent events have dented the company's once-sterling reputation.
A combination of Citigroup and Bank One would bring together the two largest credit card issuers. They would control more than 30% of the market, with $140 billion of credit card loans. Bank One's 1,900 branches in 14 states would let Citigroup expand its distribution platform for selling a bevy of financial products. Citigroup could also gain mileage by combining Internet operations on which the two companies each have made aggressive expenditures.
In a conference call with analysts last week, Citigroup executives indicated they were open to expanding domestically.
Despite the neat fit for Citigroup, Wells Fargo & Co. might have the most to gain, according to Mr. Berry's numbers. If Wells paid $37 for the stock, its accretion in the first year would be 25%, not counting any synergies or cost savings. This compares with 10% for Citigroup.
Bank One's stock closed Wednesday at $35.3125 a share. When the Keefe Bruyette report was released Oct 19, the shares were at $32.875.
Mr. Berry also named Chase Manhattan Corp. and Bank of America Corp. as potential acquirers. Chase would get an immediate 8% accretion, and Bank of America 4%.
Bank One's size limits the number of potential foreign or domestic commercial banks that could afford to buy it, but the expected passage of the financial modernization bill would open the door to insurance companies, domestic and foreign.
"What we are talking about wasn't conceivable when the year began, but today it is not hard to make a case for it," Mr. Berry said.
Bank One last week reshuffled the assignments of chief executive officer John B. McCoy and president Verne G. Istock, and Richard W. Vague, who ran the First USA unit, resigned. The shakeup came in the wake of a 12% third-quarter earnings decline. Mr. McCoy is now charged with turning around First USA, and Mr. Istock will run four of the company's other divisions.
"Right now the company is focused on fixing its problems and remaining independent," said Sandra Flannigan, an analyst at Merrill Lynch & Co. "But ultimately the problems are fixed or franchise value will be raised in another way."
Diana Yates, an analyst at A.G. Edwards in St. Louis said brokerages and securities firms, such as Merrill Lynch & Co., J.P. Morgan & Co., Goldman Sachs Group Inc., and Morgan Stanley are possible suitors. Buying Bank One would give them access to a large cache of deposits and another distribution channel, Ms. Yates said.
Raphael Soifer, an analyst at Brown Brothers, Harriman & Co. said Citigroup won't pay top dollar for branches, but anything goes under the old Traveler's Group management.
"Taking on a large network of bricks and mortar would not seem to be in line with Citigroup's present strategy," Mr. Soifer said. "Any large premiums for a retail distribution network would not seem to be in line with their thinking." But "with Sandy Weill, anything is possible."
Bank One spokesman Tom Kelly declined to comment on the possibility of an acquisition. But he said "the franchise value of Bank One is strong." He added that the company will "continue to work to rebuild the confidence of Wall Street."
Many market watchers were disappointed by last week's moves, saying they were not aggressive enough. Wall Street now is waiting for a Nov. 15 presentation by Bank One in New York.
Even Mr. Berry did not say a takeover is imminent. The stock might be more of a long-term play, with a potential merger more likely in a year, he said.
"I don't think that Bank One management is thinking about a sale at all," Mr. Berry said. "They are preoccupied."
Not all analysts considered Bank One likely to be sold. Nancy A. Bush, an analyst at Ryan, Beck & Co. in Livingston, N.J., expressed skepticism. "While the board has put John McCoy's feet to the fire, they are not ready to fire him."
Mr. Berry, in his report, said other potential banking company buyers of Bank One are less likely. Wells Fargo "is in no hurry to double the size of the bank again," he said. Meanwhile, Chase is focused on global and nonbranch consumer businesses.
Bank of America Corp. "is disadvantaged due to its relatively weak currency," and the 10% national deposit cap. None of the companies would comment on merger possibilities.