From Birmingham, Ala., to Los Angeles, to remote spots like DeWitt, N.Y., bankers are confronting a relatively new force in the industry: shareholder activism.
The banking business has long been comfortably removed from the nasty shareholder battles afflicting other industries.
But that insulation seemed radically weakened earlier this month when Wall Street learned that predator Michael F. Price, president of Heine Securities Corp., owns 6.1% of Chase Manhattan Corp.
The disclosure sparked a firestorm of speculation about what Chase might or might not be forced to do to meet Mr. Price's well-known appetite for shareholder returns. Moreover, the news signaled that the nation's largest banking companies can no longer be considered immune from high-pressure investor tactics.
Suddenly, the question is not just whether smaller and weaker banks should seek stronger partners. It is whether financial conglomerates such as Chase can match independent specialists in performance - and market recognition - in each line of business.
"If he gets a 100% return on his investment in a 12- to 18-month period by busting up the Chase, no one is going to be able to stop the hordes of investors who will swarm after the multiproduct banks," said Richard X. Bove of Raymond James & Associates, St. Petersburg, Fla.
Information from SNL Securities Inc. shows institutional investors hold sizable stakes in a number of major U.S. banking companies. Obviously, Chase is not the only bank where activist lightning could strike.
Look no further than Michigan National Corp. for an example of what strong-arms such as Mr. Price can accomplish.
In January, roughly a year after Heine bought 8.25% of the Farmington Hills, Mich.-based company, chief executive Robert Mylod canned his rhetoric about independence and sold out to National Australia Bank for $1.5 billion.
By setting his sights on bigger prey, Mr. Price has put the industry on notice that it must deliver greater returns to investors.
"This country is so competitive and dynamic, no one can sit still," he said in an interview.
Mr. Price isn't the only investor who sees big potential in banks.
"Because banks are undervalued, they are going to draw the big hitters," said John Neff, manager of the Windsor/Vanguard Fund. He has plowed 21% of the $11.4 billion fund into bank and thrift stocks.
Mr. Neff, who led an unsuccessful effort to force an auction of First Interstate Bancorp in 1990, estimated bank stocks trade at a meager 55% of market multiples. Correspondingly, bank dividend yields are 40% to 50% higher.
Those glaring disparities have drawn the likes Warren Buffett, Walter Annenberg, and Kohlberg Kravis Roberts & Co. into bank stocks.
And banks' defenses are weakening.
For one thing, federal regulators have adopted a far more liberal attitude about market forces. They routinely endorse mergers and divestitures of all types and magnitudes, offering scant shelter to bankers seeking to evade proposed transactions on regulatory grounds.
Perhaps more important, the industry's asset quality is the best it has been in years. As long as this situation lasts, activists can crusade for sales and partial divestitures without fear of deal-wrecking disclosures.
On top of all that, market observers are beginning to question whether banking conglomerates make sense.
As examples of the gains banks can realize by shedding niche operations, Mr. Price pointed to Signet Banking Corp.'s spinoff of its credit card unit, and to the recent spate of mortgage servicing sales.
In contrast to many banks, which trade at "eight to nine times earnings," some independent niche players "trade at 20 times earnings," said Mr. Price.
Mr. Bove, the Raymond James analyst, put a blunt edge on the issue, saying superregionals such as NationsBank Corp. "have destroyed shareholder value by putting together auto finance companies, leasing operations, commercial lending, mortgages, and credit cards."
This is not idle talk. Already, institutions control a large percentage of major bank stocks (see chart). On average, in fact, institutional investors own more than half of the equity of the 25 largest banks in country.
First Chicago Corp., for example, is nearly 70% owned by institutional investors. The company's vaunted credit card unit is on a competitive par with independent card companies trading at three or four times book value. But it is buried inside a corporation that plods along at 120% of book.
Some analyst say this makes First Chicago a prime target for activists.
Of course, activist shareholders often focus on performance laggards, even when conglomeration is not an issue.
Michigan National consistently trailed its peers in recent years.
And Shawmut National Corp., which has agreed to be acquired by Fleet Financial Group, reportedly was pressured by Fidelity Investment Co. to sell on account of weak performance.
But pressure can materialize even when the numbers are good.
Though holding their own, the managers of Compass Bancshares, Birmingham, Ala., still ran afoul of former chairman Harry Brock, who launched a bitter but unsuccessful battle to sell the bank.
Compass' current chief executive, D. Paul Jones, warned that his bank's travails will be repeated elsewhere as shareholders move to cash in on the merger opportunities unleashed by interstate banking.
But regionals may be able to count on support from individual investors, said Edward Herlihy, a partner with Wachtell, Lipton, Rosen & Katz, Compass' legal adviser during the shareholder battle.
"Individual stockholders (are) key in situations involving companies which play a vital role in the local community or region," he wrote last week in a report on the Compass proxy fight.
They "tend to be loyal . . . and are not as likely to be as swayed as institutional stockholders by arguments about the inevitability of sale or merger in view of nationwide banking," he added. Only 30% of Compass is owned by institutional investors.
At even smaller banks, shareholder activism can be sparked by management actions that diminish an institution's perceived salability.
But as an episode at Community Bank System illustrates, managers sometimes can prevail even if local investors go on the offensive.
The DeWitt, N.Y., bank bought five Chase branches at a stiff premium, making a sale of the community bank unlikely. But the institution defeated a subsequent shareholder lawsuit.