In this era of rampant banking consolidation, Birmingham stands out among all American cities as having retained more of its local banks than anywhere else.

Birmingham has been known in business circles primarily as the site of steel mills, long shut down, that had made this city the Pittsburgh of the South. The closing of the mills in the 1970s threw thousands out of work.

The fact that only the states of New York, North Carolina, and Ohio are home as many big banks as Alabama comes as a pleasant surprise to local leaders.

"We're the biggest banking city in the Southeast, is that right?" exclaimed Don A. Newton, president of Birmingham's chamber of commerce. "Well, there you are!"

Birmingham's four big banks currently employ about 11,300 people. Together, they are the largest private-sector employer in this city of 907,000. Steel, the industry that lorded over Birmingham for decades, employs only about 10,000 and the numbers are falling.

To a city that has struggled for years to rehabilitate its reputation and economy, the fact Birmingham's banks have not only survived but grown into regional powers is a source of some pride. But the city's leaders temper their pride with the knowledge that mergers-and their accompanying job losses-probably aren't too far away.

"We've been fortunate to keep them this long," said C. Mark Smith, director of the city's economic development office. "I realize full well that they'll be attractive to someone else."

John Moore, a banking analyst at Morgan Keegan & Co., Memphis, said Wall Street's merger merchants have skipped Alabama simply because the state hasn't been considered terribly attractive to companies like NationsBank Corp. and First Union Corp. as they expanded across the country. "If these banks are ever bought, it will be mainly for what they have outside of Alabama," Mr. Moore said.

Birmingham's bankers attribute their survival to their own expansion plans. In-state consolidation began in Alabama in 1971, early by most states' standards, and by the time most other states relaxed their laws, the Birmingham banks had the size necessary to make acquisitions.

Given the chance, these bankers have proven among the most acquisitive- minded in the nation. Regions Financial Corp., formerly First Alabama Bancshares, has seven acquisitions pending and bought 40 small and midsize banks across the South in the past six years. Amsouth Bancorp., which traces its roots to the city's original National Bank of Birmingham, now has more than 40% of its assets in Florida.

The banks have also survived by avoiding the peaks, valleys, and real estate bubbles that sank many competitors.

"It's fairly easy to be a successful banker in Alabama," said Carl E. Jones Jr., president and chief executive of Regions Financial.

The most foolish bout of speculative local lending that anyone can remember was a 1987 decision to build an upscale horse racing track to satisfy the populace in a state where gambling is otherwise forbidden. But the track went bankrupt, was converted to dog racing, and Amsouth, the lead lender in this project, lost about $20 million.

Despite the murmurings that consolidation is inevitable, there is reason to be hopeful for the banks' survival, at least in the short term.

All four reported record earnings for 1997, and their top executives are relatively young. Managements have also shown some discipline in their own acquisitions. Regions' Mr. Jones said his bank was interested in Deposit Guaranty Corp., but wouldn't pay the price necessary for the Jackson, Miss.-based bank, which agreed to sell recently for what he called an "amazing" 27 times earnings.

The banks might also survive because Alabama may be finally catching up economically with the rest of the south.

The University of Alabama at Birmingham, the city's biggest employer, is among the nation's finest for medical research. And state leaders made a tremendous-some say excessive-offer to lure Mercedes into building a new auto manufacturing plant just outside Birmingham.

The fact that out-of-state companies like NationsBank or Banc One Corp. would be at all interested in Birmingham's banks could be interpreted as another sign that executives are willing to tell their boards they are considering a move into Alabama. Last year, a record $12 billion worth of mergers were transacted in Alabama, according to Securities Data Co.

Wall Street dealmakers say that if Birmingham is to remain an important banking city, the best thing would be for one or two of its banks to merge with each other. Better to have one bank with a market capitalization of $10 billion-double the size of SouthTrust Corp., the biggest Birmingham bank-and create a company with the size necessary to buy a company like Hibernia Corp. of New Orleans.

Although a merger of Birmingham's banks would surely cost the jobs of hundreds, if not thousands, of employees, it would help ensure that Birmingham keeps at least one locally controlled big bank, something cities like Atlanta and Houston have lost.

But an in-market merger appears unlikely to happen soon. Such deals have been explored in the past and nixed for many reason, not the least of which are that the banks are headquartered right next to each other and the top bankers share the same churches, country clubs, and belong to the same civic groups. No bank CEO is prepared to say "uncle" to the other, local businessmen say, especially not while earnings are so good.

Still, for a city that has long had its economic destiny controlled by outsiders like U.S. Steel Corp., a creation of New York financier J.P. Morgan, the notion that Birmingham's home-grown, home-controlled banks hold the keys to making the city one of the South's most important banking centers is as intriguing as it is unexpected.

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