Competition Will Heat Up in New York

A combined Chemical Banking Corp. and Manufacturers Hanover Corp. could significantly realign the nation's biggest and most competitive urban banking market and pose a serious challenge to Citibank, the long-standing market leader.

Chemical Bank and Manufacturers Hanover Trust Co., currently third and fourth in the New York area by key measures of retail market share, together would become a strong second to Citicorp's lead bank, according to Payment Systems Inc., a market research company based in Tampa, Fla.

The two merging banks would also surpass Citibank in total branches, with 436 in New York and 132 in New Jersey. About 70 overlapping branches are slated to be closed in the near term. Citicorp, by comparison, serves the region from 250 locations, all in New York State.

Chemical and Manufacturers officials claim they would be No. 1 if the region's market share calculations include consumer, small-business, and mid-size corporate relationships. Their total would be, 40%, compared with Citibank's 29%.

"This is without a doubt the most serious competitive threat to face Citibank in the past 20 years," said Allen R. DeCotiis, president of Payment Systems.

Growth of Citicorp's retail bank has slowed in recent years as local competitors more aggressively pursued the low-cost deposits and high-interest loans that characterize the consumer business. But is market share lead has remained wide.

Citibank Leads Market

As of March 31, according to Payment Systems, Citibank led the market by having at least one banking relationship with 1.6 million households, or about four out of 10 Chase Manhattan Bank followed with 900,000 households, or 22% of the total.

By adding their household figures - 696,000 for Chemical and 607,000 for Manufacturers Hanover - and eliminating about 100,000 of overlap, the expanded Chemical Bank would do at least some business with 1.2 million households, or 29%.

While Chemical would trail Citibank by 10 percentage points in household penetration, it would be within four percentage points of Citibank's 14% share of total accounts in the New York market.

Citibank would hold onto a slim 12.46% to 11.11% lead in share of total depository accounts, and a 5.85% to 3.4% lead in mortgage accounts.

Of households with at least one credit card, Citibank claims 36% to Chemical's 20%. Chemical would be the sixth-largest credit card bank in the U.S.; Citibank is the industry leader.

|Some Good Synergies'

"From a distribution standpoint, there are some good synergies there," David Totaro, marketing chief of Dime Savings Bank of New York, said of the Chemical-Hanover merger. Manufacturer's strong representation in Brooklyn and Queens will complement Chemical's well-respected Manhattan, Long Island, and Westchester franchises, he said.

Mr. Totaro said he expects the advent of a bigger, more formidable Chemical Bank to spark an "image or media war" among four or five major players. Citicorp "will react with firepower," he predicted.

"What are you now going to have is a group of megacompetitors," Mr. DeCotiis said: Citibank, the new Chemical, Chase, and Bank of New York.

"Bank of New York has been the sleeper," he said. "But they have made considerable strides in service quality and market penetration."

Mr. DeCotiis' company surveys 9,000 consumers in the New York market each year and uses those data to determine where the area's 4.7 million households do their banking.

The prospective merger partners have similar consumer banking strategies. While Chemical is believed to be the more forward-thinking retail institution, both banks have targeted New York's mainstream, rather than upscale, consumers. But there is relatively little overlap among their customer bases. According to PSI, only 6% of the households that have deposit accounts at Chemical also have one at Manufacturers Hanover.

In addition to an impressive branch network, the new Chemical also boasts a stable of well-respected consumer bankers. Even though Chemical is seen as the more progressive retail bank and will continue to use its name, all of the holding company's retail businesses will be overseen by Edward D. Miller, a Manufacturers Hanover vice chairman.

Mr. Miller and Manufacturers' retail bank rose in prestige in recent years while other parts of the company foundered. A past chairman and current director of MasterCard International, Mr. Miller is influential in bank credit card circles and could be more so as he operates on a larger platform.

Reporting to him will be Michael Hegarty, Hanover's regional banking chief; William H. Turner, Chemical's vice chairman and regional banking head; and Edward O'Neal, a Chemical vice chairman who has also had long career in the retail area.

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