A spate of acquisitions in upstate New York may put pressure on the three largest banking companies with operations there to find suitable partners in the region.
Last month First Empire Corp., Buffalo, positioned itself for first place in upstate deposits with an agreement to buy Onbancorp of Syracuse.
The $872 million deal, which is to close in the first quarter, would solidify First Empire's market position in four key metropolitan markets: Albany, Buffalo, Rochester, and Syracuse.
The deal would also put First Empire squarely in contention with substantially larger banking companies and intensify the pressure to attract cheap deposits.
Marine Midland, Fleet Financial Group, and KeyCorp, the region's three largest institutions, may have to duke it out for a diminishing pool of acquisition candidates just to maintain position, said industry insiders.
"It's come down to a game of market share," said Emerson Brumback, executive vice president for retail banking at First Empire. "The bank that outperforms is the bank that will win."
For years, banks have been attracted to the relatively stable, moderate- growth economy of upstate New York as a good springboard for their small- business and middle-market lending operations, analysts said. But recent market consolidation is making growth more difficult to achieve.
Bankers in the region said acquisitions cannot continue at the same rapid pace. "There just aren't enough small institutions left," Mr. Brumback said.
The First Empire deal is the latest in a string of upstate agreements. Last month Cleveland-based Charter One Financial Inc. closed its $400 million purchase of Rochester Community Savings Bank. Analysts said Charter One would probably like to make more acquisitions in the area. "They are very interested in expansion to build their market share in the state," said Chad Yonker, an analyst at Fox-Pitt, Kelton.
In March, $31.2 billion-asset Marine Midland, the Buffalo-based U.S. operating subsidiary of HSBC Holdings of London, closed its deal for First Federal Savings Bank in Rochester.
Marine Midland, however, is unlikely to make another acquisition soon, analysts said, mainly because the banks left to buy don't have branch networks in Rochester or Buffalo.
Analysts said Boston-based Fleet could turn its attention to smaller institutions upstate in the coming months after it absorbs several nonbank acquisitions. Fleet leads in deposit share in Albany and is third and fourth in Buffalo and Syracuse, respectively, according to Sheshunoff Information Services.
"It has been a strategic goal of theirs to look at increasing their market penetration upstate," said Gerard Cassidy, an analyst at Tucker Anthony.
Potential targets include $3.7 billion-asset Albank Corp. in Albany and $2.3 billion-asset Trustco Bank Corp. in Schenectady, Mr. Cassidy said. Marine Midland or First Empire could also be targets.
KeyCorp of Cleveland has bucked the acquisition trend by divesting substantial small-town branch holdings to focus on urban markets, analysts said. KeyCorp ranks second in deposit share in Albany and Syracuse and third in Buffalo, according to Sheshunoff.
