Shares of Equicredit Corp. plunged Thursday morning on fears that the Federal Reserve Board may not approve its acquisition by Barnett Banks Inc. The stock recovered later in the day, but concerns linger about the Department of Justice's probe of Barnett.
On Thursday morning, apparently responding to an article in the American Banker, investors beat the stock down by 87 cents before it closed-the day at $29.625 a share. The article detailed how the Fed and Justice Department are clashing over the latter's investigation of Barnett for fair-lending violations.
"Obviously, the article spooked people this morning," said Oppenheimer & Co.'s Steven Eisman.
Jacksonville, Fla,-based Barnett announced plans on Monday to purchase Equicredit for $332 million in cash, or $32 a share.
The Fed must approve the deal, which is scheduled to close in the second quarter of 1995. Although the Fed has approved some other recent acquisitions by Barnett, the central bank is now under pressure from the Justice Department to take the fair-lending probe into account.
Robert S. Bennett, Barnett's Washington-based!attorney, said he was encouraged by the Fed's approval on Wednesday of Barnett's purchase of 60 Florida branches belonging to Glendale Federal Bank of Glendale, Calif.
"If the Justice allegations did not affect the Glendale deal, I don't think it will affect the other;' said Mr. Bennett, who is with Skadden, Arps, Slate, Meagher &Flom. "Since we anticipate a merit-based decision, it will be fine."
Barnett's move to acquire Equicredit is part of a broader trend of commercial banks diversifying into nonbank financial services. In the latest sign of that interest, The Wall Street Journal reported Thursday that NationsBank Corp. has hired Bear Steams & Co. to explore the acquisition of ITT Financial Corp., the commercial and consumer lending subsidiary of ITT Corp.
The $11 billion-asset unit would dovetail nicely with NationsBank's November 1992 purchase of Chrysler Corp.'s consumer finance subsidiary and its July 1993 takeover of US West Financial Services, a commercial finance company. Nationsbank chairman and CEO Hugh L. McColl Jr. has spoken publicly of his dream to build a nonbank financial services company that would rival GE Capital Corp.
But analysts note that NationsBank has looked at several major deals in the past year, including Continental Bank Corp., Dreyfus Corp., and Margaretten Financial Corp, and passed on all of them.