First Union Seen as Leader In Bidding for Miami Bank
First Union Corp. has emerged as the leading candidate to make a federally assisted acquisition of Southeast Banking Corp., the troubled $12.6 billion-asset company based in Miami.
Underscoring the seriousness of its intentions, First Union sent 200 employees to pore over the Miami company's books in recent weeks, according to sources close to the companies.
Federal Aid Anticipated
Southeast, plagued by problem real estate loans, is openly seeking a sale or capital infusion. Because of the depth of its difficulties, an acquisition is widely expected to require federal aid.
While a sale is not believed to be imminent and a number of factors could quickly change the equation. First Union, based in Charlotte, N.C., is now being viewed as the front-runner to snatch up the tattered but attractive franchise.
First Union's potential competitors include two regional rivals: NCNB Corp., Charlotte, and Barnett Banks Inc., Jacksonville, Fla.
But NCNB is tied up in merger talks involving C&S/Sovran Corp., and Barnett seems cool to a possible bid.
Other potential bidders include BankAmerica Corp., based in San Francisco, and Kohlberg Kravis Roberts & Co.
BankAmerica has deep pockets and is eager to gain a foothold in the region, but it wouldn't reap the huge economies of scale First Union could by cutting overlapping branches and personnel. That factor would make an acquisition more expensive for BankAmerica than First Union and might also sway regulators, who are interested in seeing regional consolidation.
Principals Won't Comment
KKR, meanwhile, presumably would have to join forces with a bank to make an acquisition.
Spokesmen for Southeast Banking and the other potential bidders declined to comment Wednesday.
As an in-market acquirer, First Union brings important advantages to the negotiating table. With $16.6 billion of its $39.6 billion of assets in Florida, First Union could gain substantial cost savings by merging its 311 branches with Southeast's 205. The two companies have substantial branch overlaps in Jacksonville, Palm Beach, and Miami, for example.
First Union was initially interested in buying Southeast branches on the state's west coast, from Tampa southward, to fill in its Florida franchise, according to people familiar with the bank's strategy. But as the possibility of an assisted transaction became stronger, First Union shifted its due-diligence investigation to cover the entire bank.
Other Biggies Distracted
The other big regional players could also achieve major cost savings, but they seem to have other interests at the moment.
NCNB had earlier expressed interest in buying Southeast but now appears distracted by its bid for C&S/Sovran. That, of course, could quickly change if the latter deal is scotched.
Barnett, which has $32.1 billion in assets, is a natural candidate, but a source close to the company said that, after looking at Southeast's books, the portfolio "didn't really interest us." This person said that many top people at Barnett, which is struggling with its own loan problems, think First Union will end up buying Southeast.
Barnett to Issue Stock
But Florida's largest banking company cannot be ruled out, especially in a federally assisted deal that would shield the buyer from loan losses.
Barnett has a stock sale pending, involving the issuance of 2.875 million new shares, that could give it additional capital to pursue acquisitions.
Officials at the region's other giant, Atlanta-based SunTrust Inc., have privately indicated their lack of interest in absorbing all of Southeast, although their attitude would change if pieces, such as the trust operation, were sold separately.
While discussing mergers, Southeast Banking is selling assets, and it could conceivably shrink enough to survive. The company is still far from insolvent. At the end of the first quarter, Southeast still had $ 1.3 billion in capital and met industrywide standards, with Tier 1 capital of 4.17%, for example.
But the company has lost $336 million over six quarters and is expected to report a sizable loss for the second quarter late next week, increasing the pressure for a sale.
Substantial Loss Expected
J. Frederick Meinke, banking analyst at Raymond James & Associates Inc. in St. Petersburg, Fla., estimated that Southeast will lose about $55 million in the second quarter, but added he "would not be surprised" if the reported figure approached the $117 million loss booked in the first quarter.
A sale of Southeast could be the first test of an FDIC plan to deal with troubled banks before they become insolvent. A key obstacle to such a deal - participation of Southeast's management - was overcome last week when the company issued a statement implying it would participate in such an arrangement. Chief executive Douglas Ebert had previously ruled that out.
If First Union and Southeast are able to strike a deal, the FDIC would still have to notify other potential acquirers and request competing bids. Once a deal were struck, shareholders and bondholders, who would have to agree to the arrangement, would see their investments severely diluted but could be allowed to benefit if the merger succeeds.