FleetBoston Financial Corp. may covet Princeton, N.J.-based Summit Bancorp as much for its flaws as for its successes.

Summit, reportedly an acquisition target, has built itself a strong position in New Jersey, where it is both the largest deposit taker in New Jersey and a strong middle-market commercial lender. But it has struggled to find the product mix that would exploit its market position and generate the strong fee-income growth that banks crave.

"Summit has basically been product-starved. They have no real fee revenue drivers," said Michael Plodwick, a bank analyst at UBS Warburg. According to UBS's research, fees contribute 24% of Summit's total revenue, as compared to 55% at FleetBoston. The average for the UBS 50-bank index is 41%, Mr. Plodwick said.

There are elements that make it less than clear that Summit would be an easy target. T. Joseph Semrod, the company's chairman and chief executive, has long been a proponent of independence, although at age 63, some speculated that he might be more open to a sale.

FleetBoston, on the other hand, is thought to be looking to reduce its dependence on capital markets and venture capital businesses. Both areas can be extremely lucrative, but they can also be unpredictable income generators. So though the $181 billion-asset bank has been among the commercial banks leading the charge into investment banking, it apparently wants to hedge its bets in anticipation of a possible downturn in its cyclical capital markets business.

"Fleet wants to make sure that it's not over reliant on fees from volatile areas," said Tucker Anthony bank analyst Gerard Cassidy. Mr. Cassidy said that Eugene McQuade, FleetBoston's chief financial officer, alluded to that desire at a Tucker conference on Martha's Vineyard, Mass., last week.

If FleetBoston, the fourth-largest New Jersey deposit taker with 6% market share, were to add Summit's enviable top spot, it would capture a combined deposit market share of 20% and a strong commercial lending base in New Jersey. Adding to the appeal is the fact that Summit had not tapped into those customers for the products FleetBoston might cross-sell.

"If you look at the business mix of Fleet, [including] Robbie Stephens, Quick & Reilly, SureTrade. New Jersey is a very wealthy market. This is the type of product set that should sell well within the Summit client base," Mr. Plodwick said.

FleetBoston, which - as Fleet Financial Group - bought National Westminster's U.S. retail operation, based in New Jersey, in 1996, would find some overlap in the acquisition, a factor analysts said would likely generate the cost savings needed to make the deal accretive.

"Over the long term, having the market share in New Jersey that's being discussed, along with the existing market share in New England, will enable them to be a pricing leader," Mr. Cassidy said. They will be able to be the ones that will lead on deposit pricing, they'll be leading on loan pricing in their markets because they have such a dominant market share. That will enhance long term profitability for the organization."

One question mark in the deal remains Mr. Semrod. As chairman and CEO of UJB Financial Corp. since 1981, he retained his title when Summit and UJB merged in 1996. Some said the combination was actually motivated in large part by a desire to keep his management team in control.

"My guess is Fleet is forcing their hand," said Claire Percarpio, an analyst at Janney Montgomery Scott LLC. "My guess is that Fleet's making an offer and that Semrod would have tried to remain independent longer and may still try to fight this."

To be sure, board members must be discouraged by a stock price that has languished in the mid- to high-20s, about half Summit's price in early 1998, in part because of Wall Street's belief that Summit will not find its own way to drive fee income levels up.

"I think there's been some frustration developing at the board level regarding the running in place or spinning of wheels that the company's been experiencing for the last couple of years," Mr. Cassidy said. "The company hasn't really been able to put up some demonstrative growth numbers. And as a result I think it's been frustrating to those board members who own a fair amount of stock."

CNBC.com and The Wall Street Journal reported on Tuesday that FleetBoston and Summit were said to be in talks.

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