To get regulatory approval to acquire Shawmut National Corp., Fleet Financial Group Inc. will have to divest itself of a lot more of its business than it has offered to so far, industry observers predict.

The Providence, R.I.-based bank may have to dump loans as well as the $3 billion of deposits it had earmarked for disposal when the transaction was announced in February.

"Fleet needs to develop and demonstrate a comprehensive plan designed to reduce its banking concentrations in Hartford, Conn., Worcester, Mass., Hillsboro County, N.H., and Rhode Island without creating disruption or hardship on those markets," according to Stanley Wells of Keefe, Bruyette & Woods Inc.

Once the transaction is complete, Fleet will have the top deposit share in all those markets, including 40% of Hartford County, according to Keefe Bruyette. And, it will have the number-one share in middle-market business lending.

The U.S. Justice Department and attorneys general in Connecticut and Massachusetts are investigating antitrust issues in connection with the deal.

Analysts say the Justice Department has a history of forcing banks to unload loans and deposits in merger situations.

Most recently, the Justice Department forced Cleveland-based Keycorp to unload $250 million of Maine deposits to win approval for its acquisition of Portland, Me.-based Casco Northern Bank.

With that deal's closing in January, Keycorp became the leader in deposit market share in Maine.

The $3.7 billion acquisition of the Hartford and Boston-based Shawmut will make Fleet the largest bank in New England with $80 billion of assets and number one in deposit share in every New England state except Maine.

The Justice Department said a decision has not yet been made about the Fleet-Shawmut transaction.

Fleet spokeswoman Meg Pier said: "We really would consider it inappropriate to comment on matters to be considered by government agencies. There will be some divestiture, but I'm not able to comment beyond that."

Back in 1992, Justice pressured San Francisco-based BankAmerica Corp. to divest itself of $2.7 billion of loans after it acquired Los Angeles-based Security Pacific Corp., which had branches in five western states.

"The Justice Department was concerned with the lending market and what was going to be left in terms of who was going to lend, particularly in the middle market," said Don Kauth, an analyst at First Albany Corp.

The Justice Department delayed Fleet's 1991 acquisition of Bank of New England, even after the Federal Reserve Board had approved it.

"The Justice Department has weighed in by threatening to hold deals up," said PaineWebber Inc. analyst Lawrence Cohn.

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