John Hancock Mutual Life Insurance Co. has held informal merger talks with BankBoston Corp. and Fleet Financial Group Inc., an inside source said.

The Boston-based insurer, following the lead of the proposed Citicorp- Travelers Group combination, is said to be eyeing a deal around the time of its initial public offering, expected late next year.

A merger with either of the big Boston banking companies would create a financial services conglomerate offering everything from checking accounts to pension fund management, mutual funds, and corporate finance.

Hancock is the 13th-largest U.S. insurer, with $61.9 billion of assets. Fleet and BankBoston rank 12th and 16th among bank holding companies, with $85.5 billion and $62.3 billion of assets, respectively.

Hancock is one of about two dozen large insurers owned by their policyholders that are expected to become publicly owned companies. Many of these mutuals are expected to use the money they generate from public offerings to align with banks or other financial services companies.

Like banks, insurance companies are searching for new distribution channels. Sources said Hancock's discussions with Fleet and BankBoston may have grown out of explorations of cross-selling opportunities.

John Hancock issued a statement saying there was "no truth" to merger talks with either bank. Executives at BankBoston and Fleet declined to comment.

But in recent months the chief executive officers of each organization has commented that consolidation would be necessary to compete against the prospective Citigroup.

Said Fleet CEO Terrence Murray in April, "That particular transaction actually fascinates me more than the others in that, on a larger scale, it tracks what Fleet has been trying to accomplish over the last 10 years."

The effort at John Hancock is being led by its chairman and chief executive, Stephen L. Brown, whom analysts characterize as among the most forward-thinking mutual CEOs in the nation. "He's realized he needed to pursue a different corporate structure," said Mike Cohen, an analyst at A.M. Best & Co.

Executives at John Hancock are anxious to do a bank deal, sources said. At one point they were willing to leverage the firm's $4.6 billion of cash and other assets to complete a merger before the IPO.

But Hancock executives eventually decided the insurer would be better off making a deal after it demutualizes, or transfers its ownership from policyholders to shareholders, these sources said.

"If you want to be a big-time player you've got to be huge," said Colin Devine, an insurance analyst at Salomon Smith Barney Inc. "That's the story behind demutualization-getting capital to pay for a merger or acquisition."

John Hancock is being advised by Morgan Stanley, Dean Witter & Co. in its demutualization.

To buy Fleet or BankBoston today, Hancock would need billions in cash that analysts say the insurer doesn't have. Fleet's market value is $23.3 billion; BankBoston's, $16.6 billion.

Estimates of John Hancock's public market value range from $10 billion to $14 billion. Because they keep "two sets of books," mutual insurers are difficult to value, Salomon's Mr. Devine explained. One set is for regulators; the other, which is comparable to those kept by publicly owned companies, is internal.

A.M. Best's Mr. Cohen, who has some access to internal books, said Hancock is in a far better position than its public books suggest.

"Hancock has not disclosed much about their demutualization plan," he said. "Eventually they're going to be releasing what is now private information ... there's going to be some surprises."

Analysts say John Hancock could finance part of a merger through surplus notes or standard debt. But analysts say such a move would put John Hancock's credit at risk with ratings companies.

"Hancock doesn't have the capital base to buy a bank" today, Mr. Devine said. "If there is a deal, I wouldn't be surprised if the bank would be doing the buying."

What's more likely is a stock swap where newly minted John Hancock paper is traded for bank paper, he said.

Another hurdle any bank-insurance deal would have to overcome is the possibility of diluting a bank's performance. According to Mr. Devine, on average, mutuals return about 6.5% on capital while publicly owned banks return 15% on equity.

But analysts say John Hancock is far better poised to join with a bank than most mutuals. Its return on capital was 11.3% in 1997, according to Salomon, and is approaching a level much closer to that of banks. Fleet reported an 18% return on equity last year; BankBoston, 19.4%.

Another bank-insurance pair, Citicorp and Travelers, were in sync in terms of return on equity, with Travelers' at 16.3% and Citicorp's at 18.2%. But an adviser to Hancock said, "by the time demutualization happens" Hancock's numbers "are going to be in that ballpark."

From a cash standpoint, Hancock is likely to be in an even better position. Its cash holdings have jumped about 12% a year since 1992 on the basis of healthy sales and stronger returns from its investments, according to Moody's Investors Service.

John Hancock has been strong in primarily four businesses: retail life, variable annuity, long-term care, and mutual funds; investment and pension management; business insurance; and its overseas partnerships, primarily in Southeast Asia.

In 1997 John Hancock derived 54% of its $8.2 billion in premiums through its group pension business and 39% through individual life insurance policies, annuities, and long-term care policies. In recent years, the insurer has been moving away from company-owned branches and selling more policies through independent agents. It also has a mutual fund business with $44.4 billion under management.

In looking at BankBoston and Fleet, John Hancock is finding banks with striking similarities. Both are based in Boston and have a strong presence in New England, especially in retail banking.

BankBoston has an international reach, with ownership positions in primarily Southeast Asian banks. Its recent plan to buy Robertson Stephens & Co. for $540 million shows the bank's effort to expand into equity underwriting.

Fleet is concentrated in New England, New Jersey, and New York and is pursuing the credit card and discount brokerage business, as evidenced by its acquisitions of Quick & Reilly Group Inc. and Advanta Corp.

"They're looking more toward the retail side," said Stephen Biggar, an analyst at the Standard & Poor's equity group. "But they're both regional banks. I would think they're looking for partners outside New England."

John Hancock isn't alone in its interest in following the Citigroup model. Mr. Devine estimates 24 mutual insurance companies either have announced or will announce demutualization plans in the next 22 months.

Among them are such powerhouses as New York Life, with assets of $84.1 billion; Prudential, $193.9 billion; and Metropolitan Life Insurance, $172.4 billion. Those mutuals will take one of two routes: a full demutualization, in which all of the company's ownership is sold to the public, or a partial demutualization, in which only a 49% voting stake is sold to shareholders, Mr. Devine said.

Banks, which like the trusted brand names of these companies, are obvious choices as merger partners. Insurers like the ability to sell products such as credit cards and auto loans to their policyholders. Both sides benefit from new distribution networks.

In regard to offering insurance, Fleet's Mr. Murray told shareholders in April that his bank needs "to do more in that area." He added, however, "there's no reason to sell this company unless we begin to hit a wall and fail to achieve the expectations" of shareholders.

Demutualization has only been allowed since 1995; so far, 16 states and the District of Columbia have approved such laws. Though consumer groups argue that policyholders don't get enough from demutualization, the insurers can now bulk up whereas before the new laws mutuals could only merge with other mutuals.

"The only problem is that the management of mutuals aren't used to having to answer to shareholders," A.M. Best's Mr. Cohen said. "Mutuals are conservative. Going public is going to be a challenge for them."

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