Buffalo, is on the prowl again in the United States. James H. Cleave, the Canadian-born chief executive officer of HSBC Americas Inc. and president and CEO of Marine Midland, said HSBC is looking to buy another bank with up to $20 billion of assets. Although HSBC executives say that as a matter of policy they do not comment on speculation, sources close to the bank have said it has its sights on a chunk of National Westminster Bancorp. The $32 billion-asset U.S. subsidiary of London-based National Westminster Group recently put up for sale its retail and middle-market banking operations, accounting for roughly half its U.S. activities. "We've put markers down with quite a number of banks, and we're also going to contiguous states, looking at larger banks," said Mr. Cleave, 52. The states bordering New York are Pennsylvania, New Jersey, Massachusetts, and Connecticut. The interest in a large-scale acquisition reflects a radical change in thinking at Marine, which until recently would not look at any bank larger than $2 billion of assets or at credit card and consumer credit portfolios above $1 billion. Busy cleaning house for the last few years, Marine Midland has been quiet during the recent U.S. merger mania, making only two significant purchases in the last 12 months: United Northern Federal Savings Bank, with $85 million of assets, in Watertown, N.Y.; and Spectrum Home Mortgage Corp. of Buffalo, one of the largest home mortgage operations in western New York. Separately, Marine this year absorbed HSBC's troubled $1.5 billion leasing unit, Concord Leasing, and six New York city branches of Hongkong and Shanghai Banking Corp. The U.S. bank also applied to absorb two New York branches of Hang Seng Bank, another Hong Kong-based unit of HSBC. However, Marine is increasingly keen to move farther afield, if only because of New York's slow-growing economy. An internal five-year strategic plan drafted for Marine two years ago underscored the need for acquisitions, saying: "Because of the generally depressed economic environment in the state and the intensity of competition for customers, de novo growth will be slow and by itself will not produce satisfactory earnings. "Acquisitions that increase market share, leverage the distribution system, round out product lines, or achieve scale economies are critical to improving long-term performance." Mr. Cleave acknowledged the bank has been slow to join in the merger fray, but said it's a matter of policy since HSBC would have to pay cash and is not prepared to pay more than two times book value. HSBC is also prepared to walk away from any deal if it believes the price is too high, he said. "Our long term aim is to be a much bigger institution than we are today but we're prepared to take a measured approach," Mr. Cleave said, noting that it took HSBC nearly 10 years to complete its acquisition of Marine Midland after its initial bid in 1978. To be sure, Mr. Cleave has had little time to think about acquisitions since joining Marine in 1992 from Hongkong Bank of Canada, where he was president and chief executive. His time has been devoted to cost-cutting, restructuring, and improving Marine Midland's product range, earnings, and corporate image. "It was widely known that Marine had a troubled franchise," Mr. Cleave said. "I've put a high degree of importance on improving that image." Acquisition of National Westminster Bancorp would give Marine 300 more branches in New York and New Jersey and help diversify revenues through National Westminster's large, fee-based mutual fund processing business. A deal would also cap a slow but steady turnaround at Marine since its most recent bout with bad real estate loan losses and over $200 million in losses on leasing operations. The product of mergers of several upstate New York banks, Marine hit the skids in the 1980s when it tried to convert itself into a money-center bank with expanded wholesale and international lending from a New York City sub- headquarters. Badly burned during the Third World debt crisis, the bank retrenched to the local market, only to get burned again by hundreds of millions of dollars in bad real estate loans. Marine slashed assets to $16.5 billion from $27 billion between 1990 and 1992, while the employee head count fell to about 8,500. Commercial lending was scaled back, and Marine left the auto finance business. After getting $500 million in fresh capital from HSBC over 1991 and 1992, Marine abandoned plans to become a superregional banking force. It retrenched to consumer, small-business, and middle-market lending in New York State, in competition with giants like Keycorp, Fleet Financial Group, Citicorp, Chemical Banking Corp, and Chase Manhattan Corp.; with Onbancorp and Rochester Community Savings Bank, which are thrifts, and such nonbanks as General Motors Acceptance Corp. Marine's wholesale and international operations, including foreign exchange and treasury operations, have been progressively transferred to Hongkong and Shanghai. Not all the actions taken wound up having the desired result. "The staff reduction and compression of management layers has caused frustration among officers as to career prospects and career progression," Marine's strategic plan said. "It has also left many business areas with many fewer staff and, more importantly for the future, staff sometimes inappropriate for the job to be done." Still, results have improved dramatically since 1992. The bank reported a 33% increase in third-quarter earnings, to $76.6 million, and a 26% increase for the first nine months of the year, to $211 million. Common equity rose to 8.19% of total assets from 6.97% a year earlier, while assets jumped by $2 billion, to $19.6 billion, partly due to the absorption of Concord Leasing and partly from core operations including residential mortgages, credit cards, and commercial and student lending. Meanwhile, the bank's efficiency ratio, the relationship of operating costs to revenues, fell sharply to 55.6% from 66.5%, placing Marine among the most cost-efficient in the country. Mr. Cleave's has also spent time linking Marine's operations to the trade finance, corporate, and capital markets operations in the U.S. of Hongkong and Shanghai and its London subsidiary, Midland Bank. The three HSBC affiliates remain separate but have offices in the same building in downtown Manhattan. The goal, Mr. Cleave said, is to handle the business of any of the three banks' customers in a "seamless" fashion across the network. Analysts give Marine high marks for its progress to date. But some say the bank still lacks focus and has done little except copy other banks. "They've cleaned up the balance sheet but I'm not sure they really have a differentiating strategy," said Mark Gross, an analyst with the bank- rating agency IBCA. Others wonder if HSBC's cost-consciousness and conservative approach to expansion might backfire. "Marine's getting left behind and it doesn't help to publicly state you're not going to pay above a certain level before you've even begun negotiating for something," said a source close to the bank. "By the time they understand that people are overpaying for acquisitions because they're getting long-term market share in exchange, there may not be a lot left to acquire."

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