Shares of National City Corp. and KeyCorp reacted sharply Wednesday to merger rumors.
KeyCorp shares gained 7.29%, to $34.9375, and National City fell 2.07%, to $71.125, on talk of a pairing that would create the ninth-largest U.S. banking company, with $164 billion of assets before divestitures.
Analysts estimated KeyCorp would fetch $19 billion to $24.6 billion.
The two Cleveland companies had once been thought to be potential partners in a merger of equals, but KeyCorp's performance has made it a target, some analysts said.
Carla D'Arista of Friedman Billings Ramsey & Co. noted KeyCorp's "inability to translate the strategy initiatives in technology into shareholder returns" and its "geographically disparate" operations.
The combined company would face a number of large divestitures to avoid antitrust issues, particularly in Cleveland where both banks are based and other cities in Ohio, observers said. It would hold 46% of Cleveland deposits. KeyCorp is the largest bank in Ohio, and National City is the third-largest.
Analyst Michael Plodwick of Lehman Brothers said he would have discounted a rumored National City-KeyCorp deal before Fleet Financial Group decided to buy BankBoston Corp. In that deal, large divestitures are planned.
National City is believed to have wanted to buy Mercantile Bancorp. of St. Louis but couldn't pay the price the seller wanted. Firstar Corp. of Milwaukee struck a deal with Mercantile this month.
National City chairman David A. Daberko said in a recent interview that he would consider merging with a like-sized company if it had complementary businesses.
Neither KeyCorp nor National City was available to comment on Wednesday's trading.