Jersey Is Likely As Next Locale In Merger Wars

A summer of mergers among the mighty is likely to be followed by a fall of consolidation among smaller bank companies in the Middle Atlantic states, according to well-placed banking sources.

Battle lines between hunters and hunted have already been drawn. The battlefield, in most cases, lies in New Jersey, where a weak economy is forcing many banks to strengthen themselves quickly or risk failure.

Merger, for those that have the option, is seen as the most efficient route for survival.

The bank most frequently cited as a buyer is Philadelphia's CoreStates Financial Corp., the second-largest bank company in Pennsylvania. CoreStates has been amassing an acquisition war chest, and its executives have publicly stated a desire to grow to $100 billion in assets from its present $23.5 billion.

Courtship of CoreStates

CoreStates, according to sources, has had preliminary takeover talks with at least three Middle Atlantic banks - UJB Financial Corp. in Princeton, N.J.; Midlantic Corp. in nearby Edison; and MNC Financial Inc. in Baltimore.

Both Midlantic and MNC, Maryland's largest bank company, are in the middle of a drawnout, government-supervised effort to avoid failure by building capital and shedding assets. Most observers believe that their only hope for survival is to attract a stronger bidder.

UJB, the parent of United Jersey Bank, is in less dire shape. Merger with a neighbor, not acquisition, is a more likely outlook for the company.

Terrence Larsen, chairman of CoreStates, has had face-to-face discussions this summer with his UJB counterpart, T. Joseph Semrod, according to a source close to CoreStates.

Another Suitor

But UJB is being stalked by at least one other in-state player, First Fidelity Bancorp., Newark.

Anthony P. Terracciano, chairman and chief executive of New Jersey's largest bank company, also has met head-to-head with Mr. Semrod to discuss an unsolicited bid, according to Wall Street and banking sources.

"UJB is a prime target," said John Works, an analyst with Keefe, Bruyette & Woods. "They are one of the more logical candidates for acquisitions in the region."

For the first six months of 1991, UJB, New Jersey's third-largest bank, has earned $5.9 million. That's down considerably from $31.1 million the year before, but it also marks a return to profitability after two losing quarters. It also commands about 11% of the retail deposits in New Jersey.

Close Look at the Books

A CoreStates due diligence team, meanwhile, has already scoured the books of UJB and Midlantic, one source said. A spokesman at UJB denies that any bank has examined its financials. Midlantic officials would not comment.

Midlantic is New Jersey's second-largest bank company.

First Fidelity, which itself is on the mend, also has looked at the books of MNC and Midlantic. The company's reach, however, may at this time exceed its grasp. In spite of a recent cash infusion from Spain's Banco Santander, observers question aquisition now.

Indeed, First Fidelity itself is occasionally rumored to be near the head of Bank of New York Co.'s acquisition list. A well-placed banking source, however, says no serious talks between the two have occurred.

No Comment

Officials at CoreStates, First Fidelity, UJB, and Midlantic declined to comment.

The takeover tango proceeds on the heels of announced mega-deals between Chemical Banking Corp. and Manufacturers Hanover Corp. in New York, BankAmerica Corp. and Security Pacific Corp. in California, and NCNB and C&S/Sovran Corp. in the Southeast.

While some powerhouses such as CoreStates want to build their revenues through growth, most banks within the region feel a need to consolidate for a simpler reason: To defend their turf.

With nationwide banking a strong possibility, big banks from other regions may seek acquisitions in New Jersey and Maryland. BankAmerica and Banc One Corp., for example, have done a partial examination of the portfolio at MNC, said a source close to the Maryland bank.

While a government-assisted takeover is the most likely scenario for MNC, analysts believe, the entrance of a West Coast or Midwestern bank to the region could hamstring the growth of the remaining Middle Atlantic bank companies.

For CoreStates, a big move into New Jersey would be a natural step. With 100 branches in that state, the Pennsylvania bank can approach an acquisition as an in-market buy. As a bonus, New Jersey is in the same television market, an aid in advertising.

MNC Financial could be a wild card. Its huge portfolio of sour loans remains a big stumbling block to any acquisition. But the bank retains a retail and small-business franchise that is attractive.

CoreStates, which does middle-market lending in Maryland, has approached MNC through intermediaries and examined parts of its loan portfolio, said several sources close to the banks.

Talks With Three Others

BankAmerica, NCNB, and Banc One also have held preliminary discussions with the bank and its investment bankers, sources said.

The best way for MNC to pretty itself for sale may be by spinning its bad assets into a so-called bad bank. MNC has been working with its investment banker Goldman Sachs & Co. on devising a way to do just that.

The banking company established South Charles Realty Corp. in January as a possible first step to establishing a bad bank. South Charles recently took control of $1.8 billion in nonperforming loans still on the books of MNC's American Security Bank and Maryland National Bank.

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