Two highly regarded superregional banks - KeyCorp of Albany, N.Y., and U.S. Bancorp of Portland, Ore. - held merger talks last year but were unable to come to terms on a deal, the American Banker has learned.
The talks began in August and culminated in October with a meeting between Victor J. Riley Jr., KeyCorp's chief executive, and Roger L. Breezley, his counterpart at U.S. Bancorp. The two executives met secretly at the Hilton Hotel near Chicago's O'Hare airport.
Mr. Riley confirmed the discussions in a telephone interview Tuesday night. He said he ended the talks after concluding the deal would not benefit his stockholders.
Mr. Breezley, who is understood to have initiated the discussions, declined to comment.
No New Talks Foreseen
Additional details were gleaned from sources close to the negotiations.
KeyCorp, which had about $23 billion in assets at the time, and U.S. Bancorp, Oregon's biggest banking company, with $19 billion in assets, are not expected to resume merger discussions.
Indeed, Mr. Riley said he now is interested only in buying banking outfits with less than $15 billion in assets.
Earlier this year KeyCorp agreed to acquire Tacoma-based Puget Sound Bancorp, with $5 billion in assets, as well as $1.5 billion in deposits to be divested by BankAmerica Corp. in Washington state.
Acquiring U.S. Bancorp, which is the third-largest bank in Washington, would now pose serious antitrust problems, analysts said.
In his 18 years at the helm, Mr. Riley has eschewed large deals. Still, he has managed to transform KeyCorp from a sleepy upstate New York banking company into a superregional with operations in eight states. Many of KeyCorp's subsidiaries are small community banks in remote places such as Vinalhaven, Maine, or Hoonah, Alaska.
Solving Each Other's Problems
But a megamerger of KeyCorp and U.S. Bancorp would have solved some major problems for both banking companies, according to a source involved with the potential deal.
At the time, KeyCorp was looking to expand its market share in the Pacific Northwest. U.S. Bancorp, meanwhile, was looking to expand outside the region, where it believed its growth opportunities were limited.
Equally important, the source said, the deal would have given Mr. Riley a solution to who would succeed him.
Mr. Riley, 60, and his No. 2 officer, William H. Dougherty, 61, are expected to retire in the next few years. Last summer, there were no heirs apparent. An orderly transition of power to Mr. Breezley, 54, and his No. 2, Edmund P. Jensen, 54, would have solved that problem.
In fact, the merger talks progressed far enough that it was widely assumed by participants that the headquarters of the merged companies would be in Portland.
Since then, Mr. Riley has hired James R. Waterston, 51, former vice chairman at Commerica Inc., to be group executive vice president and a possible heir.
Had the deal been struck, it would have created a powerhouse banking company with a sizable presence on both the northwestern and northeastern coasts.
The resulting institution would have had about $42 billion in assets, making it the nation's 16th-largest bank holding company.
Mr. Riley owns 412.293 shares in stock and options. Based on KeyCorp's afternoon trading price of $33.125 a share, his current holdings are valued at about $13.7 million.
By comparison, Mr. Breezley owns 220.919 shares in stock and options. Those are currently worth about $5.4 million.