Market Frowns on Society And First of America Deals

The rich acquisition prices announced in a pair of midwestern bank mergers unveiled last week are leaving some investors a little poorer.

Stock of First of America Bank Corp. has fallen 12.3% since the Kalamazoo, Mich., bank said it would acquire Security Bancorp, Southgate, Mich. Shares of Society Corp., Cleveland, have dropped 8.3% in value since it agreed to buy rival Ameritrust Corp. Both combinations will clip the acquirer's book value per share by 10%.

Healthier Banks Cost More

"This has probably put the banks of the whole area on notice that any deals being done will have to pay for themselves," said a bank analyst for a mid-western securities firm.

Dilution was not a big issue in the three midsummer megamergers that rekindled Wall Street's romance with banking consolidation. But midwestern banks have fewer of the asset-quality problems that plague Security Pacific Corp., Los Angeles, which is being acquired by BankAmerica Corp., or C&S/Sovran Corp., which has agreed to be bought by NCNB Corp. Hence, the midwestern banks's assets drew larger premiums.

Most midwestern financial institutions and the markets they serve have only very slight resemblance to Chemical Banking Corp. or Manufacturers Hanover Corp. These two New York City money-center banks -- both suffering from anemic capital ratios -- are planning to join forces.

"All of these proposed mergers have sprung from the need to correct a weakness on the part of at least one of the participants," said Kenneth F. Puglisi, senior vice president of Keefe, Bruyette & Woods Inc., New York.

The relative absence of similar problems among midwestern banks, while good news in itself, also means that deals among banks in this region are motivated less by what Mr. Puglisi termed "survival considerations." Thus owners and managers of banks being acquired are less willing to lower their asking prices.

Competition from |Big Four'

Instead, mergers among banks of the Midwest are driven by what the New York analyst said is "a perceived need by some regional banks to combine forces in order to compete effectively against the region's expanding |Big Four' banking powerhouses."

They are Banc One Corp., Columbus, Ohio; NBD Bancorp, Detroit; National City Corp., Cleveland; and Norwest Corp., Minneapolis. All have strong stock prices and as a result can pay for acquisitions they make with significantly lower dilution.

The best way for others to compete is through relatively large mergers of equals within the same markets. Besides Society Corp., Mr. Puglisi said, the banks in a position to enter such deals are Comerica Inc., Detroit; Huntington Bancshares, Columbus, Ohio; Star Banc Corp., Cincinnati; Summcorp, Fort Wayne, Ind.; and Mercantile Bancorp, St. Louis.

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