May Was Merry Indeed For Top Cleveland Banker
Last month was the best in Edward B. Brandon's 35-year banking career.
The chairman and chief executive officer of National City Corp. in Cleveland said three things made May a big hit: He launched a bid to acquire a local rival, Ameritrust Corp.; he was elected chairman of the Association of Bank Holding Companies; and he began to believe that banking reform legislation would at long last pass Congress this year.
Of the acquisition, he said, "By definition, if you stand still the pack goes by. That's how Ameritrust got where they are. From 1975 to 1985 they stood still."
National City, which has $23 billion in assets, is proposing a pooling of interests in which each share of Ameritrust common would be exchanged for 0.66 share of National City common, or $24.25 at Wednesday's closing price of $36.75.
Savings of $125 Million Foreseen
National City estimates that the cost savings of this intramarket merger will be $125 million, and analysts are not challenging the figure.
"I think the numbers are kind of compelling," said Kenneth F. Puglisi, senior vice president at Keefe, Bruyette & Woods Inc., New York. "The combined operation would have a lot of muscle."
Mr. Brandon, 59, says Ameritrust's managers, who have not responded to the bid, will be hard pressed to produce similar savings by remaining independent.
"I think they ought to be very honest and circumspect because I somehow think the $100 million-plus saving is an awfully high hurdle for them to overcome on their own," he said in an interview this week.
Mr. Brandon said a hostile takeover attempt is "not out of the question" if Ameritrust turns him down. But, he added, "it would be very time-consuming and very value destructive."
"It's no secret we can pay 20% more on a pooling than a purchase."
Besides a cash payment, which will be required if the bid turns hostile, such a deal also would be taxed and would involve writing off about $400 million in goodwill over the next 20 years, Mr. Brandon said. Also, a purchase would need approval from 90% of the shareholders - no easy order.
Add to all this the fact that if the deal gets adversarial, National City will not get a chance to eyeball Ameritrust's loan portfolio, and the cards seem stacked against a hostile takeover.
"I don't want a Carter Bacot type fight," Mr. Brandon said, referring to Bank of New York Co.'s chairman, who, without invitation, went after and won Irving Bank Corp. in 1989. "People leave. People lose focus. People get preoccupied with the fight."
Reform Package Has Appeal
Meanwhile, as the head of an influential trade group, Mr. Brandon favors banking reform, particularly a provision in the current proposal that would allow banks to set up branches in other states.
"Interstate branching will do more economically for the banking industry" than any other proposed change, he said. He estimates that converting National City's subsidiaries into branches of a single bank would pare $35 million to $50 million of operating costs.
Mr. Brandon is also pushing for repeal of the Glass-Steagall Act and Bank Holding Company Act so banks can freely enter new businesses. But he is nervous that the House Banking Committee will derail the Bush administration's bill by adopting the core-banking idea, sponsored by Rep. Charles E. Schumer, D-N.Y. A banking company could be divided into a basic bank that takes insured deposits and invests in low-risk assets, and a deregulated institution with broader powers.
"We can't jump from square 1 to square 22 all in one leap," said Mr. Brandon. "I have no idea what the perfect solution is. I do know that every time Congress does something, it costs me money."
Rising Premiums Cause Concern
Mr. Brandon is also concerned that deposit insurance premiums will keep escalating. Congress and the press are exaggerating the costs facing the Federal Deposit Insurance Corp., he said.
"The industry is capable of paying for these problems," Mr. Brandon asserted. "And I don't think [the FDIC] needs any shock-treatment-type infusion."
Mr. Brandon was elected head of the Association of Bank Holding Companies at its annual convention in Chicago last month. "The ABHC is probably the most effective lobbying group we have for the billion-dollar and up financial institutions," he said.
Mr. Brandon joined National City in 1956 as a management trainee after earning an MBA from the University of Pennsylvania's Wharton School.