Megamerger Announcements Raising the Specter of Monopolies
WASHINGTON -- A wave of big mergers, promoted as crucial to building a strong U.S. banking system, is fueling fears in Congress and among consumer groups of a return to financial monopolies or cartels.
"People don't realize what they are unleashing when you have this kind of concentrated power," said Peggy Miller, legislative director of the Consumer Federation of America.
This antitrust sentiment, deep-seated in a nation traditionally suspicious of big finance, could cause a backlash against bank reform this fall, analysts said.
Conditions on Mergers Seen
Although Wall Street analysts and lobbyists doubt that antitrust concerns would derail legislation to allow U.S. banks to branch nationwide, they said it probably would prompt Congress to impose stiffer conditions on mergers.
"Prospects of a wave of megamergers of this size will concentrate the mind of Congress wonderfully," said Karen Shaw, bank analyst at the Institute for Strategic Development.
Until three big bank mergers were announced in the past month, most analysts and lobbyists thought nationwide banking was one element of the Bush administration's bank reform package that was bound to win passage this fall.
Markets Shares Rise
That was before Chemical Banking Corp. and Manufacturers Hanover Corp. announced merger plans that would give them control over 19.1% of New York State's bank deposits, according to Federal Reserve data.
Then C&S/Sovran Corp. and NCNB Corp. announced a merger. In South Carolina, that would concentrate 30.6% of bank deposits in the new NationsBank.
BankAmerica Corp. plans an even bigger merger with Security Pacific Corp. In Washington State, it would control 48.5% of bank deposits and in California 29.9%, the Fed's most recent data show.
"Concentration of economic power in the hands of larger institutions raises some very big concerns," said Ellen Lamb, spokeswoman for the Conference of State Bank Supervisors.
Deals to Leave Many Jobless
States face the threat of huge job losses -- possibly up to 15,000 with the BankAmerica merger -- loss of state revenues, and loss of community control over local finance, she said.
Norman Jaffee, an analyst at Fox-Pitt Kelton Inc., said he doubts these concerns will prevent mergers, but may delay them.
He and other analysts said that, faced with these big mergers, Congress is far more likely to impose restrictions on market concentration as a condition of mergers, and strict community reinvestment standards in any bank reform legislation.
Dissent within Administration
Even within the Bush administration, there is dissent over antitrust. The Justice Department irked the Federal Reserve and Treasury when it required Fleet/Norstar to divest some Maine branches when it acquired failed Bank of New England.
The administration has formed an interagency task force to study market concentration. Fed Vice Chairman David Mullins said the Fed will assess all deposits, not just bank deposits.
The Senate Banking Committee's reform bill proposes limiting market share to 30% of insured deposits.
Despite these concerns, most analysts say that with more than 12,000 banks in the United States, the industry will remain fragmented.
"The big players will still have only 3% to 4% of the market," said Lowell Bryant, a bank analyst at the consulting firm McKinsey & Co. Catherine England of the Cato Institute said small banks would survive as specialists.