With Monday's pair of megamerger deals, the banking industry's headlong rush for size went supersonic.
The drive is being fueled by global changes in finance, the seemingly ceaseless bull market in stocks, and, in no small measure, peer pressure.
Just one week after Citicorp and Travelers Group unveiled the biggest merger deal in history, NationsBank Corp. and BankAmerica Corp. struck a $60 billion deal and Banc One Corp. and First Chicago NBD Corp. agreed to a $30 billion pairing.
The Citicorp deal clearly raised the stakes for everyone.
"I did feel the need to move forward," said David Coulter, chairman of BankAmerica. "There is a big strategic change going on in the financial services industry."
Said veteran bank analyst Thomas H. Hanley of UBS Securities: "The pressure to do deals has been building like water behind a dam, and now the floodgates are open. The stage is set for a couple of years' worth of activity in the coming months."
Wells Fargo & Co., which has struggled in the wake of acquiring First Interstate Bancorp, is now seen as an imminent takeover candidate by many analysts, with U.S. Bancorp the most likely buyer. Wells' stock surged $18.8125 a share on Monday, to $370.9375.
A number of other big regional banks could also sell or merge, including Mellon Bank Corp., KeyCorp, PNC Bank Corp., and BankBoston Corp. In addition, experts say, more big banks may soon link up with insurers or securities firms. The most touted prospect: Chase Manhattan Corp. teaming with Merrill Lynch & Co.
But it is not just the giants that are affected. Merger fever is sweeping virtually all levels of the industry.
Among the smaller banks, the pressure to do deals is so intense that auctions are frequently devolving into free-for-alls.
"If you want an institution, you may want to make your best bid and forget about the niceties of investment bankers and going through the auction process," said James J. Giancola, chief executive of CNB Bancshares, a $4.5 billion-asset banking company based in Evansville, Ind.
Though bigger institutions are being created from all this, questions remain as to whether better banks will emerge for communities and shareholders.
Though most U.S. banks are smaller than either European or Japanese institutions, American banks have been considerably more profitable than most banks abroad in recent years.
"David Coulter of BankAmerica said 'bigger is better,' and that's what is driving this transaction," said Lawrence W. Cohn, director of research at Ryan, Beck & Co. "I'm not as certain as he is about that, in all honesty. This deal doesn't destroy value, but it doesn't necessarily create value either."
Though the NationsBank-BankAmerica merger may have been spurred on by the Citicorp-Travelers deal, investment bankers say the sprint for size was well under way long before last week's blockbuster. Banking consolidation was uncorked after Congress relaxed interstate banking restrictions in 1994. But forces unleashed this winter triggered the latest frenzy.
Back in December, Union Bank of Switzerland and Swiss Bank Corp. said they would merge into one mighty central European bank, stunning the world, forcing U.S. bankers to notice that big players could emerge overnight just about anywhere. "That registered with a lot of bankers," said James J. McDermott, chairman and chief executive at Keefe, Bruyette & Woods Inc.
In October, Asia's economic crisis caused stock markets across the world to hiccup for several weeks. The shocks from distant places like Korea and Indonesia particularly punished big U.S. banks that do a lot of lending abroad.
The temporary, but unexpected, drop in stock prices "may have made CEOs realize that they're mortal," said H. Rodgin Cohen, partner at the New York law firm of Sullivan & Cromwell. That's because big mergers today are paid for with stock, not cash. As stock prices diminish, so does the ability of CEOs to strike deals.
Another big factor: the need to sew up deals in time to head off computer glitches associated with the year 2000.
Meanwhile, bank executives have come to see megamergers as a way to buy the revenue growth they cannot generate on their own.
"Bank investors are signaling CEOs that they want to see ongoing performance, meaning 15% annual earnings growth per share." said Robert A. Bonelli, president of Eagle Rock Financial Advisors, Roseland, N.J. "At the same time, the volatility of the market has shown CEOs that investors have become a fickle breed. It puts the onus on them to do something bold and consolidation is certainly bold."
He added that low unemployment rates nationwide softens the blow over firing employees to make mergers add to company earnings.
Giving investors what they want has led CEOs like Hugh L. McColl Jr. of NationsBank and John B. McCoy of Banc One to build companies of size unimaginable even four years ago. With 8.1% of the country's deposits after the merger is completed, NationsBank-BankAmerica would come much closer than any company to the 10% limit set by 1994's interstate banking law. First Union is the second-largest collector, with 3.8% of the nation's deposits.
The immense size of the companies after NationsBank and Banc One complete their latest mergers would make them forces to be reckoned with among the world's political and economic decision-makers, observers say.
"The political influence of these new companies, both domestically and internationally, will be dramatic," said Barry P. Taff, partner at the Washington law firm of Silver, Freedman & Taff.
Still, A. Gary Shilling, an economist and money manager in Springfield, N.J., expressed concern that banks could be rushing into mergers in frustration about revenue growth prospects and with exaggerated expectations concerning cross-selling of financial services.
"Some of these deals betray a sense of anxiety that there are fewer and fewer dance partners out there," he said. "But I wonder if they aren't being done in the hope of cutting costs, because the outlook for growth just isn't there. There is a a feeling that bigness amounts to safety from these trends."
As for cross-selling, its promise as a revenue generator has fallen short before, said Mr. Shilling. "Sears bought Dean Witter in hopes of gaining from a lot of cross-fertilization, but it did't work out."
Indeed, he warned that it may be outmoded department-store thinking in a boutique world, where more people can and want to pick and chose among providers of investment advice, transaction accounts, and other financial services.