NationsBank has been on an acquisitions tear this year. Aside from its highly publicized deals-totaling $29 billion in cash and stock-for Boatmen's Bancshares, Montgomery Securities, and, most recently, Barnett Banks, the Charlotte, NC-based institution paid just over $2.5 billion for another six banks and an equipment leasing operation, adding about $16.6 billion in assets to its balance sheet.

As a result, NationsBank will be this country's third-largest bank when the Barnett deal closes, with $290 billion in assets-just behind Citicorp, with $300 billion in assets at the end of the third quarter, and Chase Manhattan Bank, with $350 billion in assets in the same period.

Not bad for a bank that was a regional institution, tucked away in a smallish North Carolina city, as recently as 1991, when the NCNB Corp. merged with C&S/Sovran Bank and changed its name. But such torrid growth begs the question of where NationsBank is headed, and whether it can get there.

Many banking analysts-NationsBank officials declined to comment-think they know, and argue that it boils down to Hugh McColl Jr., NationsBank's CEO. "Hugh McColl is three years away from retirement, and it's fairly clear that by the time he retires, he wants NationsBank to be more than just a statement-he wants it to be a fact," says Richard Bove, a bank analyst with Raymond, James & Co. "This guy is an unusual man. There are very few people who have accomplished what he's accomplished, and we know what he wants."

As a result, NationsBank will be extraordinarily aggressive in acquiring other banks, so that it has full coverage of the United States within three years, according to Bove.

middle market strategy

In doing so, says Hal Schroeder, a senior vice president with Keefe, Bruyette and Woods, NationsBank will stick to its middle market strategy. "(McColl) is building on a retail and commercial base that's consistent with his existing franchise, (and) not trying to become a Citicorp or J.P. Morgan," he says. "There's a tremendous amount to be said for it, because it will be, after the building process, a nationwide franchise that will have tremendous cost advantages, and will be a very formidable competitor in virtually every major market in the U.S."

NationsBank's decision to not go after money-center banks didn't just happen, adds Bove. "They attempted it with a big options-derivatives-money market operation, aimed directly at the big banks, and it failed," he says.

The middle market strategy inspired this year's $1.2 billion Montgomery Securities deal. "What Montgomery represents is an attempt to go after (NationsBank's) base market," says Bove. "It made an enormous amount of sense, because Montgomery serves the same market that NationsBank does, so all NationsBank is doing is adding another product to the array that it already has."

Whatever NationsBank's final shape, it will get there through acquisitions, its normal modus operandi. Since the C&S/ Sovran deal in 1991, the bank has made 22 other acquisitions, including 13 since 1995, totaling some $32.7 billion. The big question: Does McColl's team overpay? This criticism has been oft heard, not least about its most recent prize, Barnett Banks, for which it paid four times book value.

When announced, the deal was spun mainly as yet another masterly chess move by McColl and company. But many industry sources contend that the Nations-Barnett deal was anything but carefully planned, being mainly a defensive move meant to keep competitors out of Florida.

Still others say that what seems to have really happened is that Barnett chairman Charles E. Rice had a "personal epiphany" during a rehab stay in the weeks prior to the announcement. At the same time, an unsolicited bid for Barnett was made (Speculation is that it came either from Wachovia Bank or NationsBank's crosstown rival, First Union Corp.). When he returned to the office, the thinking goes, Rice considered the bid, looked at his $33 million in Barnett stock and $40 million in stock options, asked himself whether the stock market would be as high in a year as it was then, and put the bank on the block. NationsBank bid highest, and then had to figure out how to make the numbers work.

trimming overhead costs

NationsBank says it will do so mainly by cutting Barnett-related overhead by 55 percent. But it may be kidding itself, says Nancy Bush, a bank analyst at Brown Brothers Harriman. "Mr. McColl said in the conference call (with analysts that) the 55 percent expense saves were the number they needed to do the deal," she says. "Ordinarily, you would reach a price for a company by looking at the fundamentals and looking at what you're going to get by expense saves, and that would drive the pricing decision. This pricing decision was driven the other way; the price came first, and the expense saves came next."

Others, though, think McColl's team can do it-mainly because mergers and acquisitions are a way of life at NationsBank. "Nations has been very consistent in predicting and delivering on cost savings," says Jim Moss, group vice president of the banking group at Duff & Phelps (D&P), the bond rating agency. "(Absorbing an institution) is a repetitive exercise; the names change, the systems change a little bit, but the exercise stays the same. The problems that you only pick up on through experience are second nature to companies like NationsBank."

Next stop, after digesting Boatmen's and Barnett: California and the Northeast, says D&P's Moss. "If you're going to say you have a national or quasi-national financial services franchise, it's going to be difficult to compete and take market share in those markets without a traditional, brick-and-mortar presence on the ground in those markets," he says.

Moss thinks such moves are likely to be dramatic. "They won't dabble in (those markets) via an acquisition. It would be totally contrary to what they've done in the past and the mandate that management follows," he says.

Among likely Northeastern targets, many cite CoreStates, Mellon, BancBoston, or Fleet; and in California, which has relatively few big institutions, probably Wells Fargo.

Appearing in California, of course, would bring Nations into direct competition with Bank of America, with which it already has several ongoing partnerships. But considering McColl's track record, the question in the executive suite at Bank of America has to be: Will Hugh McColl let sentimentality affect his business sense?

-reinbach tfn.com

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