The planned merger of BankAmerica Corp. and NationsBank Corp. could dramatically reshape the huge market for syndicated corporate loans, intensifying competition in the top ranks and hastening the rise of "one- stop shopping."
In a vivid illustration of how heavily the new BankAmerica might influence competition throughout banking, the company could well challenge Chase Manhattan Corp.'s long-standing leadership in syndicated lending. Chase now controls more than 40% of the market.
NationsBank and BankAmerica together generated some $94 billion of syndicated loans in the first quarter, not double-counting deals both helped run. That was just $24 million shy of Chase's volume, according to Securities Data Co.
"We are exactly in the power alley we want to be in," said Thomas W. Bunn, senior managing director of debt structuring and leveraged finance at NationsBank.
The merger deal comes as Chase, BankAmerica, NationsBank, and other big players are promoting themselves as providers of all corporate finance services-from lending to securities underwriting to merger advice. A BankAmerica-NationsBank merger could bring one-stop shopping to more customers in more cities and towns, observers say.
"The big story is from the client perspective," said Jim Davis, president of Loan Pricing Corp. "It's very good from a one-stop shopping view, and for clients' ability to get good advice on a global basis."
Mr. Bunn said the client lists of the merger partners are "very complementary." He added, "I think when you look at transactions where their agent-only strengths are combined with ours, you'll see together we dominate various industries such as health care, media-telecommunications, and technology."
Meanwhile, the emergence of dueling titans at the top of the industry could realign relations among the roughly 25 banks and Wall Street firms that handle the bulk of syndicated loans.
In a business that requires an unusual degree of cooperation among lenders, most of the players have worked closely with Chase at one time or another. Chase's leadership of the market has been so complete that James B. Lee, the Chase vice chairman who oversees the effort, has become the personification of syndicated lending. Some people call the field "Jimmy Lee's World."
Chase declined to comment on the megadeal.
Chase-which had a hefty 43.1% of the syndicated loan market last year, with $474.3 billion in proceeds-would have had 10% more of the market than the pro forma market share of NationsBank and BankAmerica. But together NationsBank, the fifth-largest player, with $197.9 billion, and BankAmerica, the third-largest player, with $223.6 billion, would have easily nudged J.P. Morgan from second place.
Though rivaling Chase in size in syndicated lending, the new BankAmerica would probably pursue a distinctly different approach. The two merger partners-with combined corporate lending headquarters in San Francisco, Chicago, and Charlotte, N.C.-have tended to focus on middle-market customers. That often results in relatively leveraged loans with higher profit margins.
Chase, by contrast, bases its syndicated loan effort in New York and tends to focus more on large, investment-grade loans.
Indicative of the differences in deal sizes, NationsBank and BankAmerica were lead agents on 201 syndicated loans-60% more than Chase's 125.
Highwood Properties Inc., a Raleigh, N.C.-based real estate investment trust with a market cap of $3.4 billion, is an example of the type of smaller customer courted by both NationsBank and BankAmerica. Both banks participated in the REIT's most recent syndicated loan for $280 million.
Highwood's chief financial officer, Carman Liuzzo, said he thinks the pending merger of the two big banks would be a positive for companies such as his.
"We'll have all of the additional firepower of the combined bank," he said.
David Berry, a bank equity analyst with Keefe, Bruyette & Woods Inc., cautioned that looking at league tables on a pro forma basis can only tell observers so much.
"Bank of America and NationsBank obviously reflect two loan origination groups," Mr. Berry said. "I'm not sure in real life what these numbers would have looked like if they had been one."
While some analysts are predicting cuts in the syndicated lending staff wherever there is overlap between NationsBank and BankAmerica, Mr. Bunn said he views syndicated lending as a growth area for the merged bank.
It still unclear which executives would manage the combined syndicated loan departments. Mr. Bunn's counterpart at BankAmerica is Keith Barnish.
BankAmerica is no newcomer when it comes to integrating a large syndicated lending operation. The San Francisco-based bank boosted its corporate and wholesale banking efforts in the Midwest four years ago when it purchased Chicago-based Continental Bank Corp. for $1.9 billion.
Since then, BankAmerica has used its toehold in Chicago to expand its middle-market presence in the Midwest, putting commercial lenders in key cities throughout the region, such as Detroit, Minneapolis, and Cleveland.
This tactic could be extended into the South and Southwestern regions penetrated by Charlotte, N.C.-based NationsBank, giving the combined bank a strong middle market presence in all the major regions outside of the East Coast.