Wachovia Corp.'s deal with Central Fidelity Banks of Richmond, Va., has investors bidding up the stock of other banks in the region in anticipation of further consolidation.
Shares of Crestar Financial Corp. jumped $1.25 Tuesday, to $41; First Virginia Banks Inc., 75 cents, to $59.50; and Riggs National Corp., 62 cents, to $20.375. In fact, most bank shares rallied from Monday's plunge.
News of the acquisition "is definitely lifting other Virginia banks," said Angelina Billon of Johnston Lemon Research, Washington.
With its deal to buy Central Fidelity, and another transaction announced two weeks ago to acquire Jefferson Bancshares of Charlottesville, Va., Wachovia would become the No. 1-ranked bank holding company in Virginia in terms of deposit market share.
If other big banking companies operating in the area, such as NationsBank Corp., First Union Corp., and Crestar want to maintain their positions, they must follow suit and bulk up, Ms. Billon said.
"More consolidation is likely, and premiums will be high," she said, noting that Central Fidelity went for three times book value.
"People will continue to pay premiums for franchise value and market share, particularly as players get fewer and fewer," Ms. Billon said.
Smaller institutions were overlooked in Tuesday's market, as investors focused on companies in Central Fidelity's peer group.
However, Ms. Billon said likely Virginia takeover targets in the smaller range include Life Bancorp of Norfolk, which she rates "outperform," and George Mason Bankshares of Fairfax, which is also rated "outperform."
George Mason's shares rose 50 cents, to $26, on Tuesday. Life Bancorp shares rose 75 cents, to $24.75.
Analyst Anthony Davis of Dillon Read agreed that NationsBank, with a 13.5% market share in Virginia, and First Union Corp., with 9.6%, would likely add to their franchises in the state.
He said First Virginia, in northern Virginia, would likely be on Wachovia's radar screen.
While Crestar is the most attractive franchise in the state, Mr. Davis said he suspects a newcomer is most likely to make a play for the Richmond company, whose large market share would raise antitrust issues for Wachovia and NationsBank. He named Banc One Corp. and PNC Corp. as possible acquirers.
Mercantile Bankshares of Baltimore could attract an offer from Crestar, whose "clear No. 1 priority is to get more presence in Maryland," Mr. Davis said. Crestar announced Monday that it would buy tiny American National Bancorp of Baltimore.
Though Riggs could be in play, Mr. Davis said, its focus on corporate banking makes it less attractive.