Is Chase Manhattan Corp. likely to merge with a big U.S. regional bank?
Investor Michael Price's disclosure last week that he has amassed a 6.1% stake in Chase has renewed speculation that the big New York bank might be the target of an aggressive acquirer.
Analysts remain divided over whether Chase will stay independent by reorganizing internally or succumb to the wave of consolidation sweeping the banking industry.
"This has certainly focused people's attention," remarked David Berry of Keefe, Bruyette & Woods Inc. He singled out BankAmerica Corp., NationsBank Corp., and Chemical Banking Corp. as the three banks that would fit best with Chase.
"Acquisition of Chase would move Chemical's New York banking business decisively into a No. 1 position and would preempt entry by another strong player into the region. There would also be substantial cost-saving opportunities in a variety of processing, corporate banking, and retail product business," Mr. Berry noted.
Chase's mortgage banking, retail, credit card, and corporate businesses, as well as its Infoserve unit would all fit relatively easily into Chemical's operations, giving the new bank enormous economies of scale, he added.
Mr. Berry, who predicted that any one of the three banks might pay between $55 and $65 a share for Chase, (the bank's stock was trading at $42.75 late Friday), added that BankAmerica might also be a candidate.
"Bank of America has got major ambitions in the corporate banking business, and getting Chase's network would be lovely," he said. "Their (Chase's) 50-country network is not something anyone is going to be able to build from scratch."
Chase executives were unavailable for comment, but analysts said that even if a merger with a large U.S. regional makes sense, it is not likely to happen for several years.
"This management will fight tooth and nail to stay independent," remarked Lawrence Cohn of PaineWebber Inc. "They're not going to going to give up easily."
Judah Kraushaar of Merrill Lynch & Co. agreed. "Chase has within its power to increase its return on capital and would do anything to quiet potentially disgruntled shareholders," he said. He and others predicted that rather than rush into the arms of a potential suitor, Chase would first opt to boost return to shareholders by stepping up its cost-cutting program, and by attempting to buy back its own shares on the open market.
In a pinch, Mr. Kraushaar added, the bank might sell off its branches in the New York metropolitan area.
But improving earnings at Chase might not be all that easy. "The market really misunderstands just how difficult a position Chase is in," said PaineWebber's Mr. Cohn. "You can look at the returns Chase is generating and say they should be higher, but the fact is Chase is the most wholesale oriented of the wholesale banks, and that business is horrible.
"It's a perfect example of a bank locked into a business at which they are terrific but returns are inadequate."
Potential suitors have yet to step forward. Spokespersons at BankAmerica, NationsBank, and Chemical declined to comment on what they termed "market speculation."
While analysts like Raphael Soifer at Brown Brothers Harriman said the superregionals are currently more interested in expanding their existing franchises than merging with Chase, the idea is not all that far-fetched. "Three to five years down the road, some of the big national players are going to look at New York City and say: Gee, there are millions of customers there," Mr. Soifer said.
"And at that point, some of the New York institutions might well come into play."