Rumors Friday suggesting that SouthTrust Corp. of Birmingham, Ala., was close to being snatched up by BB&T Corp. of Winston-Salem, N.C., lost some steam.

An article that appeared in Friday's Atlanta Business Chronicle, citing unnamed industry sources, said the two were in talks to hammer out a deal. SouthTrust, however, was quick to deny the report. And BB&T said it does not comment on rumors. "Our view on this is the article has no merit," said Timothy Schools, vice president of investor relations at SouthTrust. "We're not talking to BB&T today, and we don't have any intention of talking to them in the future."

The news sent shares of SouthTrust up nearly 8% at one point in early trading, but the price leveled off and closed at $25.8125, up 2.74% over Thursday's close. SouthTrust shares were trading at more than twice its average daily volume at roughly 1.8 million shares.

Analysts said some aspects of such a deal might make sense, but were skeptical about it coming together.

"I think the BB&T rumor is a little bit of stretch," said John Balkind, an analyst with Fox-Pitt, Kelton Inc. "BB&T just closed their One Valley [Bancorp] transaction and they have a stated moratorium on deals until August - at the earliest. They've still got some significant integration and to throw SouthTrust on top of that poses some risk."

Mr. Balkind said a deal between the two would make sense geographically. It would give BB&T access to Florida and strengthen its position in other southern states, he said. But based on the size of recent deals BB&T has completed, a large buy like SouthTrust would not seem to fit.

"This would be outside of BB&T's bread-and-butter deal size, which is $500 million to $10 billion in assets," he said.

John B. Moore, an analyst with Wachovia Securities in Charlotte, N.C., said a union between the two companies makes sense geographically, culturally, and in terms of market size, but "a deal like this would be very tough to put together."

The two analysts agree that SouthTrust, at some point, is a logical takeover target because no long-term leadership is lined up to succeed chairman and chief executive officer Wallace D. Malone Jr. when he retires in the next few years.

Meanwhile, bank stocks gained after government data Friday suggested that the Federal Reserve might not raise interest rates at its meeting in August.

The American Banker index of the 50 largest banks rose 2.77%, while its index of 225 banks rose 3.17%.

The Labor Department reported that the U.S. unemployment rate fell to 4% from 4.1% in May and businesses added fewer jobs then expected. Businesses added 206,000 jobs after losing 165,000 a month earlier. So far this year, businesses have added an average of 177,000 jobs a month, compared with 202,000 a month for all of last year. The numbers suggest that the Federal Reserve's six interest rate hikes in the past year have slowed down the economy.

"There are some whiffs of economic slowdown," said Sung Won Sohn, chief economist at Wells Fargo & Co. "The labor market is drum tight, which is boosting wages at a healthy clip. The economy has certainly slowed, but the question is: has it slowed enough to satisfy Chairman Greenspan? This rally is premature; we cannot rule out a 25 basis hike in August."

Tania Padgett contributed to this report.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.