With merger mania at full roar, a rumor that East could soon meet West with a pairing of NationsBank Corp. and BankAmerica Corp. is getting a respectful hearing in the marketplace.

"This would be a breakout transaction during a summer when anything is possible," said David Berry, director of research at Keefe, Bruyette & Woods Inc.

"Implicit in both companies' names is ambition for full national banking," he added. "It is hard for NationsBank to get out west, and it is hard for BankAmerica to get east. This would solve the problem."

Clearly, the buzz about this deal is speculative. In fact, some say BankAmerica and NationsBank are more likely to compete as suitors for Chase Manhattan Corp. than to merge with each another. Neither bank would comment on the possibility of a deal.

Giving momentum to such talk, however, is a persistent but unconfirmed rumor that NationsBank chairman Hugh McColl and the retiring chief executive of BankAmerica, Richard Rosenberg, met recently to discuss a deal.

It would certainly be precedent setting.

The blockbuster would create a company with 3,783 branches, $410 billion of assets, and $35 billion of market capitalization.

It also would produce a return on equity of 13.87% and earnings per share of $5.97 per quarter, according to a pro-forma analysis performed for American Banker.

A NationsBank-BankAmerica combination would create a dynamic and truly national bank, one with a significant presence in two-thirds of the country and the heft to compete internationally with the European and Japanese megabanks.

Mr. Berry said the deal would save the combined entity $800 million a year if savings came in at 6%, a conservative rate.

"Geographically it would be perfect for both sides; it would obviate the need to waste a lot of money to try to build their respective coast presences," said Jean-Luc Servat, a San Francisco-based investment banker with Alex. Brown & Sons.

Skeptics point out that in recent months, while mergers have swept the banking industry, the normally acquisitive BankAmerica has been silent.

Unlike most of its peers, the bank has yet to unleash a broad cost- cutting program, and some say it is looking inward for cost savings, rather than considering a merger. An investment banker familiar with BankAmerica said internal studies showed it could save $1 billion pre-tax in the first year of an internal cost cutting.

What's more, BankAmerica's chief financial officer, Louis Coleman, is publicly hesitant about his bank's national ambitions. He said last month he would not sanction a deal for twice book value - the current going rate for most large banks.

Instead, BankAmerica of late has focused on nonbank acquisitions. It is said to be interested in expanding into commercial and consumer finance.

There are also doubts as to whether NationsBank would be a willing partner. Some point out that for Mr. McColl to take the helm of an American banking giant in San Francisco, he would have to leave the 60-story, pink marble headquarters his critics have nicknamed the "Taj McColl."

"How can you do a merger of equals with Hugh McColl? It is almost a contradiction in terms," said George Salem of Gerard Klauer Mattison.

Mr. Salem said the rumors may have started because the two banks combined to buy a personal finance software company from H&R Block Corp. in early July.

A more likely deal, in his view, would be a Wells Fargo & Co. acquisition of First Interstate Bancorp. "Wells and First Interstate need each other to maintain competitiveness, generate cost savings, and add customers, revenues, and profits," he explained.

"Our proposed merger," he added, "would put new life into the earnings outlook and create a powerhouse company to compete in the new world of larger and stronger banking companies."

Still, NationsBank publicly voiced a desire to expand westward a few years ago, and is said to be champing at the bit to get in on the merger action.

NationsBank's stock has not improved much in five years, and the bank's low price of about 1.32-times book value would make it tough to pull off the megamerger Mr. McColl is said to be aching to do. Given that, a merger of equals can't be ruled out.

With Mr. Rosenberg expected to retire, hammering out a management team for the merged banks might not may not be as difficult as in other mergers of equals.

Mr. Coleman had been the front-runner to succeed Mr. Rosenberg, but the situation has grown murky with speculation centering on Frank Newman, a former BankAmerica executive who recently resigned from the No. 2 post at the Treasury Department.

Those advancing the notion of a NationsBank-BankAmerica say Mr. McColl would be all too willing to solve that succession problem.

In other news, bank stocks rallied, while the overall market first rose on news that Japanese economic reforms had helped lift the dollar, and then fell as a result of heavy programmed selling.

The Standard & Poor's index of major banks rose 0.59%, while the overall S&P fell 0.15%.

Money-center banks, with large trading operations that could benefit from a stronger dollar, fared particularly well. Chemical Banking Corp. shares rose $1.375 to $52.375, and Citicorp stock rose 87.5 cents to $62.625.

Barnett Banks Inc. rose 75 cents to $55. Golden West Financial rose 87.5 cents to $46.875 after the Oakland, Calif.-based thrift announced a major extension of its share repurchase program, saying it would purchase up to an additional 10% of its common shares outstanding.

This would allow management to purchase another 5.9 million shares, an expenditure of $276.56 million based on Wednesday's close.

The repurchases will be in addition to the 6.3 million shares previously authorized, 92% of which have already been repurchased.

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.