Their image tamished for years by real estate woes, Virginia banks are regaining appeal as takeover candidates.
The spark came from First Union Corp.'s announcement Monday that it would buy Roanoke-based Dominion Bankshares for stock valued on Wednesday at $810.8 million, or about 1.6 times book value.
"Virginia has been viewed as a black hole for the last couple of years," said Nancy Bush, an analyst with Brown Brothers Harriman & Co. "The First Union move, if nothing else, showed us there are people willing to go into that market."
Share Value Increases
Stock prices of Crestar Financial Corp. and Signet Banking Corp., the state's two largest banks, surged $1.50 a share Monday.
In late trading Wednesday, Crestar shares were at $30, up $1.50 from Friday, the business day before the First Union announcement. But Signet shares have lost most of the gain, trading at $37.50, up 25 cents from Friday.
Crestar and Signet, both based in Richmond, declined comment on takeover speculation.
Potential acquirers include First Union; NationsBank Corp., Charlotte, N.C.; Wachovia Corp., Winston-Salem, N.C.; and SunTrust Banks Inc., Atlanta.
Investment bankers said none of the large Virginia banks is eager to be acquired. And Crestar recently launched an aggressive acquisition program of its own.
Crestar and Signet offer an acquirer substantial statewide franchises. They are also considered vulnerable to takeover because both suffered real estate loan losses in the Washington, D.C., market.
"From a dilution standpoint, buying companies that are not operating at an optimal level of profitability is a hell of a lot cheaper than going after somebody who is knocking down on all eight cylinders," said Anthony R. Davis of Wheat First Securities Inc. in Richmond.
The premium that First Union will pay Dominion was slightly below an average 185% of book value for seven comparable recent transactions, according to Charlottesville, Va.-based SNL Securities.
Most Likely Target
Analysts disagreed on whether Crestar or Signet is likely to become the next target. Ms. Bush, at Brown Brothers Harriman, favors Crestar, which has $11.5 billion in assets, because "Crestar has a more purely retail branch network."
Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp. bets on Signet, which has $11.2 billion in assets. Signet is better fortified against problem loans, with an 85% ratio of reserves to nonperforming assets versus Crestar's 63%, he said.
Mr. Brown also believes an acquirer would be interested in Signet's $1.7 billion credit card portfolio, the 25th largest among bank issuers last year.
Virginia's two other large banks, Central Fidelity Banks Inc., Richmond, and First Virginia Banks Inc., Falls Church, rank low on most analyst takeover lists because of their excellent credit quality. Their shares trade at high multiples that would make an acquisition of either expensive.
Central Fidelity shares trade at about a 71% premium-to-book value, while First Virgina shares trade at about 80% above book value. In contrast, the premiums at Crestar and Signet are 25% and 36% respectively.