Who's Next? Eyes Turn To Chase and Bank of N.Y.

NEW YORK - The megamerger announced Monday between Chemical and Manufacturers Hanover is likely to set off aftershocks that will fundamentally alter the landscape of the American banking industry.

"This merger, together with that of NCNB Corp. and C&S/Sovran Corp., are seminal events ushering in an era of consolidation," said Edward D. Herlihy, a New York lawyer working on the proposed NCNB deal. "Unquestionably, we are going to see a lot of deals over the next four to six months as bankers are forced to reconsider the go-it-alone approach."

The first ripples will probably be felt in New York by Chase Manhattan Corp., which was often mentioned in recent years as a possible merger partner of the two banks involved in the deal announced Monday.

"As the third bank mentioned, they are now the one that has the most to worry about," said David O. Beim, a former commercial and investment banker who is now a professor of business administration at Columbia University.

"This may provoke Chase to see what they can do about a merger. The first possible partner that comes to mind is Bank of New York," he said, "but the human factors would make that hard."

Divergent Cultures

Chase Manhattan and Bank of New York are viewed by most banking observers as very different banking organizations. "A merger would be a major culture shock," said John J. Lyons, a banking industry consultant in New York.

The companies' relative sizes would also be a problem. Chase has assets of $98 billion, while Bank of New York has assets of $39 billion. But Bank of New York's equity and reserve levels are almost the same as those of Chase.

"It would be a mismatch, in that Bank of New York would own nearly half of a combined company in a stock swap," said Mark Alpert, a banking securities analyst at Bear, Stearns & Co., New York.

The smaller size of Bank of New York would also mean fewer cost savings, the compelling reason for mergers within the same market, he said. Moreover, Bank of New York has already cut expenses deeply since its 1988 acquisition of Irving Bank Corp.

Chase and Bank of New York declined to comment on the posibility of a merger.

Meanwhile, the Chemical deal puts additional pressure on board members of Atlanta-based C&S/Sovran Corp. to consider NCNB's acquisition bid, some analysts said.

"It's hard, if you're a C&S/Sovran board member right now, not to take a look at this merger - and the market's reaction to this merger - and not feel some inclination to want to go ahead and merge with NCNB," said Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp. in New York.

Indeed, banks stock were up broadly on news of the agreement.

Mr. Herlihy, the lawyer working on the NCNB deal, said he expects to see combinations among strong banks and acquisitions of weaker banks by stronger banks in both in-market deals and in geographic expansion moves.

The on-and-off merger talks between Wells Fargo & Co., San Francisco, and Security Pacific Corp., Los Angeles, are also viewed as pressure on other banks to reassess their futures.

Mr. Lyons, the New York consultant, said combinations of superregionals in Ohio and Michigan are possible as banks there try to achieve dominant regional positions in preparation for unlimited interstate banking, which Congress might approve this year.

Fewer opportunities are seen for New York's Citicorp, the nation's largest banking company.

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