Largest bank merger announced, The

largest bank merger announced, The

In a bold record-breaking move which dwarfs all previous bank acquisitions in the U.S, First Union Corporation of Charlotte, N.C, will purchase First Fidelity Bancorp of Newark for close to $5.5 billion or about $65 a share in stock.

That deal has been approved by Banco Santander, the large Spanish bank which holds nearly 30% of First Fidelity’s common stock. Analysts are quick to point out that Santander actually preferred selling First Fidelity to First Union since that bank would offer a higher premium than First Fidelity’s market price.

The tax-free stock swap transaction create a powerful Eastern banking empire sweeping from Connecticut to Florida. The new bank will be larger than Bankers Trust New York Corp. and Banc One Corp.

First Fidelity, with about 650 offices, is the country’s 25th largest bank with $35 billion in assets and common equity capital of $26 billion. Thanks to a flurry of smaller acquisitions in recent years, First Fidelity, which is the dominant bank in New Jersey, has branches in Pennsylvania, Connecticut, New York and as far south as Baltimore.

Following the deal, First Union, formerly the country’s ninth largest banking company, becomes the country’s sixth-largest with 2,000 branches in 13 Eastern and Southern states. In combination, the banks will become the nation’s seventh-largest banking company with $113 billion in assets. The transaction is expected to increase the rate of bank consolidation nationwide as banks with national goals like First Union create pressure for the regional giants to merge.

First Union itself has increased tenfold in size just in the past decade through a total of 55 acquisitions. In the most recent quarters, the company has focused on mergers that fill the gaps in its quickly constructed banking franchise. For example, last month the company agreed to purchase RS Financial Corp., North Carolina’s largest thrift, in a deal valued at about $111.6 million. Edward E. Crutchfield, First Union’s chairman, has said he plans to utilize Fidelity as a ‘Beachhead” to make other purchases in the Northeast.

It is easy to see why since there are 888 banks and savings and loan associations with assets of less than $1 billion in the six states in which First Fidelity does business. In addition, there are 83 larger banks. The Northeast is an especially fertile area for upcoming mergers because the big New York City banks have been reeling from bad real estate loans and have failed to purchase the smaller banks. “The consolidation game is largely over in the South,” says Crutchfield.

Anthony P. Terracciano, 56, will be president of First Union. He will stay in Newark and run the merged bank’s operations in the North, and handle its further acquisitions and its increasing investment banking activities. In addition to being a robust regional banking franchise, First Union also has a mutual fund company and is putting together an investment banking arm to sell corporate banking services such as derivatives and debt securities to middle-market customers. The bank now has its eye on selling these financial products to First Fidelity’s middle-market customers.

Wall Street analysts say that First Fidelity has been interested in a merger partner for some time. In contrast to First Union which has been spending hundreds of millions of dollars into modernizing its technology, First Fidelity has invested inadequately in those areas. Fidelity has another shortcoming as well — its dependence upon income from loans rather than fee income. For example, First Fidelity’s fee income was only 24% of total revenue in the first quarter, one of the smallest percentages industry-wide.

Goldman, Sachs & Co. is the financial adviser to First Fidelity and Lazard Freres & Co. is the financial adviser to First Union.

(Charts omitted)

Copyright Quality Services Company Jun 26, 1995

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