Creating a Midwestern financial colossus bestriding 14 states, First Chicago NBD Corp. and Banc One Corp. rolled out the details Monday of a union that will resculpt the financial landscape of the nation’s midsection and affect the way many Chicagoans do their banking.
The merger of First Chicago and Columbus, Ohio-based Banc One, valued at $30 billion, is the third-largest bank merger ever and produces the fifth-largest banking firm in the nation, with combined assets of $230 billion.
Born out of a search for increased revenues, reduced costs, a broader customer base and new opportunities for cross-selling of financial products, the new institution, to be called Banc One Corp., will be based in Chicago.
The news, released simultaneously with the announced merger of BankAmerica Corp. and NationsBank Corp. and only a week after the announced union of Citicorp and the Travelers Group Inc., prompted speculation about further mergers in the Chicago market.
Alan McNally, chairman and chief executive officer of Harris Bankcorp Inc., said that in an effort to compete with the new Banc One, he expects smaller banks to engage in more mergers and acquisitions in the Chicago area, which he characterized as “highly fragmented,” and an “underserved” banking arena.
The proposed match between First Chicago and Banc One unleashes a “national financial-services powerhouse,” which will be the nation’s second-largest credit card company after Citicorp, the leading retail, or consumer, bank in eight states and the pre-eminent business bank in the Midwest, said Verne Istock, chairman and chief executive officer of First Chicago, who will be chairman of the new corporation.
First Chicago already has the biggest share of the deposit market in Illinois, with about 100 branches around the Chicago area. The addition of Banc One’s 53 offices in northern and central Illinois will give the combined firm a 13 percent share of the market.
The two banks will have a combined market share of 19 percent in Indiana, although officials said they might have to close some offices in Indianapolis to head off the possibility of an antitrust challenge from the Justice Department.
Banc One’s branches function under the name Bank One. Eventually, said Istock, all of First Chicago’s branches will have their names changed to Bank One from First National Bank of Chicago, a name that has existed since 1864.
“To me, this is the perfect match,” said John McCoy, chairman and chief executive officer of Banc One, who will be president and chief executive of the new entity.
“We found we were in full agreement on how the company should be run and on its direction,” said McCoy, a tall, ginger-haired and gregarious man.
McCoy and Istock jointly presented the deal to securities analysts and journalists Monday at the Waldorf-Astoria Hotel in New York.
The bankers projected an annual growth rate of between 13 percent and 15 percent for the new firm, with McCoy plumping for the higher number.
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Over weeks of discussion that began at McCoy’s Columbus home in mid-February, the two bankers said they not only found their organizations complementary in terms of lines of business, products and geographic locations, but highly compatible in terms of systems, hardware and corporate culture.
“We have a common culture. . . . There is something common about the Midwest,” said Istock. “The chemistry between our two organizations, I believe, was excellent and indicates we will, in fact, have a great deal of cooperation as we go through the integration process.”
Shareholders of both firms are expected to approve the merger sometime in the third quarter, with completion of the merger planned by year-end.
Under the terms of the deal, First Chicago shareholders will receive 1.62 shares of the new corporation, a current value of about $100, while current Banc One shareholders will get a one-for-one swap. Current Bank One shareholders will own about 60 percent of the new company, with First Chicago shareholders owning 40 percent.
Executives told analysts that they project the earnings per share of the new stock for all shareholders to rise 1.2 percent next year, 5.9 percent in the year 2000 and 6.2 percent in 2001.
“From the consumer standpoint, I really believe, by taking the strengths of two organizations, we will be providing a wider variety of services to the consumer,” said Istock. “We think they’ll have a broader array of services to choose from and more access to them.”
News of the First Chicago-Banc One merger came at the same time as that of San Francisco-based BankAmerica Corp. and NationsBank Corp. of Charlotte, N.C., a deal valued at more than $60 billion that creates the nation’s largest bank and a financial power with assets second in the nation only to Citigroup, created a week ago by the $85 billion merger of Citicorp and Travelers Group.
McCoy good-naturedly deflected suggestions that some of his merger’s thunder had been stolen by BankAmerica and NationsBank, which not only unveiled their marriage at the same hour, but, like dueling wedding receptions, did it just across the marble hall from the First Chicago-Banc One gathering.
Writing it all off to coincidence that three mega-mergers occurred so closely in time, McCoy said, “I guess what we’re saying is that six very bright people came to the same conclusion–that scale is important.”
The First Chicago-Banc One merger is expected to produce about $930 million in annual cost savings, which includes the elimination of an as yet unspecified number of positions, and $275 million in additional revenues. About half that gain is planned to occur in the first year, with another 40 percent coming on-line in the second year and the balance in 2001.
The restructuring charge for severance payments, building leases, branch consolidation and other merger-related costs is estimated at $1.25 billion. Severance costs were estimated at roughly $300 million.
Istock and McCoy declined to specify the number of jobs expected to be displaced by the merger.
But Istock said that based on his experience with the 1995 merger of First Chicago with NBD, he expects about half the positions to be eliminated by attrition, citing an industry average of about 20 percent annual turnover. In addition, he said, some employees may find new opportunities in the new corporation.
Asked what he would tell current First Chicago employees fearful of layoffs, Istock said, “Basically, we tell them that while your job may change, if you’re a strong contributor to the organization, you have nothing to worry about.”
As far as Columbus-based Banc One personnel moving to Chicago, McCoy said the total number of transfers probably will be about 50.
A legacy of banking laws eased only a few years ago, nearly 800 independently owned banks still exist in Illinois, including 239 in the Chicago area.
The new Banc One Corp., though gigantic, therefore isn’t likely to be accused of monopolizing the market.
In fact, some small bankers think they may benefit from the fallout of the merger. Some customers of First Chicago, they said, may move their business to a smaller bank in fear that they may be lost or receive less attention from a mega-organization.
“They certainly will be tougher competition,” said Bruce Taylor, president of Cole Taylor Bank, which has assets of $1.9 million and 12 Chicago-area offices. “But their merger could provide some opportunities for us, particularly from small and middle-market businesses, where we have built a pretty good niche.”