Bank Mergers Are Expected Again,
In Both Alabama and Tennessee
By JOE BOUSQUIN and CARRICK MOLLENKAMP
Staff Reporters of THE WALL STREET JOURNAL
Are banks in Alabama and Tennessee finally primed for a trip to the
altar?
After years of lagging behind their Southeastern neighbors in banking
consolidation, the two states are likely to become national hot spots for
merger activity, according to a new study by economists at New York-based Salomon Smith Barney.
The investment bank took a look at the hard numbers that drive bank mergers -- growth of deposits, concentration of banks, projected increases in population and income -- and concluded that consolidation is more likely to take place among banks in Alabama, Tennessee and Ohio than in any other states.
You'll have to excuse bankers in Alabama and Tennessee if they don't get too excited, though. They've heard this before.
"If I had a blank wall, I could line it up with analysts who have said 'This is the year,' " says Ellen Laden, director of public relations at Birmingham-based Compass Bancshares. The latest predictions, she adds, seem no more valid than those in the past.
But Salomon analyst Henry C. Dickson believes the numbers in his report make a compelling case. For example, he notes that neither Alabama nor Tennessee has a bank that dominates market share, making them easy places for a bank to bulk up. And improved growth prospects make both states worth a second look by hungry banks.
Here's how Alabama and Tennessee look by the numbers -- and what
bankers say about them:
ALABAMA: For years, Alabama banks have been left off acquirers' lists of targets as bankers chased deposits in population centers of faster-growing North Carolina and Georgia. But that's changing. The Salomon report says bank deposits in Alabama increased 21% between 1993 and 1997. By comparison, North Carolina, home to behemoths NationsBank Corp. and First Union Corp., saw deposits rise 19% over the five-year period.
At the same time, Alabama's "big four" banks -- Regions Financial Corp., SouthTrust Corp., AmSouth Bancorp and Compass -- have become more attractive. One reason: They have increased their stakes in fast-growing out-of-state markets, says Benton Gup, an economist at the University of Alabama in Tuscaloosa.
Since 1995, Birmingham-based SouthTrust has bought banks with operations in Florida, Georgia and North Carolina. Last week Compass acquired Hill Country Bank of Austin, Texas; it now has assets of $6.7 billion in the Lone Star State.
"We are all independent and we have been the purchasers in the last several years," says Jim Underwood, a spokesman at Birmingham-based AmSouth. "And that makes us very attractive."
Alabama still lags behind the region in terms of economic growth. But
Salomon projects that between 1997 and 2002, the state's "market" growth -- which the economists calculate based on changes in population and household
income -- will come in at 29.4%. That's faster than Salomon predicts for the U.S. as a whole.
And even slower growth has had its advantages, says John Jahera, a banking professor at Alabama's Auburn University. "The Alabama banks were almost given a reprieve from being acquired" while shoppers concentrated on Georgia and North Carolina in the early 1990s, Mr. Jahera says. That gave the Alabama banks time to grow internally.
But skeptics say that being the only fish left in the barrel still isn't enough to make Alabama's banks a good catch. James Smith, an economist at the University of North Carolina at Chapel Hill, says Alabama first needs to take care of some lingering problems, such as a civil-justice system that has yielded huge jury awards against businesses.
"If you do business in Alabama, you've got to put up with the world's worst trial lawyers," Mr. Smith says. "Who would want to do that?"
TENNESSEE: The Volunteer State's well-divided banking pie is one of the biggest reasons it's ready for a merger feast, according to the Salomon report. Only one bank, First Tennessee National of Memphis, holds more than a 13% deposit share, with 13.07%. No. 2 is First Tennessee Corp. of Nashville, which has 12.6%. After that, the market is up for grabs, with nine banks holding between 1.2% and 10.1% of the market.
Contrast that with Georgia, where deposit share is dominated by giants like NationsBank, SunTrust Banks Inc., Wachovia Corp. and First Union, leaving little to be snatched up by others.
Moreover, Salomon predicts Tennessee will have more well-heeled residents to pump up deposits. Factoring in both population and income growth, Salomon projects Tennessee's market growth will hit 34.9% between 1997 and 2002 -- the seventh-highest growth rate in the country.
Tennessee also has become "sweeter bait to swallow," says William F. Ford, former president of the Federal Reserve Bank of Atlanta and a banking professor at Middle Tennessee State University in Murfreesboro.
One reason: The state's real-estate slump in the mid-1980s left Tennessee banks with a pile of bad loans, dissuading out-of-state buyers.
"It took a few years to work their way out of that," says Mr. Ford.
Still, some Tennessee bankers say that if good times are ahead, why sell out now?
"Our shareholders would be furious with us if we started talking about swapping our stock with somebody else's who's not growing as fast as we are," says Ralph Horn, chief executive of First Tennessee. "Our position has been to stay out of the consolidation game and try to grow faster internally."
Indeed, John B. Moore, an analyst at Interstate/Johnson Lane in Charlotte, says no "monthly report on how the rest of the world is going to disappear" can accurately foresee the future.
"It's quite possible," Mr. Moore says, "that there are some banks in this country that are going to survive and grow without having to sell out because of the simple fact that they are able to make money on their own."
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