More consolidation hits Bank News area

The holiday season brought announcements of two major area acquisitions: Banc One Corp., Columbus, Ohio, to acquire Liberty Bancorp, Inc., Oklahoma City; and Mercantile Bancorp. Inc., St. Louis, to acquire Roosevelt Financial Group, Inc., also of St. Louis.

The yearend agreements climaxed an eventful 120 days in the Central States, kicked off with NationsBank's pact to acquire St. Louis-based Boatmen's Bancshares, Inc. in an $8.7-billion transaction creating the nation's fourth-largest bank. That was announced Aug. 30.

A few days later, on Sept. 3, Magna Group, Inc., with assets of $5.4 billion concentrated in the St. Louis area and downstate Illinois, revealed plans to acquire Homeland Bancshares, Inc., in Waterloo, Iowa. Magna agreed to pay $216 million for Homeland's assets of $1.2 billion, which made it the second-largest independent bank holding company in Iowa.

The St. Louis market, still dealing with the NationsBank incursion from Charlotte, N.C., two months earlier, on Oct. 28 was exposed to profound change again with the announcement that two local companies, Mercantile Bancorp. Inc., with assets of $18 billion, and Mark Twain Bancshares, Inc., at $3 billion, would combine to improve Mercantile's market position in the three largest Missouri markets-St. Louis, Kansas City and Springfield.

But Mercantile, which is paying about $855 million for Mark Twain, wasn't through yet; Christmas Eve brought the announcement of the Roosevelt merger.

Roosevelt, a $9-billion thrift holding company, is the parent of Roosevelt Bank, F.S.B., Clayton, Mo. The definitive merger agreement, according to company officials, will create the largest, locally managed and independently owned financial services organization headquartered in the lower Midwest.

Based on Mercantile's closing stock price of $50. 75 on Dec. 20, the transaction is valued at approximately $1.072 billion. Mercantile will deliver up to 13 million shares of common stock at an exchange ratio of .4211 shares of Mercantile common stock, or $22 in cash for each remaining share of Roosevelt common stock.

The transaction is structured as a tax-free exchange for shareholders receiving stock, and will be accounted for as a purchase transaction. In connection with the purchase, Mercantile plans to repurchase up to seven million shares in open market transactions.

The merger would give Mercantile more than 23% of the state's deposits and will position Mercantile as the largest bank in the St. Louis and Springfield markets and the second-largest institution in Kansas City. The company resulting from the merger would have $30 billion in assets.

The merger is expected to be completed in mid-year, subject to regulatory and shareholder approvals. At that time Stanley J. Bradshaw, chairman and president Roosevelt Financial Group, will lead the combined mortgage operations and become a member of Mercantile's management executive committee, reporting to Thomas H. Jacobsen, Mercantile's chairman and president.

The merger agreement between Banc One Corp. and Liberty calls for Liberty Bancorp shareholders to receive 1.175 shares of Banc One stock for each share of Liberty stock. The value of the transaction is approximately $546 million, based on Banc One's closing share price on Dec. 27. John B. McCoy, chairman and chief executive officer Banc One Corp., in announcing the agreement, said, "This is an important affiliation for us in that our stated objective is to be one of the top three banks in the markets we serve. Banc One currently operates Bank One, Oklahoma which has assets of approximately $600 million. Combined, these two affiliates will become the largest bank in Oklahoma City and one of the top three banking companies in the state."

Officials said it is anticipated that Liberty will join Oklahoma City-based Bank One, Oklahoma at the end of the 1997 second quarter.

Liberty Bancorp. has assets of $2.9 billion and operates banks based in Oklahoma City and Tulsa. Banc One Corp. has assets of $98.6 billion.

These transactions arguably have significance beyond the continuing consolidation of the banking industry everyone has expected.

There are the rather profound changes in market share, for example, some of which are detailed above. And NationsBank, by the way, besides being the fourth-largest U.S. bank, is the largest in several states, including Arkansas, Kansas, Missouri, New Mexico and Oklahoma in the BANK NEWS area.

Then there are the prices. Mercantile is paying 1.99x book value for its competitor Roosevelt, and made the Christmas Eve deal less than 60 days after agreeing to pay 2.8x equity for its rival Mark Twain

And while the 1.88x book value Banc One is paying for Liberty may seem a bit more modest, it isn't really in view of the Oklahoma City company's recent performance which has produced a 0.97% ROA. Liberty's expenseto-income ratio is high at 74%, and its 62% loan-to-deposit ratio is low by current standards.

The Magna-Homeland transaction calculates out to 1.66x book value.

None of these prices should raise any eyebrows, probably, when NationsBank paid 2.7x equity for Boatmen's Bancshares, Inc., in the deal that closed Jan. 7.

Another factor used to justify the substantial premiums is the savings to be wrung from consolidating operations. Mercantile aims to cut Roosevelt's expenses by 37% or nearly $40 million by 1999, during which time some 50 branches will be closed. Banc One expects to trim about $37 million from expenses in Oklahoma.

NationsBank predicted $335 million in savings from its Boatmen's acquisition at the time it was announced, and has hinted since that the savings could be considerably higher-perhaps as much as $475-$550 million, one analyst has estimated.

So, what else is significant about these deals of the last 120 days of 1996 besides price and effects on market share?

Well, Mercantile has been considered an attractive acquisition target for some time. By bulking itself up from its present $18 billion in assets to $30 billion and the dominant market share in St. Louis and Missouri, it may well become even more susceptible to courting by big, out-of-state acquirors bent on expansion and with deep pockets to pay for it.

Some observers also see significance in Banc One dining at the acquisition table after apparently backing away from potential deals with California's First Interstate in 1995 and Boatmen's last year.

It appears certain that acquirors will be busy in theCentral States in the months ahead. Targets are plentiful, as the area's banking industry is still relaltively unconcentrated compared with the rest of the country.

Missouri, particularly, was considered virgin territory to out-ofstate merger partners until the NationsBank-Boatmen's marriage. But now that the door is open, look for more suitors to come calling.

Mercantile, analysts suggest, would be a likely target for First Chicago NBD or Banc One, or the Minnesota twins, First Bank and Norwest. ABN Amro, the Netherlands-based financial giant which owns LaSalle Bank in Chicago, is often considered to be in the mood for expansion in the Midwest, and Bank of America might want to branch out from its Midwestern outpost in Chicago. Another Charlotte, N.C., company, First Union, also may have designs on the Midwest.

Other Missouri franchises attractive to outsiders could be Magna Group, Commerce Bancshares, Inc., or UMB Financial Corp.

Commerce owns banks in Illinois and Kansas as well as Missouri, and UMB is in all three of those states plus Colorado and Oklahoma, and has a de novo charter pending in Omaha.

Would-be suitors know, however, that ownership of Commerce and UMB, both based in Kansas City, is concentrated in separate branches of the Kemper family, which means these companies can control their own destinies to a greater degree than some with wider ownership.

Some similar situations exist elsewhere in the BANK NEWS area.Kansas has INTRUST Financial Corp., controlled by the Chandler family and based in Wichita, with a significant franchise in Oklahoma, as well. First National of Nebraska, Inc. owns banks across its home state plus others in Colorado, Kansas and South Dakota. The Omahabased company is controlled by the Lauritzen family.

First Commerce Bancshares, Inc., in Lincoln is the secondlargest home-owned banking company in Nebraska, with ownership concentrated in the Stuart family.

Similarly, Oklahoma has BOK Financial Corp., based in Tulsa, with assets of $4 billion, and BancFirst in Oklahoma City, with $1 billion in assets. They are controlled by Charles B. Kaiser and the Rainbolt family, respectively.

Rest assured 1997 will see continuing consolidation of banking in the Central States. Not all area companies will play on the national stage, but regional and in-state mergers should make news, too.