Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 24, 1994 TAG: 9407300003
SECTION: BUSINESS PAGE: C1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
And it could change the bank-employment picture in Roanoke as well - for better and for worse, depending mostly on the type of jobs at stake.
The revolution is interstate banking. A new state law effective July 1 abolished the Southeast Compact, an agreement enacted in 1983 that limited acquisitions among banks to a 13-state region stretching from Maryland to Florida.
Now, banks can enter Virginia if they are based in a state that also would allow a Virginia-based bank to operate there. And some 49 states and the District of Columbia have some form of interstate banking law in place.
Also, any day now, Congress is expected to pass a new federal banking law that, among other things, will permit interstate branching nationwide one year after passage. Tim Phillips, assistant to Rep. Bob Goodlatte, R-Roanoke, said the bill was reported to the floor Friday.
That means any bank would be able to open a branch in any other state without the formality of creating an independent bank in that state. Customers will be able to make deposits at their bank in any state.
As the law stands today, banks with multistate operations such as five of Virginia's six major bank have, must have a separate institution in each state.
When the new law passes, any bank holding company with multistate banks can roll them up into a single bank. Among the casualties would be such entities as First Union National Bank of Virginia, which has its state headquarters in Roanoke. It would be consolidated into the headquarters company at Charlotte, N.C.
George M. Salem, senior banking analyst at Prudential Securities in New York, said he thinks the bill will be passed by Aug. 15, when Congress is scheduled to begin its long recess. Both the House of Representatives and the Senate have passed similar banking bills that were reconciled Tuesday by a joint conference committee.
"Passage of the bill would be one of the most important pieces of legislation ever to affect banking - especially in a positive way," Salem said. "The bill is a major unshackling of industry restrictions."
Salem thinks the following states, in order of probability, are most likely to experience takeovers in the coming months with predators arriving from other states: New Jersey, Virginia, Pennsylvania, Missouri, Ohio, Michigan and Illinois.
"The artificial restrictions placed on the industry are yielding to the competitive forces of the marketplace," said Guy W. Ford, industry analyst for Scott & Stringfellow Investment Corp. in Norfolk.
"Passage of Virginia's interstate banking law should accelerate merger activity in the state," Ford wrote in a recent publication. "Consolidation is inevitable because Virginia represents an excellent banking market with outstanding demographics, favorable economics and a highly fragmented bank and thrift industry."
Here's what Ford sees in his crystal ball:
New players in Virginia: Banc One and KeyCorp. from Ohio; Corestates, Mellon and PNC Corp. from Pennsylvania; First Fidelity from New Jersey; Chemical Bank and Bank of New York from New York. Wachovia Bank of Winston Salem, N.C., "may also now feel compelled enough to enter the Virginia market, even though they have had the opportunity to do so under the old rules."
Consolidation within the state: "In an effort to enhance and/or protect their franchises, we could possibly see merger activity among Virginia banks heat up as well." First Union Corp., for example, may decide to increase its market share in the state, he said.
Ford said the most likely targets for out-of-state banks looking to establish a franchise in Virginia are Central Fidelity, Crestar, First Virginia and Signet. Other regional banks within Virginia, such as Jefferson Bankshares Corp. in Charlottesville, will more likely be targets of in-state positioning, he said.
Arnold Danielson, a banking consultant with Danielson Associates Inc. of Rockville, Md., predicted Huntington Bank and Banc One of Ohio will become the first entrants into the Virginia banking scene. He thinks they will aim first at the mid-range banks such as Jefferson and F&M National of Winchester. Abolition of the compact, he said, adds the two Ohio banks to the list of predators in Virginia.
PNC of Pittsburgh, he said, will enter only if it can buy a big player such as Crestar, Signet or First Virginia.
Still, Danielson said, "it's probably more than likely very little will happen" during the first two to three years after passage of the law.
If Ohio and Pennsylvania banks do enter the state, Danielson thinks it will be good for bank customers. "It will give the North Carolina banks some competition." He referred to First Union and NationsBank, also of Charlotte, which are among the top banks in Virginia, as well.
First Union, Danielson predicted, will go looking for more banks in the Washington area and will cast an eye toward West Virginia, too. If so, he said, Roanoke is well-positioned to remain a geographical center for the bank's processing operations. "No place makes more sense than Roanoke."
Danielson said First Union ultimately could fold some of its Tennessee branches into the Virginia operation. Of course, he said, all or part of Virginia could be consolidated with the North Carolina bank.
On the other hand, Chris Rieck of the American Bankers Association in Washington, D.C., sees very little action in the next few years.
Pointing out that 34 states have long permitted interstate banking, Rieck said that "if banks were going on a shopping spree, it would already have happened." All states except Hawaii, he said, have moved to some form of national reciprocity.
The major banks and larger regional operations will be the major players in nationwide branching, he said. Small community banks should not be affected.
Consumers will profit from consolidation through elimination of regulatory dead weight and red tape, Rieck said. Banks will become more efficient and better able to improve rates and pricing.
Walter Ayers, executive vice president of the Virginia Bankers Association, agrees there will be no "startling moves" in the foreseeable future, although he conceded that banks in the Mid-Atlantic and Northeast regions are known to have an interest in Virginia.
The congressional bill on interstate branching, he said, has a "very, very great" chance of passage before this year is out, Ayers said.
It should help Virginia, especially Richmond, he thinks. That's because both Signet and Crestar have operations in other states and probably would consolidate their operations in Virginia.
As for NationsBank and First Union, he said, "Virginia operations could become branch networks of the North Carolina bank."
Even so, he said, their back-room support operations are already largely integrated throughout their multistate systems. Interstate branching would merely eliminate separate banking charters and a corporate structure for each state.
"It would be the final step, not the first step," Ayers said. "It will not have as much immediate impact as some people might imagine."
The congressional banking bill, according to Ayers, is "for the most part, an affirmation of what most states have already done. It's not as much of a change as most people think."
Writing in the National Law Journal, banking specialist John L. Douglas of Atlanta said the federal banking bills passed by the House and Senate share three components:
Full nationwide interstate banking by bank holding companies.
Interstate consolidation by bank holding companies of their subsidiary banks across state lines.
Interstate branching.
The provisions would become effective a year after enactment. An acquirer would not be allowed to control 30 percent or more of the total deposits in the state it is entering. Big banks would face a nationwide deposit share cap of 10 percent.
States would be allowed to opt out of the law. That does not seem likely in this region since most states in the Southeast Compact have already dropped the regional restrictions. Besides Virginia, that includes Tennessee, Kentucky, North Carolina, South Carolina, Georgia and Florida.
by CNB