First Card sees business as usual with Banc One

by Karen E. Culp

SBJ Staff

Banc One Corporation and First Chicago NBD Corporation will merge the two banking companies into the nation's fourth-largest bank by the fourth quarter of 1998.

The announcement was made April

13 by John B. McCoy, chairman and

chief executive officer for Banc One, and Verne G. Istock, chairman, president

and chief executive officer for First Chicago.

The merged bank will be the second largest credit-card issuer in the country, said Thomas Kelly, a spokesman for First Chicago. That could be good news for Springfield's First Card, which is part of a wholly owned subsidiary of First Chicago. For now, First Card, which held its grand opening ceremony in Springfield March 5, will continue hiring employees as planned, said Patricia Laxton, first vice president and manager of the Springfield center.

"We'll still be growing in Springfield as planned," Laxton said.

Though the merger is in its "infancy stages," Laxton said she is excited about the possibilities it brings for the center.

"We're extremely excited to be a part of the No. 2 credit-card issuer in the country. We're looking forward to being involved in this process," Laxton said.

Laxton has spent time with the employees in the Springfield center, explaining to them what is going on and reassuring them that business will go on as usual.

"We've been holding employee sessions, basically to answer their questions and explain what's going on," she said.

Laxton added that the reason for the merger was to expand the business, which she said should be positive for the Springfield center. There are 200 employees working at First Card right now, and the center will hire more staff in successive months, Laxton said.

Kelly said it is too soon to tell how the merged bank will be structured, and how the Springfield center will fit into that picture. The transaction is still subject to approval by each bank's shareholders and industry regulators. Each bank's board of directors has approved the merger, Kelly said.

The merged bank will be called Banc One Corporation because the First Chicago name is regional, said Jay Gould, vice president for investor relations for Banc One. Both sides are treating the transaction as a merger of equals, though Banc One shareholders will hold 60 percent of the combined equity of the company and First Chicago's shareholder's will hold the remaining 40 percent.

The new bank will have its headquarters in Chicago, and McCoy will be president and chief executive officer while Istock will be chairman. The new bank will have more than 2,000 offices nationwide; a number of those will be in the Midwest, Gould said.

The company will have total managed assets of $279 billion, nearly $19 billion of common equity and market capitalization of about $72 billion. The merged bank will employ about 95,000 people, making it one of the nation's largest financial institution employers, Kelly said. Common shareholders of First Chicago will receive 1.62 shares of Banc One common stock for each share of First Chicago.

Banc One, the larger of the two banks, had managed total assets of $147 billion and total assets of $115.9 billion as of Dec. 31, 1997. It has more than 1,300 banking centers in 12 states. First Chicago NBD had managed assets of $122.7 billion and total assets of $114.1 billion as of Dec. 31, 1997. It operates more than 650 banking branches.

The merger is subject to state approval in Michigan, where First Chicago NBD holds state charters. It is also subject to approval by the Federal Reserve. The Justice Department will take up its antitrust review concurrent with the Federal Reserve's review, looking at the application submitted to the Fed to make its decision, Kelly said. The banks anticipate that they will have to divest of some assets in Indiana, where both have a number of facilities, before the merger meets with regulatory approval, Kelly said.

The banks each have outstanding acquisitions pending, though both Kelly and Gould said that those should close in time for this merger to close. Banc One is acquiring a banking company in Louisiana called First Commerce, and First Chicago is acquiring a brokerage house in Michigan. The latter is within a few weeks of closing, Kelly said.

In recent weeks, other large mergers have also been announced. Nearly simultaneous to this announcement was NationsBank's and BankAmerica's announcement of their plans to merge, and only two weeks earlier, Citicorp and Travelers announced a merger.

Gould said that these kinds of mergers were indicative of the banking system's attempts to regulate the amount of capital it holds.

"There's too much capital in the banking system. To generate better returns for shareholders, banks can either chase bad credits, like they did in the late 1980s and early 1990s, or they can take out the excess capital and distribute that to shareholders through larger returns," Gould said.

These two companies have "very complementary strengths" and the merger should result in a lower cost of doing business for the banks, Gould said.

"This is a customer-service oriented strategy. Through this merger we are both acquiring customers and acquiring more services for our existing customers. We are also gaining efficiencies, which should enhance banking for our customers," Gould said.

That the merger came alongside two others was the result of "six bright executives coming to the same conclusion you've got to be more efficient," Gould said. Kelly said when the two banks were planning the merger, they thought they would be announcing the largest merger in the country, but by the time the announcement was made, NationsBank's was the largest.

The merged bank will be issuing a great many of the country's credit cards, but Gould said he is not concerned about consumer credit-card debt.

"We've managed to issue a healthy number of credit cards and keep our portfolio in good shape," Gould said.

Credit card business will represent about 31 percent of the merged bank's income, Kelly said.

Still, the amount of bad debt charged off as a result of credit card debt is not a huge concern.

"It comes down to being cautious about who you issue cards to. If a bank has an increase in charge-offs, the appropriate reaction is to tighten the screen for cardholders and be more aggressive when people fall behind in their payments," Kelly said.

Both Kelly and Gould agreed that the community bank will continue to be an important part of the banking picture. Gould estimated that in the coming years between five and eight large, national banks will be around; Kelly placed the number at a couple dozen.

Dr. John Litvan, associate professor of finance at Southwest Missouri State University, said the recent merger announcements are a continuation of a trend begun in 1980 with legislation that deregulated the banking industry.

"The whole phenomenon is part of the evolution that has continued since that deregulation," Litvan said.

That these three mergers have been announced simultaneously may be a "little bit of herd psychology," Litvan said, in that the banks may be watching their competitors combine and seeking to pair themselves off.

"It's kind of like the game musical chairs; no one wants to be left standing without a chair," Litvan said.

The heavy consolidation of the recent past will probably be followed by a period of industry adjustment, he added.

In merging, the banks hope to achieve efficiencies, Litvan said. "In doing this, they're hoping to slash payroll, to cut expenses, to remove overlap while the revenues do not decrease in order to achieve efficiencies. That's what they hope to accomplish; it may not always be realiz-

ed, depending on the situation," Litvan said.

Banks and banking have changed because other institutions are providing similar services but are not necessarily banks, Litvan said. That makes it difficult to define the banking market, he added.

"It's hard to say what will happen in this market, because it is hard to say what the market is. Merrill Lynch provides services comparable to a bank, such as Visa cards and money market accounts on which you can write checks, but is it a bank? It's difficult to define what a commercial bank is," Litvan said.

Litvan also agreed that the community bank will have a strong role in the banking industry.

"The small banks are seeing an opportunity here to provide another level of customer service the personal touch that many people find important," Litvan said.

INSET CAPTION:

The merged bank

will be called

Banc One Corporation and have its headquarters in Chicago.

INSET CAPTION:

'The small banks

are seeing

an opportunity

here ...'

John Litvan

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