The favorite game among midwestern banking professionals is to draw up scenarios of how the industry`s make-up will change in the area as one state after another adopts regional interstate banking legislation.
Speculation and rumors about what bank holding company will acquire–both within their own states and in neighboring states–were rampant at a conference sponsored last week by the Illinois Bankers Association.
”Big and small deals are being pushed by pencils at night all around the Midwest,” said James McDermott, vice president of Keefe, Bruyette & Woods Inc., a New York firm that specializes in arranging bank mergers and acquisitions.
Much of the guessing game centers on Illinois banks, even though a law permitting Illinois bank-holding companies to merge with institutions in adjoining states that have reciprocal laws won`t be effective until July 1.
Based on what has happened in the Southeast and Northeast, where a flurry of mergers has occurred since regional interstate banking laws were adopted in the last few years, up to half of all Illinois banks with assets of more than $100 million could lose their independence over the next 3 to 5 years, predicted Arnold G. Danielson, managing director of Danielson Associates Inc., a bank consulting firm in Columbia, Md.
”In Pennsylvania, that happened with about 70 percent of the banking firms with assets of between $500 million and $1 billion in less than three years,” he said. ”Because the Midwest has less experience with branching and mergers, it might take a little longer here.”
William C. Harris, Illinois commissioner of banks and trust companies, declined to predict how many merger applications might be filed with his office by midyear.
”I hear that a lot of talking is going on, but at this point I don`t expect a surge of applications,” he said. However, Harris said he plans to ask the state legislature for money to hire additional people to handle the anticipated volume.
Indiana, Michigan and Kentucky also have adopted regional banking legislation so far, and similar bills are expected to be enacted soon in Wisconsin and Missouri. Only Iowa, where banks are plagued with agricultural problems, has shown little interest in interstate banking legislation.
To date, most of the interstate merger activity in the Midwest has involved Ohio banking firms buying institutions in adjoining Indiana. But several large holding companies in Michigan and Wisconsin have expressed interest in establishing footholds in Illinois, especially in the Chicago area.
”In the next few years, the top 10 banks in the Midwest will be totally different from what they are now,” predicted John Duncan, an attorney with Holleb & Coff, who also is chairman of the Chicago Bar Association`s Committee on Banking.
”Few of those banks that are now ranked in the top 10 in Illinois may still be there in the next two years,” he said. In fact, only First Chicago Corp. seems likely to remain a dominant member of the group, particularly if it finds a strong partner with another holding company in the area.”
Duncan said the corridor talk among the more than 100 bankers, attorneys and merger experts attending the conference pointed to the possibility of some major changes taking place in the lineup of Illinois banks.
There was much speculation, for example, that Continental Illinois Corp. will become a prime candidate for a takeover by a large out-of-state banking firm after Continental is freed from control of the Federal Deposit Insurance Corp.
Northern Trust Corp. could remain an independent banking firm, he said. But, if so, it would probably drop in the rankings and concentrate more on the affluent suburban markets. Other bankers, however, believe that the Smith family, which has controled the bank for three generations, eventually will sell its effective control of Northern when offered an ”appropriate price.” Other banking firms mentioned as prime candidates to be swallowed up by the ”sharks” from adjoining states included Exchange International Corp., the Lane Bank Group, Cole-Taylor, Citizens Financial, the Magna Group in the Belleville-St. Louis area, Midwest Financial Corp. in Peoria, Americorp in Rockford and First Midwest Bancorp., of Naperville.
Duncan also doesn`t rule out the possibility that the foreign parents of Harris Bankcorp Inc. and LaSalle National Bank might someday unload their U.S. subsidiaries. He pointed out that Midland Bank PLC, of London, recently agreed to sell its Crocker National Corp. unit to Wells Fargo Corp.
Who are likely to be among the major acquiring banks in the Midwest?
Duncan and others said they probably would include Marine Corp., First Wisconsin Corp. and Marshall & Isley, three Milwaukee holding companies;
Comerica Corp., NBD Bancorp and First of America Bancorporation, of Michigan; and Boatman`s Bancshares Inc., of St. Louis.
Some Indiana banks, those that are left after the buying spree from Ohio, might move into central Illinois, they added.
One or more of the biggest banks in Milwaukee might acquire a Chicago bank and move its headquarters to Chicago because ”the Milwaukee banks are scared of being swallowed by the banks in Minneapolis,” one banker said.
In fact, Duncan believes Chicago is virtually certain to increase in importance as the banking center of the Midwest.
We could see Chicago being invaded and conquered by banks from Milwaukee, Detroit and other areas,” he said. ”They have a lot more experience with building bank networks than we have, because of our long prohibition on branch banking. But then we could see many of them moving their main offices to Chicago in the next 3 to 5 years. As a communications and transportation center, Chicago is ideally situated to be a regional banking headquarters.”
Unlike some other states in regional agreements, the Illinois law doesn`t include a timetable to opening the state to nationwide banking. There also are specific provisions in the Illinois bill aimed at preventing holding companies in states outside the seven-state area from ”leapfrogging” into Illinois through acquisitions in other states included in the Illinois agreement.
John Boland, general counsel for the Senate Banking Committee, said he doesn`t expect Congress to consider a federal interstate banking bill this session. Most of its attention, he said, will be focused on closing a loophole in the law that could lead to the creation of so-called nonbank banks exempt from the interstate restrictions.
