NEW YORK — In what could presage a wave of big bank mergers nationwide, Chemical Banking Corp. and Manufacturers Hanover Corp. announced Monday a merger that would create the nation's second-largest bank.
The merger, valued at more than $2 billion, the largest in U.S. banking history, would combine two banking giants struggling with problem real estate and international loans. Executives of both companies said the union would create a single strong bank, which will keep Chemical's name, with ample capital and a much higher credit rating.
"This will make us a much tougher competitor than either of us ever were individually," said John F. McGillicuddy, Manufacturers' chairman and chief executive, who will head the merged bank.
Chemical is now the nation's sixth-largest bank, with $73 billion in assets; Manufacturers is the ninth largest, with $61.5 billion in assets. With combined assets of about $135 billion, the new Chemical will be second in size only to New York's Citicorp. The merger would eliminate about 6,200 jobs from a total work force of 45,000.
Analysts said the merged bank will be on a strong footing to compete globally with other banking companies and to expand in the United States as more interstate banking is allowed, something neither bank was well positioned to do individually.
Banking industry analysts for months have predicted mergers among the so-called money-center banks in New York because of overcapacity in branches and basic banking services, made worse by the recession. And it comes on the heels of the proposed merger of NCNB Corp. and C&S/Sovran in the Southeast, to create the nation's third-largest bank.
Many analysts Monday forecast that the Chemical merger will touch off a new wave of acquisitions nationwide, particularly among banks that have been hurt by the sharp decline in the real estate market as well as losses from loans in the 1980s to finance mergers and loans to developing countries.
"There will be more to follow," said James M. Rosenberg, a banking analyst with Shearson Lehman Bros.
He said that, in New York, Chase Manhattan was a likely candidate to merge with another big bank, and he said California banks, hurt by sharply rising losses from real estate loans, are likely to seek merger partners as well.
"There is no major player in California who isn't a potential candidate," Rosenberg said.
Although the new bank will be called Chemical, senior corporate executives described the transaction as "a merger of equals" that will leave the shareholders of each company owning about 50% of the new bank holding company. The merger will take place through a tax-free exchange of stock, whereby each Manufacturers Hanover share will be exchanged for 1.14 shares of Chemical common stock. Executives of the two banks said the transaction's market value exceeds $2 billion.
Wall Street strongly approved of the impending nuptials: The stocks of both companies rose sharply. In trading on the New York Stock Exchange, Chemical closed up $2.75 at $26.50; Manufacturers closed up $6 at $29.25.
McGillicuddy, 60, initially will take the reins of the new super-bank, serving as chairman and chief executive. Chemical's chairman and chief executive, Walter V. Shipley, 55, will become president and chief operating officer. But the companies said Shipley will step up to succeed McGillicuddy as chief executive in January, 1994.
The new efficiency and savings from the merger will come at the expense of the two banks' work forces: The companies said they plan to reduce the number of employees by at least 6,200, or 14%, through layoffs and attrition over three years. At least 80 of the banks' combined total of 660 consumer branches in New York will be closed. The banks' back office computer operations will be merged.
In addition, Chemical will give up its 50-story headquarters building on Park Avenue in Manhattan when its lease expires in 1994. The merged banks' headquarters will be directly across the street, in what is now Manufacturers' head office.
The expected consolidation is designed to save the merged bank a minimum of $650 million annually after three years, with about half the savings from reduced labor costs. Most of the rest will come from savings on real estate, including branch office space. The merged bank is to take a restructuring charge of about $550 million to cover severance pay and other costs related to consolidation.
Banking analysts hailed the merger as a logical step that will create a strong bank out of two relatively weak ones. Both banks reported rather small profits in 1990--$291.2 million for Chemical and $139 million for Manufacturers--after both banks had big losses in 1989. Both banks recently were forced to substantially lower common stock dividends.
