Consolidation in the banking industry took another step forward Monday when National City Corp. said it will acquire First of America Bank Corp. in a stock swap worth $7.1 billion, a deal that would bring together two big Midwestern bank holding companies.
A definitive agreement between the two calls for a tax-free exchange of 1.2 shares of National City common stock for each share of First of America common.
Cleveland-based National City and Kalamazoo, Mich.-based First of America together would serve more than 8 million households in six states. Their combined assets would total $74.4 billion.
"This represents a logical and attractive expansion into familiar territory that is culturally and demographically similar to our existing markets," National City Chairman David Daberko said in a statement.
National City said the companies expect one-time, merger-related, pretax charges of $350 million and an expense reduction of $243 million, or 30% of First of America's operating expenses.
In a conference call, Daberko said the deal is expected to reduce earnings by 2% in 1998 but add to earnings by 5% in 1999.
First of America's stock jumped $14 to $72.75 on the New York Stock Exchange, still short of the $80.10-per-share value under the deal. National City fell $3.94 a share to $62.81 on the NYSE in a decline that Daberko said was not unexpected.
Stocks "will inevitably trade down in the early days of banking transactions like this," he said. "The arbitrage gets set up between our stock and their stock."
As a result of the merger, 700 jobs would be moved to the Kalamazoo area, and a net reduction in the number of total jobs is also expected. National City executives said turnover among "back office" employees will facilitate some of the reductions.