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Special
publisher's profile: Banking
Virginia's top banking
officials on the economy, the banking industry and doing
business in Virginia.
The major banks in Virginia
are a driving force in the state’s economy and
a major influence on the regions they serve. We recently
interviewed four top banking officials in Virginia -
James C. Cherry (Wachovia, N.A.); G.S. "Sandy"
Fitz-Hugh (Virginia Bank of America); C.T. Hill
(SunTrust Banks); Barry Fitzpatrick (First
Virginia Bank); to find out their views on the economy,
technology and the banking industry.
There
was a frantic round of bank mergers throughout the 1990s.
That seems to have slowed. Why is that and what will
the future bring? Have we reached equilibrium or are
there more mergers ahead?
James C. Cherry (CEO, Mid-Atlantic
Bank, Wachovia, N.A.): I think we'll continue to
see mergers going forward because of a consolidation
of the industry. Right now you are seeing both ends
of the spectrum and I've seen it described as a barbell.
You're seeing large banks getting larger and you're
seeing small community banks being started. I think
you will continue to see lots of that. When we did our
merger (with First Union), there were a number of them
going on at that time.
And there was fallout from those
mergers — a lot of small community banks started.
You had a period in Virginia where some 20 new community
banks started and every one of those ended up with $150
million in deposits. The mergers were put together with
high premiums and, as you went along, the pace got to
where the premiums got to be more and more. As they
did, the time frame in which you could recover the cost
savings of the premium had to shorten. At some point
the two came together head-on, and you couldn't do the
merger fast enough without causing more damage. That
happened in many markets and it happened here in Virginia.
Once in a while I hear of another
new community bank starting up but I think they are
going to have a much tougher time of it. However, I
don't think there is another shoe getting ready to drop
(another big merger). Right now the market is beginning
to enjoy the newfound products, benefits and capabilities
these larger financial institutions offer through consolidations.
Barry Fitzpatrick (Chairman,
President, CEO, First Virginia Bank, N.A.): The
’90s did result in a dramatic number of mergers
creating some very large financial organizations. Many
of these mergers were caused by higher stock prices
and a broad-based belief that bigger was better. Certainly
the economy and the events of the last few years have
slowed this activity. Mergers, like many other business
activities, appear to be cyclical and I would certainly
anticipate more mergers ahead.
Fortunately, for us at First Virginia,
there have been very few post-merger problems. No merger
or conversion ever goes as smoothly as you would like,
but I am pleased to say that our last several mergers
proceeded as seamlessly as possible. First Virginia
has worked diligently to earn an excellent reputation
for making mergers work for all of the constituencies
involved . . . our shareholders, clients, employees
and communities. Having accomplished more than 70 mergers
in our history, we've had a great deal of experience
in identifying potential problems early and finding
the best way to solve them. I'm extremely proud of our
tradition of retaining talented employees and making
sure that customers who come to us, as a result of mergers,
feel that joining First Virginia created a better banking
relationship for them.
G.S. "Sandy" Fitz-Hugh,
(President, Virginia Bank of America): I think there
will be ongoing mergers in the industry. What you see
now are smaller banks getting together here in Virginia,
as opposed to the major banks. You'll see the mergers
will slow down for the major banks like BOA. For instance
we have announced that we have no plans for additional
mergers. We'll try to digest what we have done so far,
unless there is a good fit, business wise. We're not
out to merge just to get bigger.
We went through that process in
the 90s, where we felt we had to be a certain size to
better serve our customers - our last merger was in
1998 with NationsBank - and, frankly, since then we
have been focused internally. It's been much more of
how we can make the bank run better and do the best
job for our customers and not go out and look for other
mergers.
C.T. Hill (Chairman, CEO, SunTrust
Banks, Inc.): It was really '97 and '98 when we
had a significant flurry of activity across the country
and if you think about 1998, the market was pretty hot.
In the fall of '98 the market saw somewhat of a liquidity
crisis with some of the things that happened at large
investment houses and the financial stocks, quite frankly,
were down and revenues had been challenging for banks.
The drop in bank share prices played a part in the slowdown
because the "currency" as we call it, with
which to go out and buy another property was diminished.
Most stocks in a sector trade in a relative range, but
the expectations of a selling bank in 2002 - if their
reference point is pricing as it was in 1998 - that
is a challenge.
We're certainly seeing a slowdown
in the level of merger activity. And what we are seeing
in these challenging economic times is that management
teams run their own company and they say, "How
can we make what we are doing better?" They focus
on being better at what we currently own.
I don't think consolidation is
over, but you will see a slower pace. In fact, 2002
is probably the slowest year we have seen in 10 years.
There have been a few recent deals announced, including
the one we just did in South Carolina but I don't expect
the pace will be anything like it was.
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