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THE FLEET-BANKBOSTON MERGER
Good for Whom?
Is the new banking competition created by the feds real, or just shadow-boxing?
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Business New Haven
9/20/1999
By: Susan Banfield
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"As the company has grown, business has gotten more complicated. Our financial requirements have grown. We have found ourselves using some of the more esoteric services of the bank," says Robert Santoro, CFO of the Bilco Corp. in West Haven.
Santoro cites as an example an instance in which he needed a temporary conditional letter of credit for an order from Argentina. "Before I got this order I had never heard of such a thing," he says. "I got the thing done in an hour," says Santoro, who banks with BankBoston. "I don't believe I can get this out of a second-tier organization."
A middle-market company such as Bilco, Santoro says, needs a large bank. Santoro is one of a number of business people who have been concerned by the diminished competition in the arena of larger banks that the Fleet-BankBoston merger foretells. "I think competition is good. I'd like to see another big player in Connecticut," he says.
"It's kind of disturbing to me," adds Susan Lamar, CFO of HB Communications of the recent deal.
Attorney-General Robert Blumenthal was one of the first to express concerns about the looming merger. Middle-market companies, he told the Federal Reserve Board back in July, "form the backbone of Connecticut's economy." They "employ tens of thousands of Connecticut citizens and fuel economic growth. These enterprises constitute the economic engine of our state."
The results that Blumenthal and his office's economist said businesses could expect from such a merger included tighter credit, higher prices, diminished service and less innovation.
The regulatory agencies agreed - to a point. The Justice Department and the Federal Reserve Board required Fleet to come up with an acceptable plan to divest a number of branches in order to resolve antitrust and other concerns.
At the beginning Fleet announced a plan to sell 306 branches, 278 of them to Sovereign Bancorp, a Pennsylvania-based bank. Both the Justice Department and the Federal Reserve Board approved the plan. The remaining branches will be sold to small banks in Massachusetts.
Just how well will the sale of branches to Sovereign, which includes 39 branches in Connecticut and only four in the New Haven area (two in New Haven and two in Waterbury) serve to meet the needs of this region's middle-market companies for banking competition?
Certainly, both Fleet and BankBoston officials tout the deal as an excellent one.
Jim Schepker of Fleet notes that the Justice Department was looking for a single buyer who could adequately meet the needs of three market segments, one of which is the middle market (the other two being small businesses and individual consumers). The fact that the Justice Department approved the sale to Sovereign, Schepker says, indicates that they had determined that Sovereign could do the job.
"All bidders needed to demonstrate ability to adequately service the needs of middle-market companies," says Philip Margolis, BankBoston's director of corporate relations. In addition to the fact that Sovereign met the requirements of both the Justice Department and the Federal Reserve, Margolis points out that Sovereign has added new middle-market clients in Philadelphia, "obviously no small market," and adds that Sovereign is already more than twice the size of either Webster or People's.
Chris Curran, vice president of public affairs at Citizens Bank, which has assets roughly comparable to those of Sovereign, says of his bank's new competitor that they "have a good reputation."
Joseph Campanelli, president and CEO of the newly created Sovereign Bank New England, points out that Sovereign writes loans of a size that should easily satisfy most middle market customers: from $1 million to in excess of $50 million. He also makes the point that middle-market customers generally employ the relationship-manager approach in their banking, and that Sovereign has been able to retain most of the existing relationship managers. "The key was getting the people," he says. Most of the 3,500 Fleet and BankBoston employees that Sovereign will be hiring are branch employees or managers who work on middle-market accounts.
Campanelli also cites his own background as an asset for Sovereign's Connecticut customers: He began his banking career at Hartford National, then moved to Shawmut, for a total of about 15 years in Connecticut.
Jay Sidhu, president and CEO of the parent company, Sovereign Bancorp, says he believes his approach of trying to "out-local the nationals and out-national the locals" would be successful in winning over middle-market companies. Sidhu thinks such customers would appreciate Sovereign's combination of the technology of a large national bank (Internet banking services, international export finance, international travel, foreign exchange) with the personal touch of a small bank.
(Incidentally, Citizens Bank also seems to believe this approach has merit. According to Curran, Citizens is using the claim that it has "all the products and services of a large bank, instantly, but delivers them with the hands-on experience and know-how of a small hometown bank." And Citizens is targeting small business and the middle market to expand its customer base.)
Others are less enthusiastic about Fleet's plan. The attorney general is chief among these.
"The Fed has capitulated - permitting Fleet to swallow its toughest competitor without adequate divestiture or a meaningful market adversary," he said. "Sovereign is a shadow competitor - one-sixth the size of Fleet - lacking sufficient financial muscle, management depth and experience in the New England market to give consumers and businesses real choices for their banking needs."
Blumenthal also points out that Sovereign has relatively little experience in middle-market lending. "Only since 1988 have they done any, and that has been only a slight proportion of their business," he said.
John Carusone, president of the Bank Analysis Center in Hartford, is inclined to agree with Blumenthal.
"I think the attorney general's office has a legitimate viewpoint regarding the competitiveness of the Connecticut banking industry. From a business-banking standpoint, there's an open issue regarding Sovereign being a competitive antidote. I think they're a formidable consumer bank, but their ability to address commercial banks in a competitive way against Fleet is a question mark."
Fleet chose Sovereign wisely, Carusone points out. "They are minimally acceptable to the regulatory commission without being a significant competitor. There are winners and losers in this thing. Connecticut businesses are the net losers."
So just what is the future likely to hold? Blumenthal is considering legal action that would have as a goal greater divestiture, especially to Connecticut banks and regional banks. This would help to assure more competition.
Others who are critical of the merger still have hope that, with time, Sovereign - or another bank - will grow to become a significant competitor for the middle-market banking business. "They deserve the benefit of the doubt," says Carusone. "The jury is out."
"I think there is a vacuum which somehow has got to be filled," says Bilco's Santoro. "The laws of economics suggest that one of these second-tier banks is going to step up to the plate."
For its part, without announcing any specific Connecticut expansion plans, Sovereign says it is planning to "add to the quality and depth of its services," according to Campanelli.
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