Perhaps it was a banker who coined the phrase, “The only constant in life is change itself.” Industry observers need a mega-sized scorecard to keep track of all the mammoth M&A deals unfolding in the banking world these days.

The announcement in April that First Union and Wachovia plan a $13.4 billion merger (see story on page 12) to create the nation's fourth-largest bank is but the latest chapter in the ongoing consolidation story. The news comes just months after Chase Manhattan Corp. and J.P. Morgan & Co. finalized their whopper of a merger.

Between 1990 and 1998, the number of bank mergers and acquisitions averaged 510 per year compared with 345 per year during the 1980-89 period, according to the Federal Reserve Bank of Chicago. The number of banks operating in the U.S. has declined by approximately 30% since 1990.

Frequently, mergers beget mergers. Consider, for example, that in December 1995, National Bank of Detroit (NBD) merged into First Chicago NBD Corp. Then in October 1998, First Chicago NBD and Banc One of Columbus, Ohio, merged to form Bank One. Across the country the scenario is much the same, only the names change.

Industry perspective

“If anything, the industry will continue to consolidate,” declared Dennis Bernard, a mortgage broker and president of Southfield, Mich.-based Bernard Financial Group. “Our general consensus is that we still have too many banks and financial institutions in thiscountry.”

When two large banks merge, long-standing relationships between borrowers and lenders at the acquired institution naturally are affected, lamented Bernard. “Personnel changes more often. The professional memory of transactions done over the past 10, 20 or 30 years disappears. It's now a broken chain.” What was a Detroit bank, NBD, is now a Chicago-based bank, and with each passing merger that collective memory diminishes further as employees depart for other opportunities, Bernard said.

The irony is that banks have long prided themselves on relationships, but the bigger the institution gets, the more impersonal relationships become, agreed Charles Krawitz, first vice president with the capital markets division of Chicago-based LaSalle Bank. Krawitz believes that borrowers don't benefit by mergers. “Anytime there is less competition amongst lenders, that can't be a good situation for the borrower.”

Some smaller, community banks have emerged to fill that local void but their capital structures are limited and their ability to take a big investment bite, particularly in real estate, is restricted, said Krawitz. “They are a lot closer to the heartbeat of the asset than the out-of-town lender is. That's good and bad. By not knowing the local market, sometimes an out-of-town lender can become more aggressive.”

Although LaSalle is a large bank, the second largest in the Windy City, it primarily lends in its backyard, according to Krawitz. “From a relationship standpoint, LaSalle is a very hands-on sort of bank. Our chairman knows everyone and everyone knows him. There is no one too big in this organization when it comes to getting involved in a transaction.”

Ultimately, banking consolidation has as much to do with real estate as it does with borrower options. First Union and Wachovia will reportedly close 250 to 300 bank branches once the merger is complete this fall. What will happen to that space? Well, a community's loss may become a broker's opportunity.