Originally created 09/24/98

NationsBank merger still expected despite stock tumble

CHARLOTTE -- What a difference a few months can make for the folks at NationsBank and BankAmerica, who are asking shareholders this week to approve their megamerger during a rocky stretch for U.S. bank stocks.

Recent market turbulence that began with problems overseas took a heavy toll on many bank stocks, including shares of both NationsBank and BankAmerica.

SNL Securities of Charlottesville, Va., which tracks mergers, valued the NationsBank-BankAmerica merger at $50.37 billion. That compares with about $66 billion when the merger was announced last spring.

Last week, the Wall Street Journal valued the merger at $45.04 billion.

"There's never a good time to lose money," said bank analyst Moshe Orenbuch of Sanford C. Bernstein & Co., who still believes NationsBank's shareholders will approve the deal at the company's annual meeting on Thursday.

On the same day, BankAmerica shareholders also are expected to vote on the proposed merger.

When the merger was announced in April, it looked like smooth sailing ahead for the U.S. economy and the banking industry. But the Asian economic crisis changed the dynamics, creating huge trading losses for some U.S. banks -- including BankAmerica.

In late August, BankAmerica said it lost $220 million from investments in Russian government bonds. Last week, the San Francisco bank said its losses had increased to $330 million.

All the market confusion has taken its toll on bank stocks, including NationsBank and BankAmerica. NationsBank has lost about $34 since reaching a high of nearly $89 in mid-July.

Meanwhile, BankAmerica's stock has plummeted from a high of around $100 in July to around $60 a share.

The new bank, based in Charlotte and headed by McColl, will move ahead of Chase Manhattan Corp. as the nation's largest commercial bank.

It will operate 4,800 branch offices in 27 states and 38 overseas countries, and more than 14,000 automated teller machines. It will control assets of $580 billion and 8 percent of the nation's federally insured deposits.

With the merger vote approaching, NationsBank chief executive officer Hugh McColl went on record last week to say his bank remains committed to the deal.

"The strategic imperatives for this transaction are as strong today as they were when we agreed to merge last spring," he said in a statement.

BankAmerica officials issued a similar affirmation.

The volatile stock prices will certainly be a hot topic among shareholders at NationsBank's meeting, said analyst Hal Schroeder of Keefe Bruyette & Woods.

"Investors always ask a lot of questions when there's a precipitous drop in stock prices," he said. "But the deal still makes strategic sense and so it should still go through."

Orenbuch also expects some lively dialogue at the meeting.

"The real question is: `What does this mean for the future?' " he said. "If I were taking bets I'm sure it will go the way Hugh McColl wants it to go."


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