The Megabank Banquet

Banking mergers aim to provide a full menu of services, but smaller customers may be left hungry.

Imagine you’re in the market for a second round of equity financing to kick your new company into the next gear. Imagine you’ve had meetings at Chase Manhattan Corp. and at Donaldson, Lufkin & Jenrette Inc. (DLJ). Imagine you’ve also talked to bankers at J.P. Morgan & Co. and Credit Suisse First Boston (CSFB). Imagine you’re optimistic that the $30 million in private-placement funds you’re seeking will come through. Now, imagine that it’s August 30, when CSFB announced that it would buy DLJ for $11.5 billion. Or perhaps September 13, when Chase said it would pay a tidy $36 billion to gobble up Morgan.

“We’re in a tumultuous time,” says David Farber, a veteran CFO of start-ups and established companies. As the new finance chief at Urban Data Solutions, a New York-based application service provider, he had contacted all four banks last summer about backing for the one-year-old firm. But as soon as those mergers were announced, progress on any deal stalled. At least the DLJ bankers were up front with him. “They were completely sidetracked,” recalls Farber. “They said they would be doing us a disservice by pursuing our business.”

Farber remains upbeat about Urban Data’s prospects, but nevertheless worries that these merged monsters will look to do bigger and bigger transactions. “We will get our financing done,” he says, “but there are fewer top-tier players, and that makes it more difficult.”

Group Hug

After all, the CSFB/DLJ and Chase/Morgan combinations are just two of many notable banking and financial services mergers that have been announced since July. Also part of the mix are UBS AG’s $12.2 billion acquisition of Paine Webber Group Inc., Citigroup Inc.’s $31.1 billion purchase of Associates First Capital Corp., Dresdner Bank AG’s $1.4 billion offer for Wasserstein Perella, and FleetBoston Financial Corp.’s $7 billion bid for Summit Bancorp. And speculation in recent weeks has it that Lehman Bros. Holdings Inc. and Bear, Stearns & Co. are destined to be the next pairing to be announced.

Of course, such deal-making among deal makers is nothing new. The overarching idea is to combine commercial and investment banking activities under one roof to create a financial supermarket that offers customers the promise of one-stop shopping. Like Farber, CFOs and treasurers cannot afford to ignore these moves, but they tend to see them as largely inconsequential blips on their radar screens.

“It is a major event when two world-class banks merge,” says Geoffery Merszei, treasurer and vice president of The Dow Chemical Co., in Midland, Michigan, “but it’s just a continuation of a trend that started quite a few years ago.” So far, says Merszei, “the impact [on Corporate America] has been less than I’d expected.”

Moreover, some anticipate positive benefits from lever-aging their relationships with fewer financial institutions. “As these entities consolidate, I look forward to going to a single source for multiple products and services,” says Craig Monaghan, CFO of Fort Lauderdale, Florida-based AutoNation Inc. “I will have questions about whether we’re getting best-in-class in every category,” but in the long run, he adds, “we’ll end up with stronger, more-qualified partners.”


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