Analysts Calling Wachovia Deal Good -- for Competitors

Looking to play the First Union (FTU)-Wachovia (WB) deal? Check out regional competitors, starting with BB&T (BBT) and SunTrust (STI), analysts say.

The proposed $13 billion deal between North Carolina powerhouses Monday had analysts scratching their heads and talking up competing banks. While First Union CEO Ken Thompson has shown a commitment to undoing the acquisition-driven damage done by his oft-criticized predecessor, Edward Crutchfield, analysts say the Wachovia deal risks reviving the very demons Thompson sought to drive out: clashing cultures and out-of-control costs. Specifically, observers wonder how First Union's aggressive, acquisitive business style will meld with the conservative one at Wachovia, longtime banker to Tobaccoville. Others worry that growth numbers won't add up. Those factors could add up to opportunity for more focused regional names, analysts say. First Union shares slipped Monday while Wachovia's crept ahead, on a mixed day for bank stocks.

Manna a Manna

Robinson Humphrey banks analyst Christopher Marinac called the marriage "manna from heaven" for the smaller regional players, saying rivals like Atlanta-based SunTrust should get a boost should the task of completing the deal distract First Union and Wachovia. Prudential banks analyst Mike Mayo downgraded First Union to hold from strong buy, saying the timing is "early for FTU" and noting the cultural risk.

"There will be banks that will benefit from the turmoil" resulting from the linkup, says Putnam Lovell banks analyst Jennifer Thompson, who points out that revenue growth has been an issue at both First Union and Wachovia. "First Union seems more driven by cost saving as opposed to potential enhancement of revenue. You can cut costs but at the end of the day the combined company is still going to have similar revenue growth issues."

Thompson favors BB&T, SunTrust and Memphis, Tenn.-based National Commerce (NCBC), which also has a major presence in Raleigh-Durham, N.C., one of Wachovia's strong spots. (Thompson rates both Wachovia and First Union hold and her firm hasn't underwritten for either bank.)

Also high on the list of potential beneficiaries, according to Marinac, are SouthTrust (SOTR), a "large enough player in Atlanta to enjoy the confusion created among midsize and smaller borrowers," as well as Synovus Financial (SNV), which has operations in Georgia, South Carolina and North Florida. Synovus stands to gain "significantly at its 'grass roots' level," he says.

On It Goes

Marinac also named First Charter (FCTR), the largest remaining independent community bank in North Carolina, Mercantile Bankshares (MRBK), First Virginia Banks (FVB) and Provident Bankshares (PBKS), the last three of which compete in the greater Wasington, D.C., area, where First Union has "significant infrastructure."

Marinac downgraded both First Union and Wachovia to neutral Monday, saying the prospect of confusion as the two tie the knot offers "a strong endorsement for banks who have heavy overlap within the combined footprint."

First Union was off $1.67, or 5.23%, to $30.25; Wachovia was up $1.79, or 3%, to $62; BB&T was off 34 cents to $34.23; SunTrust was down $1.03 to $63.19; and National Commerce was down 35 cents to $24.83.

SouthTrust was down 29 cents to $44.82, Synovus was 3 cents lower at $26.87, First Charter was up 34 cents to $15.54, Mercantile was down 57 cents to $37.88, First Virginia was up 21 cents to $44.10 and Provident Bankshares was down 13 cents to $22.41.

>To order reprints of this article, click here: Reprints