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First Union, Wachovia merger a sign of the times

At least one industry player says borrowers should not fret about a scarcity of lending options for the commercial real estate industry, despite a consolidation craze sweeping the banking sector.

According to Lisa Welch, a banking analyst at Boston-based John Hancock Funds, commercial real estate lending remains competitive. “There will be fewer lenders due to fewer banks,” she said. “However, I don't think it will have a negative impact in terms of enough lenders being around to continue the supply of loans for the [commercial real estate] sector.”

Welch also said that such talk of a bank scarcity is a misperception, since there are still more than 8,000 separately charted banks nationwide.

The analyst's comments come on the heels of an announcement in April of a merger between Charlotte, N.C.-based First Union Corp. and Winston-Salem, N.C.-based Wachovia Corp. The new entity will carry the Wachovia name.

In calendar year 2000, First Union Real Estate Capital Markets ranked No. 5 in NREI's survey of direct lenders to commercial real estate, with $6.5 billion financed. Wachovia, meanwhile, financed $6.2 billion of commercial real estate activity as a direct lender in 2000.

The new bank will serve 19 million customers, with total assets of $324 billion and a market capitalization of $45 billion. The merger is expected to be official in the third quarter of 2001, pending regulatory and shareholder approval.

Growing pains

The company has allotted a three-year integration period. During that time, the company will reduce its combined staff by 7,000. As one condition of regulatory approval, the combined company may be required by the Federal Depository Agency to divest approximately $1.5 billion to $2 billion in deposits. This move might require divesting whole bank branches into other banks.

“There are some redundant branches,” Welch said. In addition to the possibility of having to divest bank branches, it will be necessary to sell some Wachovia and First Union branches located within one mile from each other, she said.

“Branch closures will not begin for at least one year due to legitimate concerns about customer-service issues,” said banking analyst Nancy Bush of Livingston, N.J.-based Ryan, Beck & Co. It is expected that the bank will eventually consolidate 250 to 300 branches.

Excess space disposition is a concern in any banking merger. FleetBoston Financial Corp. turned to the Internet to dispose of redundant branches last year when it acquired BankBoston. This year, with the completed acquisition of Summit Bank, FleetBoston is once again heading to the World Wide Web to help dispose of its branches, according to Terrence Farrell, managing director of corporate real estate for FleetBoston.

The Web site,, features a picture of available branches, demographics of the area, a map and a sales package available for online purchase.

“We were the first financial institution to use a freestanding Web site for a disposition of branches,” Farrell said. He expects this marketing technique to grow in popularity because it allows the company to find out how much interest there is in a particular branch location by examining the number of Web-site hits and the number of paid requests for sales packages.

First Union and Wachovia spokespersons said that it's too soon to know how the disposition of the branches will be handled. However, once the branch dispositions, layoffs and technology integration have occurred, the company anticipates saving $890 million.

Despite that optimistic cost-saving projection, Bush isn't sure that the companies are factoring in enough for possible revenue losses. “The cost savings will, of course, be preceded by charges — $1.45 billion pre-tax, as well as a $450 million increase in the loan-loss allowance to cover greater exposures to credits where each bank had a piece,” she said.

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