Two venerable New York savings banks, Anchor and Dime, said yesterday that they had agreed to merge to become the largest savings institution on the East Coast and the fourth largest in the country.
The combined bank will operate under the name Dime Bancorp and use Dime's headquarters in Manhattan. Richard D. Parsons, chairman of Dime and a key supporter of Mayor Rudolph W. Giuliani, will be chairman and chief executive
of the new company. James M. Large Jr., chairman of Anchor Bancorp, based in Hewlett, L.I., will be president.
The combined institution, with $20 billion in assets, will quickly become a strong force among New York's big banks. Dime said the combined company would do business with 750,000 New York region households. That would rank it fourth in the area behind Citibank, Chemical and the Chase Manhattan Bank, Dime said.
"You've just made a very powerful franchise out of two good franchises," said George L. Engelke Jr., chairman of Astoria Federal Savings of Lake Success, L.I.
Under the terms of the deal, valued at $1.2 billion, each Anchor share will be exchanged for 1.77 Dime shares. That arrangement will give 53 percent of the ownership in the new company to Dime's shareholders.
Dime said it expected to cut $50 million a year in expenses, about 15 percent of the total, as a result of the merger. It will eliminate 500 of 3,400 jobs, mainly management and operations positions. Six of 99 branches will be closed. The bank declined to say where those branches are.
Layoffs are not new for either bank. During the last three years, Dime has reduced its payroll to 2,000 jobs, from 4,000, and Anchor has made similarly large cutbacks.
Dime said it planned to grow by buying some of the New York area's small- and medium-size banks to become an attractive acquisition target for an out-of-state bank.
The New York area is one of the most fragmented banking markets in the nation. The three largest commercial banks have not been interested in acquiring any of the dozens of smaller banks, largely because their attention and capital has been devoted to recovering from problems like bad real estate loans.
Indeed, Chemical, which merged with the Manufacturers Hanover Corporation in1991, is closing 130 branches. Moreover, the big banks are focusing on more affluent customers, who increasingly want to do their banking using telephones, cash machines and computers rather than at branches.
Few of the large out-of-state banking companies that have bought banks around the country have been interested in venturing into New York. Most potential targets are either too big to afford or too small to be cost-efficient for outsiders to run. But the new Dime will be big enough to be an acquisition target for ambitious institutions like BankAmerica in San Francisco or Nationsbank in Charlotte, N.C.
"Hypothetically, if the banks are put up for sale in the future, they are a much more attractive franchise combined than individually," said Bowers W. Espy, an investment banker with Merrill Lynch who represented Dime in the merger. That is because the combination creates a denser network of branches that can be operated and advertised more efficiently, he said.
Looking at Acquisitions
Until then, Dime will be positioned to acquire other small banks and savings banks in the New York area. "There are about 50 savings banks in the area looking for an endgame," Mr. Parsons said. "We think we have created an answer for them."
In particular, he said, Dime is interested in acquiring banks in Queens, where it has only 2 percent of deposits. Dime said the combined company would be the No. 1 bank in Brooklyn, with 17 percent of the deposits, and No. 2 in Nassau County, with 9 percent of deposits.
Anchor is completing the acquisition of the Lincoln Savings Bank in Brooklyn, which has $2 billion in assets. And merger activity among the smaller New York banks has picked up sharply this year. In the last month, the North Fork Bancorp of Mattituck, L.I., paid $142 million for Metro Bankshares of Jericho, L.I., and the New York Bancorp of Douglaston, Queens, bought the Hamilton Bancorp of Brooklyn for $133 million.
"There's not an awful lot of loan demand and internal growth in New York, so the players large and small are looking to create efficiencies through mergers, " said Thomas F. Theurkauf, an analyst with Keefe, Bruyette & Woods, a New York brokerage firm that specializes in banks.
Both Dime and Anchor have climbed back from deep financial troubles in the last few years. At the end of 1991, 11 percent of Dime's loans were not current on their payments. Since then, Dime has reduced its bad loans by two-thirds, although they are still at high levels for the industry. Anchor expanded rapidly in the early 1980's and eventually faced a shortage of capital, causing it to shed many earlier acquisitions.
As both banks recovered, they began to look for merger possibilities. Indeed, Mr. Parsons and Mr. Large said they had talked about a merger for several years.
As the two largest savings banks in New York with similar businesses, Dime and Anchor were an obvious match. The deal was delayed as Dime worked to reduce its bad loans and Anchor pursued but failed to buy the Crossland Federal Savings Bank in Brooklyn.
Dime's board met earlier this year to review its long-range strategy and decided then to pursue a merger with Anchor, Mr. Parsons said.
"In the past, we had been focused on restoring the bank to health," he said. This year, we asked what do we do now that we are back among the living?"
After some preliminary discussions, Mr. Large and Mr. Parsons met early in June at Dime's headquarters on Fifth Avenue. There, they reached an agreement on the financial terms of the deal. They also agreed that Mr. Parsons would be chairman and Mr. Large, president.
The deal took another month to arrange, largely because the banks inspected each other's loan files. Both worked through the Fourth of July weekend to complete the final details of the merger agreement, which was signed in the early hours yesterday.
Analysts said one strength of the deal was the apparent rapport between the two executives and their complementary skills.
"There is good chemistry between the two," Mr. Theurkauf, the analyst, said. "Dick Parsons is a neat guy, a visionary. And Jim Large is a doer, someone who can get the job done."
Duties Described
Mr. Large, 62, a respected expert in turnarounds, will be responsible for running the day-to-day operations of the bank and especially overseeing the details of the merger.
Mr. Parsons, 46, will focus on long-range strategy. In particular, he said he wanted to expand in areas that provided income from fees rather than interest, like stock brokerage and mutual funds.
Shares of Dime fell $1.375, to $9.25, in trading yesterday on the New York Stock Exchange. Mr. Parsons said Dime's stock had been bid up during the last few days because of a rumor that Dime would be acquired at $16 a share. Shares of Anchor lost 43.75 cents, to $15.50, in Nasdaq trading.
Both banks are mainly traditional savings institutions, using money from accounts to finance home mortgage loans. Dime has made most of those loans in its branches and through a nationwide mortgage-banking operation. Anchor has invested the bulk of deposits in mortgage-backed securities made up of home loans in California. Loans in that state carry adjustable interest rates, which are not as risky for the bank.
The new institution chose the Dime name after conducting a survey that showed it was better known in the market than Anchor.
"Dime has been in operation since 1852 and had a little more push or oomph in the marketplace," Mr. Parsons said.
The banks said they hoped to complete the merger in January. At that point, Anchor's Long Island headquarters will be sold. One of the bank's two computer centers will also be closed. The combined bank will have 76 branches in New York, 18 in New Jersey and 5 in Florida.
