In the past few years, millions of Northerners have learned to shop at Wal-Mart.
In the end, First Union Corp.'s announcement Monday that it will acquire First Fidelity Bancorp. for $5.4 billion is a bet that Baltimore, New Jersey and Philadelphia will learn to love banking at Wal-Mart, too -- figuratively, that is.
The merger is the latest wave of consolidation that is sweeping banking nationwide, and which analysts expect to put a hard squeeze in the next few years on midsized banks like those that have traditionally served Baltimore.
The big players will be much bigger, using their size to drive costs down and gobble up smaller competitors.
Like the Arkansas retailing giant, they will use their money to buy superior technology, more savvy marketing, and a broader menu of ways to help customers save and invest that blurs the traditional line between Main Street and Wall Street finance. And they are supposed to crush the Signet Banking Corporations and Provident Banks of Maryland of the world like so many small-town dime stores.
First Union's chairman, Edward E. Crutchfield, and its president, John R. Georgius, believe their bank will be among the biggest of them all, shedding its reputation as a once-sleepy bank in Charlotte, N.C.
"What we've been trying to create is a bank that looks two-thirds like a traditional bank and one-third like a Merrill Lynch," Mr. Georgius said. And, he admits, a little like Wal-Mart.
"I'd say it's very close to that," he said. "We spend a lot of time on details."
U.S. banking has always been shaped as much by the law as by economics. Compared to other nations, the U.S. has many more banks because laws prevented banks from operating in more than one state.
And banks couldn't do as much for customers as their foreign counterparts, because of Depression-era laws keeping banks out of the securities business.
In 1973, Mr. Crutchfield became president of First Union Bank of North Carolina at the age of 32. The bank, then about the size of today's Farmers National Bancorp in Annapolis, is what it is because Mr. Crutchfield saw in the early 1980s how the laws were changing.
He was particularly struck by a 1985 Supreme Court decision allowing interstate banking prohibitions to be gradually lifted.
"I had talked to Crutchfield before that [court decision] and he didn't think it would go through," said John J. Mason, an analyst who follows First Union for Interstate/Johnson Lane in Atlanta. .. "But he told me that if it did, he would have to cross state lines and buy the biggest thing he could. Theoretically, if you waited too long, someone else would grab the best thing left."
So away Mr. Crutchfield went. In 1985, First Union had $8 billion in assets, making it smaller than First Maryland Bancorp is today. By last year, it was $77.3 billion.
And when the last of the interstate banking limits go off the books in September, First Union will be even freer to make acquisitions.
Anthony Davis, a Dean Witter analyst, points out that these same restrictions helped protect First Union's turf in the southeast from bigger rivals, such as Banc One Corp. of Columbus, Ohio, and BankAmerica Corp. of San Francisco.
"By the time we got to 1984, we knew what we had to do," said Georgius, who said First Union thought $25 billion in assets would be big enough to preserve its independence. "We had to prepare either to be sold, to try to grow, or to do nothing. We made a decision we were going to try [to grow]. What we didn't realize was it was going to take a lot more."
So many mergers were being perused that Mr. Georgius took over First Union's day-to-day operations to enable his boss Mr. Crutchfield to pursue deal-making full-time.
The deals started small -- a $3.6 billion bank in Florida, a $2.6 billion company in North Carolina, and a flurry of banks as small as $35 million in assets.
The biggest deals began with two Florida takeovers in 1990 and 1991 when First Union took in $19 billion in assets, followed by four Virginia banks with assets totaling $17.5 billion.
First Union's stock has produced a total return approaching 200 percent over the past five years, outperforming the Standard & Poor major regional bank index, which returned 78 percent over the same period, and rival NationsBank Corp., whose stock returned 65 percent.
First Union's stock hit a 52-week high of $50.625 earlier this month but lost ground on news of last week's First Fidelity deal, closing Friday at $45.25, up 25 cents.
The latest of 59 acquisitions, the First Fidelity purchase will make First Union the nation's sixth-biggest bank, allowing it to expand into New York, New Jersey, Pennsylvania, Connecticut and Delaware.
It will have nearly 2,000 branches, including the 63 in Maryland it bought from First Fidelity. (First Fidelity moved into the state only last year by buying the Bank of Baltimore and agreeing to take over branches of Household Bank and the defunct John Hanson Savings and Loan.)
First Union will have the third-biggest share of deposits in the Baltimore area, said Arnold Danielson, a Rockville banking consultant.
But he said Baltimore isn't a big part of First Union's strategy. Earlier this year, he said, the bank was selling Baltimore-area branches it had acquired in its 1993 takeover of the First American Bank chain in Washington, Maryland and Virginia.
Overall, the $700 million bank Mr. Crutchfield took over two decades ago will have $123.7 billion in assets, 10.5 million customers and operations in 13 states.
Mr. Crutchfield touts First Union as the model bank of the future. "Within the next decade, I believe that 10 to 15 major financial institutions will control 50 percent of the nation's banking business," Mr. Crutchfield wrote in First Union's 1994 annual report.
He plans to be running one of them.
"He's driven to win," said Mr. Mason, the Atlanta analyst. "And his twin is right up the street" in Charlotte.
That would be Hugh McColl, chairman of NationsBank. NationsBank is the fourth biggest bank in the country, and took over Maryland National Bank, Maryland's biggest, in 1993.
Comparisons are inevitable, with NationsBank and First Union both zooming from early beginnings in Charlotte to the top in the last decade, each led by charismatic hard-nosed bosses.
"The easiest distinction is the loan and customer mix," Dean Witter's Mr. Davis said.
NationsBank is a big, corporate bank at heart. It lends more money to corporations than consumers, and more of the money it lends to businesses goes to big companies.
First Union, like First Fidelity, divides its lending about evenly between consumers and businesses. And its business lending is concentrated on middle-sized companies, with an average loan smaller than NationsBank's.
Both banks avoided the heavy concentration in commercial real estate lending that forced the sale of MNC Financial and pulverized other mid-Atlantic banks. At year-end, First Union had only $1.7 billion in real estate construction loans, the type of lending that went sour for so many banks.
But within its midsized company markets, First Union uses its size to provide traditional bank services and more, analysts contend.
They said First Fidelity customers who stick with First Union can expect to see a wider offering of mutual funds, more ways to access their accounts electronically, and marketing tailored to each customer.
Business customers can expect more sophisticated help with small-scale investment banking services, especially since First Union is one of only 10 U.S. banks authorized to underwrite stock and bond offerings. NationsBank also has that authority.
"The consumer is going to have much more options with these mega-banks," said Sandra Flannigan, a Merrill Lynch & Co. analyst. "Over time, the average plain-vanilla banks don't have the scale to make the investments in technology. I can't emphasize enough how important marketing skills are going to be. Do [midsized banks] really have the earnings capacity to invest in the people and the training they're going to need?"
That sounds a lot like the formula Wal-Mart has used to outmaneuver retailers like Kmart that used to be much bigger than it was. Wal-Mart has wiped out a lot of neighborhood retailers as well.
But small banks welcome the rise of the super banks, figuring they can still use their local identity to get the 50 percent of the market Mr. Crutchfield isn't after. Even some midsized banks that analysts think will eventually have to allow mega banks to take them over don't sound too worried.
"Wasn't that First Fidelity's pitch, too?" asked Peter M. Martin, president of Baltimore-based Provident Bankshares Corp. Mr. Martin says lots of stores compete profitably with Wal-Mart by appealing to niche markets or offering more personal service. That's Provident's plan.
Wall Street is betting Mr. Martin is wrong, and spent the week bidding up bank stocks on takeover speculation.
Some analysts think the good times being experienced by midsized banks are a fluke based on unusually wide differences between short-term and long-term interest rates, coupled with very low loan losses after banks cleaned up their early-1990s real estate woes.
First Fidelity leaders saw the trends and knew they couldn't keep up forever.
Last year's interest rate increases made that plain as First
Fidelity's profits plummeted in the second half of 1994 and early this year. That's why First Fidelity sold out now, said Nancy A. Bush, a Brown Brothers Harriman analyst.
"It's an evolution, not a flip-the-switch transition," said Mr. Davis of Dean Witter. "For a while, local banks will do very well. But they're not going to improve."