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The Federal Reserve Board on Monday approved First Union Corp.’s $14.66 billion acquisition of Wachovia Corp. even though the deal formally violates antitrust rules in six markets. The bank regulator said the apparent antitrust violations are mitigated by special factors, such as the strength of other competitors in the regions in question and the high probability of new entrants to what constitute attractive markets. “In each of these markets the board has identified a number of factors that indicated the proposal would not have a significantly adverse effect on competition despite the increase in and resulting … market share,” the Fed said in the 84-page order. Several banking lawyers said the decision is further proof that the Fed is receptive to potentially problematic mergers. “The industry has changed and the world has changed since those guidelines were developed,” said Warren Traiger, a partner in New York law firm Traiger & Hinckley. “They are not as important any more. That is part of the message.” Traiger noted that financial customers increasingly conduct their banking from home, using the Internet and phone services. That makes concentration levels in local markets less important, he said. “This is a confirmation that the way we do banking has changed, Traiger added. H. Rodgin Cohen, a partner at law firm Sullivan & Cromwell of New York who helped shepherd the deal through the Fed, said the regulator has previously indicated it would be flexible in assessing the competitive impact of a deal when merging banks can show that federal guidelines fail to accurately portray the state of competition. Federal Reserve regulators “try to be flexible and accommodating in these situation,” Cohen said. “It is not rigid.” Separately on Monday, National Commerce Financial Corp. said it has agreed to acquire 37 First Union and Wachovia branches in North Carolina, South Carolina, Georgia and Virginia. The sale is expected to close in the first quarter of 2002. It was required as part of a July divestiture agreement with the Department of Justice. Terms were not disclosed. The Fed and the Department of Justice calculate a merger’s impact on competition with the Herfindahl-Hirschman Index, which uses market share data to create a concentration score of one to 10,000. The higher the number, the more concentrated the market. Regulators typically require divestitures if the HHI is above 1,800 and if the deal would cause a rise of more than 200 points Of the 60 markets where First Union and Wachovia compete, the Fed said 44 markets raise no antitrust issues. The North Carolina banks entered a consent decree with the Department of Justice last month to divest branches and deposits in 10 additional markets to resolve antitrust concerns. That left six markets where the market share of the combined banks would exceed limits set by the merger guidelines. The biggest problem appeared to be in Richmond, Va., where Wachovia is the second biggest bank and First Union is No 4. The HHI would rise to 1,865, a 435-point increase. But the Fed said the increased concentration is not a problem because 25 other banks or thrifts operate in Richmond market. The market also attracts new competitors — eight banks have entered since 1998. Similar circumstances exist in Asheville, N.C., where the HHI would hit 2,014, an increase of 334 points. The Fed noted that average per capita income in Asheville exceeds the state income average, which makes the market attractive to new entry. It also said the second, third and fourth largest rivals to the merged Wachovia would respectively have market shares of 14.9 percent, 12.1 percent and 8.7 percent. In Durham-Chapel Hill, N.C., the HHI would increase to 2,186, a 201-point rise. The jump in Elizabeth City, N.C., would be to 1,889, up 336 points. For Statesville, N.C., the HHI would reach 1,850, a 265-point hike. Winston-Salem, N.C., would see its score go to 3,268, the highest for any market. But the Fed said that is acceptable because the increase is only 201 points, one point higher than the guidelines permit. One source noted that strong competitors exist in all six markets, including SunTrust Banks Inc. which dueled First Union for Wachovia. “That is a highly relevant factor,” the source said. “If you have strong competitors, you don’t care as much about the numbers. That played a huge role here.” Copyright (c)2001 TDD, LLC. All rights reserved.

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