NEW YORK -- Chemical Banking Corporation officially merged Tuesday with Manufacturers Hanover Corp., creating what is for now the second-largest U.S. bank holding company.
It's the largest American banking merger so far, and creates a new giant with estimated total assets of nearly $140 billion -- second among U.S. banks only to Citicorp, whose assets total over $224 billion.
But Chemical Bank, as the newly merged company will be called, is not expected to hold that spot for long. The previous No. 2, San Francisco- based BankAmerica Corp., is in the process of merging with No.5, Security Pacific Corp., of Los Angeles. When that officially occurs, BankAmerica will again be second, with Chemical third.
Prior to the merger, Chemical ranked sixth, with total assets of $73. 7 billion as of Sept. 30. Manufacturers Hanover was eighth, with $65.6 billion.
The merger marks the end of an era for 'Manny Hanny,' which traces its heritage back to the 1850s, when The Manufacturers Trust Co. was started in the then-independent city of Brooklyn, shortly after The Hanover Bank had opened for business across the East River in Manhattan. The two merged in 1961.
Manufacturers Hanover will cease to exist as an independent corporate entity, with Chemical technically buying it out in an all-stock deal. Stockholders will receive 1.14 shares of Chemical stock for each Manufacturers Hanover share.
But Manny Hanny's influence will still be felt. For one thing, its chairman and chief executive officer, John F. McGillicuddy, will assume the top spot at the newly merged bank, with Chemical CEO Walter Shipley becoming president and chief operating officer.
The company's new logo will combine the Chemical name and diagonally striped Manufacturers Hanover corporate symbol. Chemical will move its headquarters from leased offices at 270 Park Avenue in Manhattan, across the street to Manny Hanny's company-owned building.
The prospect of saving millions of dollars in office leasing costs was a key factor behind the decision of the two banks to merge. They also expect to generate other savings by eliminating duplicate corporate structures and overlapping branches.
Banking analyst James Hanbury of Wertheim Shroder & Co. Inc. said both have had problems in the recent past, suffering like many large banks from weak earnings and bad international and real estate loans.
'The reason to do the merger is to try to deal with the problems by developing a new income stream from savings, as you eliminate overlapping costs of two banks operating in the same marketplace,' he said. 'They estimate $650 million in savings by 1994 -- an income stream that either bank, by itself, did not have.'
Chemical announced Tuesday it was raising both its estimate of annual cost-savings expected from the merger and its one-time earnings charge covering the expenses of restructuring connected with the merger.
Chemical raised the earnings charge to $625 million from $550 million. The charge will be reflected in 1991's fourth-quarter results.
It also raised to $750 milllion the estimated annual cost-savings it would reap, from $650 million previously. Chemical said the new estimate reflects additional opportunities for savings in occupanc, technology and other corporate-wide expenses identified during the merger transition process.
Hanbury said Chemical plans to use the promise of those savings to help it recapitalize by $1.25 billion through the sale of new stock. Other savings are expected from the elimination of 6,200 jobs by the two banks, which together have a combined work force of 45,000.
Since the merger plan was announced July 15, a spokesman for the former Manufacturers Hanover said about 1,100 employees have left -- by attrition, retirement and, in some cases, layoffs. Those job cuts have been about evenly split between the two companies, and future job cuts are likewise expected to be evenly distributed. He said there definitely will be more layoffs.
'If they do what they say they're going to do' to generate savings, Hanbury said, 'they would have lower costs, higher earnings and, in turn, higher capital. They will be more competitive.'
He saw the new combined bank as being in a position 'certainly to own middle-market banking' in New York, in terms of providing lending and cash-management services to small and medium-sized businesses. Both the pre-merger Chemical and Manny Hanny have traditionally been very strong in this area, and a Chemical spokesman said the new bank expects 'to be doing business with over 50 percent of such businesses in the nine-county New York metropolitan area.'
'We will also rank first in primary relationships -- as lead bank -- with major corporations,' the spokesman said.
In retail banking, even though the two holding companies merged Tuesday, their flagships, Chemical Bank and Manufacturers Hanover Trust, will for now operate separately, until they are combined, which is to take place by June 30.