First Union Plans Biggest Bank Deal

First Union Corp. said Monday it will buy First Fidelity Bancorp. for $5.4 billion in the biggest U.S. bank buyout ever.

Charlotte, N.C.-based First Union will become the nation’s sixth-largest banking company. The transaction will create a bank with $123.7 billion in assets, moving it just ahead of Chase Manhattan Corp.

The combination underscores the rapid pace of bank mergers, which creates ever-larger financial institutions and means customers are constantly seeing their banks change ownership.

The pace of these mergers has accelerated as laws that historically have restricted bank activities have been relaxed or disbanded, making it cheaper for banks to operate across state lines.

Many banks are scrambling to find merger partners to increase their size and geographic reach. First Union, for example, will have 1,970 branches from Florida to Connecticut.

“This is the way banking is going to be. Get used to it,” said Brown Brothers Harriman & Co. analyst Nancy Bush.

Anthony Terracciano, chairman at New Jersey-based First Fidelity, said joining forces with a larger company was the best way to ensure that the bank could grow and compete in the rapidly consolidating Northeast banking market.

“We decided we needed a partner,” said Terracciano.

First Fidelity’s stocked soared after the merger was announced, closing up 10 at 59, while First Union’s shares closed down 1 at 45.

Shares of other banks frequently mentioned as takeover candidates also rose.Jacksonville, Florida-based Barnett Banks Inc. closed up 1 at 49 and Bank of Boston gained 1 to 36.

Among banks with operations in the Northwest, First Interstate Bancorp closed up 1 to 82 and BankAmerica gained . to 52

“I think the market is expecting an encore, and the stocks reflect it,” said Thomas Theurkauf, president of Keefe, Bruyette & Woods Inc.

First Boston Corp. analyst Tom Hanley said, “These corporate boardrooms are in a whirl right now, at least in terms of the Northeast.”

Hanley said other Northeast banks vulnerable to acquisition include Midlantic of Edison, N.J.; UJB of Princeton, N.J.; and CoreStates Financial Corp. of Philadelphia.