With mergers in the air, Fleet, BankBoston hold dance cards; State Street a wallflower

By Lynnley Browning, Globe Staff

hese days, New England banks liken Wall Street's merger machine to a dating service for wealthy, beautiful clients, where investment bankers whisper about potential matches and bank executives debate whether to march down the aisle with a competitor.

For months, the area's super-regional banks - Fleet Financial Group Inc. and BankBoston Corp. - have been plum merger candidates, spurring speculation that they may ally with a competitor or even with each other.

Although BankBoston's recent effort to drag Fleet to the altar failed last month when the suitor got cold feet, both banks are still looking for potential mates.

As such, they join other medium-sized and large banks that are contemplating pairing up with others as consolidation in the financial services sector accelerates.

''The consolidation trend is real and is irreversible,'' said Thomas F. Theurkauf Jr., a banking analyst at Keefe Bruyette & Woods. ''Most of the action will be at the large banks.''

A spate of mergers in recent months, sparked by the Citicorp-Travelers Group pact and followed by two other large combinations, has driven home the point: Many banks will not survive alone.

But not all banks in this city of strong financial institutions are seeking partners. State Street Corp., the bank holding company with a giant business in record keeping and processing securities trades or asset management companies, says it is not on the prowl.

''No, we're not for sale,'' said State Street's president and chief operating officer David A. Spina. ''We believe and our shareholders believe that as a specialized institution focusing on custody services, we are better served by being a focused organization than by being part of something else.''

But State Street, which spent last year fending off attention from Bank of New York, is still attractive to suitors. Revenues soared last year to $2.3 billion, and its stock has risen 27 percent this year through April after rising 80 percent in 1997.

With strong earnings and heated stock prices, Fleet and BankBoston are each in a position to select its mate, rather than simply be gobbled up.

Fleet, the nation's ninth-largest bank in terms of assets and the region's biggest, had more than $1.3 billion in earnings in 1997 and an above-average return on assets. Its stock has risen 8.9 percent this year through mid-May after gaining 51 percent in 1997.

BankBoston, the country's 15th-largest bank by assets, had earnings of nearly $850 million last year and a slightly lower return on assets than Fleet. A $66 million restructuring charge for a loan scandal at its private banking unit has not dented its stock, which is up 12 percent this year after rising 46 percent in 1997.

Few industry watchers were surprised that talks between the two collapsed.

''I could not pick two institutions that are more dissimilar,'' said Nancy A. Bush, an analyst at Ryan, Beck & Co. ''This would have been the ugliest beast.''

The two companies have different assets - Fleet has credit card issuer Advanta Corp. and discount brokerage Quick & Reilly, while BankBoston has branches across Latin America. ''It would have been a tough deal to have pulled off,'' said Theurkauf, adding the two companies would have needed to divest billions of dollars of holdings to appease regulators.

Plenty of other smaller and community banks may merge or consolidate. Analysts point to UST Corp., the parent company of US Trust and the last of the smaller, Boston-based banks, with assets of about $3.8 billion.

The state's legion of community banks could also partner up. Sandwich Co-operative Bank, a small Cape institution, recently found itself the subject of a four-way takeover battle before settling on a souped-up offer from The 1855 Bancorp, the parent of CompassBank, another tiny regional competitor.

''In this day and age,'' Theurkauf said, ''it just pays for a bank CEO to keep his eyes open.''