The record-breaking surge in merger announcements over the past month is just the beginning of a major wave of consolidation, bankers and analysts say.
"The stars are in alignment," said analyst Raphael Soifer, of Brown Brothers Harriman & Co. "Bank stock prices are high enough that there's less resistance to selling than there had been. The acquirers' stock prices are high as well, in that sense they're able to afford it."
Analysts said a merger frenzy seemed to take hold with the announcement last month of a merger between First Union Corp. and First Fidelity Bancorp, after a lull since the beginning of the year when Fleet Financial Group and Shawmut National Corp. announced their pact.
The First Union deal was the largest ever, with a transaction value of $5.4 billion. It was quickly followed by the seventh-largest deal on record - a pairing of PNC Bank Corp. and Midlantic Corp. - and by the second- largest deal, the merger of equals unveiled Wednesday by First Chicago Corp. and NBD Bancorp.
The sudden flurry of activity has pundits wondering who might be next, and giving serious thought to some potential pairings - a marriage between Chase Manhattan Corp. and Chemical Banking Corp. is one - that could soon leave these records in the dust.
The experts said a number of factors other than higher stock prices have contributed to the sudden surge.
For one thing, many bankers are coming to grips with the prospect of slower revenue growth in the year ahead.
Richard Kovacevich, the chief executive of Norwest Corp., Minneapolis, said it was a coincidence that three deals were announced in such short order. But he added that mergers probably are high on the list of options open to bankers as they ask themselves what to do to offset the "negative growth" in profits that looms at this point in the credit cycle.
"A lot of them are saying, 'I've gotta go look for some sort of a merger that can increase revenue and reduce cost that I couldn't do alone,'" Mr. Kovacevich said. "If they don't do that and the earnings begin to suffer and the earnings of other banks don't suffer, then they are going to be in a very vulnerable position."
Other bankers said the need for new technology has smaller players hunting for partners with the scale to make the investments, or who already have the systems in place.
This is one reason mergers will beget more mergers, said William P. Boardman, senior executive vice president who has overseen acquisitions for Banc One Corp. for the last 12 years.
"If you are of equal size with all your competitors in your marketplace, you're on equal footing. The minute one or two begin to join companies that already have the critical mass, suddenly your life changes."
George Salem, analyst at Gerard Klauer Mattison, New York, said a "merger pandemonium" has taken hold, and said the deals that have already been announced will put pressure on companies in the Middle Atlantic states and Midwest to find partners.
"The First Chicago deal poured gasoline on a fire that was already burning," he said. "The structural consolidation we recognized for several years is now reaching fruition, and we're now reaching the early stages of it."
Some analysts cautioned that the merger frenzy could get out of hand, with bankers pulling the trigger on illogically priced deals. A similar scenario in 1986 led investors to "vote with their feet" and sell bank stocks later in the year, said Nancy Bush, who covers regional banks for Brown Brothers.
With several big mergers already announced, it is becoming easier to make a case for deals that would have seemed unlikely just a few weeks ago.
Just when First Chicago and NBD were announcing their deal, Sanford C. Bernstein & Co. analyst Ronald I. Mandle was releasing a report analyzing the potential cost savings and synergies between Chase Manhattan and Chemical, which would add up to the biggest bank in the nation, with more than $300 billion of assets.
Shares of Chase surged on a variety of acquisition talk Thursday, closing up $4.125 at $54.50. The stock traded as high as $55.50, before sinking amid rumors that it would acquire Bay Banks Inc. of Boston.
Mr. Mandle said he regards the chances of the deal occurring as "less than 50-50," given the questions of managerial succession that would have to be resolved between Chase and Chemical.
But he said the arguments in favor of the deal were compelling. "It was something I've talked about with investors and written about in qualitative terms," Mr. Mandle said. At this point, Mr. Mandle said, he decided the time was right to provide some quantitative analysis.
Jacqueline S. Gold contributed to this story.
