Northeastern community banks looking to capitalize on the merger mania are running into an unusual situation involving big acquirers in the region: Nobody's buying.
Since the beginning of the year, six megamergers have been announced among 10 Northeast regionals, all historically active acquirers in Pennsylvania, New Jersey, and New England.
The result of the frenzy has been to cut down the number of potential buyers, at a time when many community banks are reassessing their own strategic options in light of the high premiums paid in many recent community bank transactions.
"What you're doing is removing some of the most active acquirers and leaving the next level of companies, too small to be able to buy," said Arnold Danielson, president of Rockville, Md.-based Danielson Associates. "Although you have a hot acquisition market, there may be some people who want to sell who will find there are no buyers at a reasonable price."
That's already the case in New England, where New Jersey's First Fidelity Bancorp. and Boston-based Shawmut National Corp. were driving the acquisition market. Their purchase by First Union Corp., Charlotte, N.C., and Providence, R.I.-based Fleet Financial Group, respectively, knocks them out as acquirers.
The Fleet-Shawmut deal would also remove Fleet from the market while it digested Shawmut. In addition, the merger would bring Fleet to its legal maximum in Connecticut market share.
Meanwhile, Bank of Boston Corp., despite its recent purchase of a Boston thrift, isn't viewed as a viable acquirer by most analysts because of lingering questions about its future. Several Bank of Boston merger attempts with other regionals this year were embarrassing failures. And BayBanks Inc. has made only two limited forays in two decades, both recently in New Hampshire. And Providence-based Citizens Financial Group Inc. is focusing on maximizing its existing network after bulking up to $10 billion in assets, although it's still interested in reasonable acquisitions within a 100-mile radius of Providence.
The shortage of big buyers is also acute in New Jersey and Pennsylvania, where all of the major regional acquirers are on the sidelines because of mergers.
Only Pittsburgh's Mellon Bank Corp. remains big enough to buy, but it has been viewed as more focused on nonbank activities, such as mutual funds, according to a report by Danielson Associates.
The community banks in the region can still look to smaller bank and thrift buyers, with about $2 billion to $6 billion in assets, some of which have already been active acquirers.
And such midsize banks are increasingly viewed by community bank directors as good opportunities for a "double dip" if they are in turn acquired. They are also more likely to be able to pay cash or cash and stock because they are usually better capitalized than the bigger companies.
"It's certainly not a bleak situation for sellers," said Ben Plotkin, executive vice president of Ryan, Beck & Co.
But these midsize banks also can't pay the high premiums that the regionals can afford and aren't big enough to absorb many community banks, observers say. And with the regionals gobbling each other, the midsize banks have now become the favorite targets of outside superregionals or foreign banks looking to enter the competitive market or build up their existing presence quickly.
That means the many community banks which are now studying their options and which might be ready for a sale in a few months may find that the familiar buyers are not as interested or do not exist, warned Tom Rudkin, an investment banker with Advest Inc. in New York.
"All these shareholders and directors are thinking they can be bought for more than two times book," Mr. Rudkin said. "That might not be the case anymore."
And the problem for community bank sellers won't diminish once the big buyers have finished digesting. After the consolidation settles out, the large buyers will probably reexamine their corporate strategies to determine if they will grow more efficiently through acquisitions or alternatives such as electronic banking.
"The buyers are a little bit more focused on what any particular deal does for their franchise and their earnings," said Peter J. Ostrowski, managing director of Ostrowski & Co. in New York. "Bank of America or NationsBank is not looking to buy a $100 million-asset bank as a foothold in New England."
