If a banker had suggested at this time a year ago that there would be more than $73 billion of bank deals between then and now, he or she would have been dismissed as a dreamer.
Of course, in 1995 the fantasy became reality: A venerable money-center bank was sold; Wells Fargo & Co. launched a $10 billion hostile bid; once- mighty chief executives were humbled; and shareholders and directors, once pawns, became kings in the new age of mergers.
Indeed, some of last year's action has alrady carried over into January. Last week, Wells Fargo prevailed in its pursuit of First Interstate Bancorp.
It wasn't so much that 1995 was the year of so many deals, it was that it was the year of the big deal.
Actually there were more than a hundred fewer merger and acquisitions in the banking industry last year than in either of the last two years - 420 deals versus 564 in 1994 and 477 in 1993, according to SNL Securities.
But the aggregate value of the deals, at 73.1 billion, was over three times the volume of those years, including deals involving thrift institutions. By comparison, 1994's total deal value was $22.4 billion.
Last year, $541.6 billion of banking and thrift assets were sold, versus $190 billion a year earlier. And $385 billion of banking system deposits changed hands, against $147.4 billion the previous year.
Among the states, surely none felt these seismic changes in the banking industry more than New Jersey.
By one brokerage firm's count, 85% of the state's deposits changed hands last year. Names like First Fidelity Bancorp., UJB Financial Corp. and Midlantic Corp., once the state's top banks, all agreed to merge.
But banking mergers swept across virtually the whole country last year.
With banking revenues shrinking, technology costs expanding, industry overcapacity, good asset quality and, last but hardly least, a soaring stock market, the perfect conditions were in place in 1995 for a tidal wave of consolidation.
"The stars were in alignment," said industry analyst Michael K. Diana of Bear, Stearns & Co., New York. Nor does he believe it's over yet. "We are just in the third or fourth inning of the merger cycle," Mr. Diana said.
Acquisition prices were up last year - up dramatically by one measure and more moderately by another.
The average price paid last year for a commercial bank was 179.1% of its stated book value per share, versus 168.7% the year before and 167.9% in 1993.
Prices as a factor of banks' tangible book value also rose - to 184.5% from 172.1% the prior year and 171.7% two years ago.
Purchase prices in relation to earnings, a yardstick preferred by some analysts, also rose. Last year, the median price paid was 15.6 times a bank's earnings for the previous 12 months, up from the previous year's 14.4 times earnings.
Acquisition prices as a multiple of commercial bank earnings have actually remained relatively constant at about 15 times earnings.
Perhaps not surprisingly, acquisition prices for thrifts are more volatile. Last year, prices paid for thrifts jumped to a median level of 18.8 times earnings from 13.8 the previous year and 14.1 in 1993.
At the same time, average purchase prices for thifts fell in relation to book value from a year earlier - to 143.9% of stated book from 154.4% and to 147.2% of tangible book from 158.9%.
The year of merger mania began in earnest last spring with the sale of Michigan National Corp. to National Australia Bank.
Soon thereafter Fleet Financial Group surprised the industry with a deal to buy Shawmut National Corp. and consolidate its already sizable presence in New England.
The deal had been persistently rumored, but the whispers were not taken seriously by many industry observers, who felt Shawmut was too big to be acquired. Those "too-big-to-be-acquired" rumors were rarely heard again.
In May, U.S. Bancorp., Portland, Ore., agreed to buy Idaho's West One Bancorp., positioning it as the largest independent by far in the Pacific Northwest.
But the unexpected blockbuster transaction that really got the ball rolling was First Union Corp.'s $5.4 billion deal for First Fidelity Bancorp., at the time the largest in banking history.
From that point in late June the deals crashed forward, most announced on Monday mornings, leaving industry watchers guessing what deal awaited them after each weekend.
There was PNC Bank Corp. buying Midlantic, UJB Financial consuming Summit Bank Corp - but taking the Summit name - CoreStates Financial Corp.'s ill-conceived and failed attempt to merge with Bank of Boston Corp., and its eventual merger with Meridian Bank Corp., and First Chicago Corp.'s merger of equals with NBD Bancorp.
And in late August, just when the summer was winding down and most observers thought they had seen it all, the long rumored mating of Chemical Banking Corp. and Chase Manhattan Corp. arrived in a $10 billion blockbuster.
Then, two months later, Paul Hazen of Wells Fargo would do that one better and launch a slightly more expensive merger - and a hostile one - taking his company to the gates of First Interstate.
First Interstate soon hooked up with a white knight, First Bank System, but that deal looked to be on shaky ground by late January 1996.
Finally, to close out the year, Fleet Financial Corp. bought Natwest Bancorp. from National Westminster PLC, and Bank of Boston, after dumping its chief executive Ira Stepanian in the wake of the CoreStates episode, bought BayBanks Inc.
Some of the deals were driven by unhappy shareholders like Heine Securities' Michael Price, who helped propel both the Michigan National and Chase Manhattan sales.
Institutional investors flexed their muscles, pushing once inactive and content managements to sell their banks.
Board activism also reared its head, helping to drive Mr. Stepanian from his bank, and was a force in convincing Meridian Bancorp.'s chief executive, Samuel McCullough, to sell his beloved bank.
Mr. McCullough and some other chief executives who ended up as sellers last year, notably including Anthony P. Terracciano of First Fidelity, had in past years been buyers. It was that kind of year.
While observers expect these trends to continue, they do not expect more hostile deals, even if Wells Fargo succeeds in its effort to acquire First Interstate.
Specific and compelling factors precipitated the hostile bid by Wells, just as they did Bank of New York Co.'s unsolicited but ultimately successful 1988 effort to acquire Irving Bank Corp.
Wells had courted First Interstate for many years. There were many in- market synergies to support the bid and no other in-market buyers to hamper it.
Moreover, Wells by last October had the stock price to back up its bid. Its stock price then traded at nearly three times its own book value, giving it the powerful currency it needed to launch its effort.
Will the momentum of dealmaking carry on into 1996?
You bet, say the experts, who continue to see vast overcapacity in the industry and revenues under pressure. Only deteriorating asset quality or a weak stock market could hamper further consolidation, they said.
"The momentum has been so strong here in the past year for all the right reasons, it is tough to think it will slow down long term," said Emmett Daly, an investment banker with Keefe, Bruyette & Woods Inc.
Others point out that traditional acquirers like BankAmerica Corp., NationsBank Corp. and Banc One Corp. largely sat out 1995, and regions like the Midwest and Southeast saw few deals last year.
However, because of the rash of big deals in 1995, some are predicting 1996 will necessarily see a slowdown as banks look to digest their new partners rather than foray into other acquisitions.
"A lot of the larger players will sit on the sidelines in 1996," said Milton Berlinski, an investment banker in Goldman, Sachs & Co.'s financial institutions group. "The thing that could really slow the deals down is an uptick in asset quality problems."
But even Mr. Berlinski conceded that Fleet's recent buy of Natwest, just before it closed the deal on Shawmut, could ground that theory.
And Mr. Daly said he sees a trickle-down effect occurring this year: After the blockbuster deals of last year, smaller regional banks will get in on the merger action in 1996. Banks like OnBancorp., First Empire State Corp. and Dauphin Deposit Corp. were all inactive last year, he noted.
Mr. Berlinski also expects banks to become more active in nonbank arenas like asset management and commercial financial companies.
Banks have been "big lookers" when it comes to money management firms, but there have been few purchases. With a dwindling number of $10 billion asset and larger money managers, only a few banks will be real players in this arena, he said.
In fact, he expects a number of smaller banks to unload their asset management portfolios.
