In the modern era of bank consolidation, dating to the middle of the last decade, 1998 was the strangest year of all.

Records were certainly shattered. An incredible $277.6 billion worth of mergers and acquisitions-more than the combined value of deals done over the previous three years-permanently changed the landscape of the industry.

The joining of Citicorp and Travelers Group as Citigroup sired a new breed of global financial services giant. The combining of NationsBank and BankAmerica as the new BankAmerica brought forth the first coast-to-coast banking company.

But it was also a year with a decidedly split personality. More than 80% of all dealmaking in 1998 took place during the exuberant first half of the year. In fact, three of the four largest deals of the year were struck within a 10-day period in April.

Then, starting in late July, the financial markets stumbled badly and consolidation ground to a halt. And while the banking stocks staged an astounding recovery, dealmaking did not.

Just 17 deals were unveiled in December 1998, versus 39 transactions in the same month a year earlier and 47 during the year's busiest month, July. But the nadir was November, when only eight deals were announced.

"Stock prices crashed and they've been volatile ever since," said industry analyst Michael A. Plodwick of Lehman Brothers, New York. "Because banks use their stock as deal currency, we need a period of some stability.

Moreover, he said, the reasons for the late summer swoon in stocks was very important where bank mergers are concerned. "A lot of people were afraid that what was happening globally would spill into the U.S. economy and cause a recession here.

"The last thing a banker wants is a major M&A transaction going into a potential recession," he said. "There is enough uncertainty about any bank's own credit quality without taking on what may be in somebody's else's portfolio.

"You really just can't know what's there, no matter how much due diligence goes on before a deal," he said. "And it's very difficult to price for that risk factor."

Still, Mr. Plodwick thinks there is growing pent-up demand for consolidation, "because the macro trends that led to all the M&A in the first place-lack of revenue growth, technology and others-have not gone away."

Another keen industry watcher, Nancy A. Bush of Ryan, Beck & Co., Livingston, N.J., said "stock price volatility has certainly put a damper on things, plus many of the likely players are basically full-it's the indigestion factor."

Moreover, bank stock valuations snapped back so quickly from their lows last fall after the Fed acted, that merger price expectations "are still outsized." That discourages dealmaking.

Finally, she said, "there's the Y2K problem on top of everything else," referring to the century-date changeover problem that may trigger problems in computerized data processing systems. If the testing phase for fixing these problems goes well, the problem may diminish, she noted.

Meanwhile, some banking companies that have been buyers of many other banks over the past decade, like Bank One Corp., are fully occupied right now. Others that have been buyers, like First Union Corp. and Fleet Financial Group, appear to be taking their time.

Of course, large bank mergers are only part of the picture. "There are only so many huge mergers of equals that can happen," noted Mr. Plodwick. "But at the next couple of levels down across the industry there are still a lot of banks that need to do deals."

Overall, prices for commercial bank mergers leveled off last year-but at a high level.

Average prices paid for banks peaked at a rich 2.62 times the book value and 21.9 times the earnings of the institution being acquired.

By yearend, those levels had eased back to 2.45 times book and 19.6 times earnings, but the average price tags were still above those at the end of the prior year-2.3 times book and 18.9 times earnings in the fourth quarter of 1997.

Beyond merger prices and volatile stock prices, what clearly stamped 1998 as memorable, however, was a headline-grabbing foursome of deals that rearranged the furniture of American banking.

The $74.3 billion Travelers-Citicorp combination-by far the industry's largest ever-was a cross-financial services watershed event between the banking and insurance sectors.

The $62 billion NationsBank-BankAmerica merger, the first large-scale banking franchise linking the East and West coasts.

The $34.5 billion Norwest Corp. acquisition of Wells Fargo & Co., creating the new Wells Fargo, a recharged banking enterprise centered in the West and Midwest but doing business in all 50 states.

The $29.8 billion joining of Banc One Corp. and First Chicago NBD Corp., creating a gigantic credit card issuer and a bank extending from the Great Lakes to the Gulf of Mexico and westward to Arizona.

There were other significant deals as well. The $10.2 billion planned sale of Bankers Trust Co., New York, to Deutsche Bank, Frankfurt, the largest bank bank in Germany. Announced Nov. 30, it was the largest transaction unveiled during the year's second half, and the biggest such U.S. deal ever struck by a foreign bank.

Washington Mutual Inc.'s $9.8 billion acquisition of H.F. Ahmanson & Co. established the Seattle institution as the West Coast powerhouse of the thrift industry. The deal occurred not long after Washington Mutual bested Ahmanson in competition to acquire Great Western Financial Corp.

Two well-known Wall Street institutions dominated as merger advisers last year.

The most active investment banking firm in bank mergers and acquisition during 1998 was New York's Goldman, Sachs & Co. It helped guide 10 deals valued at $142.8 billion.

Merrill Lynch & Co. ranked second, with a hand in 11 deals valued at $102.7 billion.

The biggest advisory firm owned by a commercial bank was NationsBanc Montgomery Securities, San Francisco, which was active in two deals valued at $62.6 billion.

Rounding out the top five were Credit Suisse First Boston Corp., seven deals valued at $55.4 billion, and Morgan Stanley Dean Witter & Co., five deals valued at $50.2 billion.

In numbers of deals handled, the busiest firms last year were Keefe, Bruyette & Woods Inc. and Sandler O'Neill & Partners, both specialists in the banking and thrift sector.

Keefe Bruyette was active in 27 deals valued at $8.7 billion while Sandler O'Neill took part in 36 deals valued at $6.3 billion.

Some of New York's largest and best known law firms were the most active legal advisers on the merger scene last year.

Leading the way was Wachtel, Lipton, Rosen & Katz, which helped handle 13 deals worth $152 billion. Second was Simpson Thacher & Bartlett, 11 deals worth $149.6 billion. Third was Skadden, Arps, Slate, Meagher & Flom, 13 deals worth $91.4 billion.

Fried, Frank, Harris, Shriver & Jacobson had a role in five deals valued at $75.3 billion while Shearman & Sterling helped in two valued at $74.3 billion.

Among the busiest firms, Atlanta's Alston & Bird took part in 21 deals valued at $6.4 billion, while Washington's Silver, Freedman & Taff assisted in 14 transactions valued at $3.9 billion.

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