The tightening of a window of merger opportunity -- between expected enactment of financial reform and a proposed change to accounting rules in 2001 -- could cause a possibly reckless flurry of mergers, analysts say.

Conventional wisdom holds that the repeal of Glass-Steagall firewalls would unleash a torrent of cross-industry mergers. Combinations would become cheaper and less restricted by revenue caps on bank securities operations.

"The pace of convergence will quicken," said H. Rodgin Cohen, a partner at Sullivan & Cromwell, a law firm in New York, who has worked on nearly every major bank merger.

But an unrelated policy effort to streamline merger accounting rules could blow frigid air through the new window of opportunity.

In September, the Financial Accounting Standards Board issued a proposal that would require merger partners to use the "purchase" method of accounting. Many banks eschew that accounting style because it often creates goodwill -- an intangible asset that must be written off and can drag down future net income. They prefer "pooling-of-interests," a more lucrative accounting method that FASB wants to prohibit as of Jan. 1, 2001.

In short, just as Capitol Hill is giving financial companies the green light to merge, accounting standard-setters are hoisting a stop sign.

Michael Mayo, a bank analyst at Credit Suisse First Boston, is among the industry observers contemplating the possible collision of financial reform with accounting reform. "One potential consequence is a merger boom followed by a merger bust," he said.

Under Mr. Mayo's scenario, banks, insurance, and securities companies would rush their marriage vows to beat FASB's 2001 deadline.

Not everyone agrees.

Arnold Danielson, chairman of the Rockville, Md.-based investment banking firm Danielson & Associates, said purchase accounting will be less problematic for banks seeking to acquire an insurance company, because insurers do not trade at the same high premiums. He said that if deal prices go as low as 160% or 170% of book value, "a purchase deal can make as much sense as a pooling deal." He said, "The goodwill issue gets minimized."

Mr. Mayo, however, suggests that banks take no chances. His solution: Ask Congress for a five-year delay of any rule change that would eliminate pooling-of-interests accounting.

"FASB might be upset," he said, "but you're doing away with a form of financial accounting when financial companies haven't had an adequate chance to merge."

Jeff Mahoney, FASB's Washington representative, said the pooling ban may not have the chilling effect on mergers and acquisitions that some are forecasting. He pointed to several recent Wall Street analyses suggesting that merger activity will not slow appreciably after 2000.

He said FASB would be powerless to fight Congress: "They generally avoid getting into any accounting issues, but they certainly can do anything they want."

The standard-setting group is accepting comments on its proposal through Dec. 7, and it plans to hold public hearings in February.

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