Amid the hoopla over bank mergers, consider this statistic: If you invest in a bank that buys other companies, chances are better than four out of five that the bank's stock price will underperform, according to Mitchell Madison Group.

After making acquisitions, banking companies underperformed their peers during the next three years 82% of the time, research by the New York consulting firm showed.

Banks performed by far the worst of any sector in Mitchell Madison's study of the consequences of mergers and acquisitions. The study tracked the performance of 282 mergers valued at more than $1 billion.

During the three years, companies from all categories in the study underperformed their peers 56% of the time after mergers.

Insurance companies underperformed their peers 57% of the time; telecommunications firms 44%. "Leisure" companies underperformed 29% of the time, manufacturing companies 54%, and all other sectors 55%.

As bad as 1998 has been for bank stocks, shares of banks that acquired others have fared even worse. A recent Credit Suisse First Boston study of 11 big financial services deals announced this year found that seven acquirers underperformed the Standard & Poor's regional bank index.

Though some could point to an unusually volatile year for bank stocks as a reason this year's acquirers have slumped, the Mitchell Madison study, which goes back to the dawn of the raging bull market in 1995, suggests even robust stock markets fail to reward companies that pay big prices to expand.

Kenneth W. Smith, a Mitchell Madison partner based in Toronto, said part of the reason bank stocks perform so poorly after mergers is that the market typically does not reward banking companies for realizing cost savings, the so-called synergies.

Investors have come to expect acquiring banks to live up to their promises to close branches and fire employees, and they generally do not reward them with higher stock prices for simply doing what they say they will do, Mr. Smith said.

Mergers tend to fall short of expectations because new, combined banks have difficulty devoting their energies to both integrating computer systems and retaining customers or attracting new ones.

"They generally focus on back-room integrations in the hopes that will minimize customer attrition. But it may be best to do all systems integrations at the outset and recognize that, no matter what you do, customers will be affected," Mr. Smith said.

Banks' tendency to account for mergers as poolings of interests may also hinder their stocks in the years after big mergers, he said. Poolings spare companies the burden of millions of dollars worth of goodwill, which must be subtracted from reported earnings over many years. But such accounting restricts companies from repurchasing shares, selling assets, or other capital management that can benefit shareholders.

Whatever the reason, the stock of acquiring banks has underperformed their peers' by 13% in the past three years, according to Mitchell Madison.

The Mitchell Madison study is the latest in a growing body of research suggesting the wave of mergers does not benefit shareholders. But it is unclear whether such studies will stop CEOs from striking deals in banking or any other business.

"CEOs get off on these things," said John M. Lafferty, president of JM Lafferty Associates, a Chicago consultant who questions the benefits of mergers. "They get bigger jets, and shareholders are being asked to make two bets: that management will run the new, bigger company as well as the old one. The second is, they can find enough synergies to make the price they paid worth it.

"Those are two bad bets."

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