For investment bankers involved in bank and thrift mergers, the first three months of 1999 were a washout compared with other quarters.
The decline of the M&A market has left financial advisers to emphasize other services and scratch around for specialized niches to exploit in leaner times.
Kirk Wilson, investment banker at Morgan Stanley Dean Witter, said that dealmakers are riding out the lull by helping banks divest business operations and redeploy the profits elsewhere.
Morgan Stanley is advising Mellon Bank on the divestiture of ATM processing operations.
The value of deals announced in the quarter slipped to $20 billion, versus $25 billion in the same quarter last year and $22 billion two years earlier, according to data compiled by American Banker and Sheshunoff Information Services, a Thomson Financial company.
In some respects the slowdown was expected after a frenzied period of consolidation last spring and summer. Industry watchers term these low points "digestion periods."
Activity also slowed in response to concerns about the hard-to-measure impact of the year-2000 turnover in computerized information systems.
Last, but hardly least, the industry was still dealing with last fall's dramatic collapse and recovery of stock prices.
On the front lines, financial and legal advisers who put together many deals, and investment analysts who track industry trends, said they believe the lean times during the winter will ultimately mean another burst of activity.
"Major deals will start up again," said Kirk R. Wilson, an investment banker at Morgan Stanley Dean Witter & Co. in New York. In the meantime, "banks are focusing internally on how to maximize their profits and bolster their stock prices so that they can become strong buyers."
Most advisers have been riding out the lull by helping banks divest businesses and restructure and redeploy resources. Morgan Stanley, for instance, is advising Mellon Bank Corp. of Pittsburgh on divestiture of its ATM processing operations.
Not surprisingly, the top four financial advisers gained most of their first-quarter business from the proposed $16 billion sale of BankBoston Corp. to Fleet Financial Group Inc. Announced on March 15, it was by far the largest transaction unveiled in the period.
Donaldson, Lufkin & Jenrette, Merrill Lynch & Co., Goldman, Sachs & Co., and Morgan Stanley were the quarter's top advisers, in that order.
The second-largest deal was the $411.6 million acquisition of Republic Banking Corp. of Florida, Coral Gables, planned by Union Planters Corp. of Memphis.
There was far more action abroad. In FranceBanque National de Paris wants to buy Societe Generale-Banque Paribas for $37.7 billion, and in Spain Banco de Santander plans to buy Banco Central Hispanoamericano for $11.3 billion.
Here at home, "discussions about mergers have remained high among bankers, but execution is slow," said Christopher Quackenbush, head of investment banking at Sandler O'Neill Partners in New York.
"Bank stocks' sagging hasn't helped," he said. "But eventually more middle-tier performers will attempt to solve their market growth problems, which will kick off more deals."
In the first quarter, Sandler O'Neill, which focuses on middle-tier financial institutions, did $89 million of announced bank and thrift deals, down sharply from its $493 million a year earlier.
One of its biggest recent deals, announced last year but closed during the first quarter, was New York thrift Roslyn Bancorp's $768 million deal for T R Financial Corp. of New York. Sandler O'Neill represented Roslyn.
After the dealmaking hiatus, what next? "We always say we're just going to the next smart thing," Mr. Quackenbush said. "Depending on the market, there are times when we are more active in capital markets, such as trust- preferred securities or mutual conversions."
Strong client relationships are paramount in quieter periods, he said. "We don't believe in providing one service or one product for a client. We believe in providing six."
Indeed, Sandler O'Neill is active in underwriting capital securities for smaller financial institutions and is also a leader in middle-market bank and thrift initial public offerings, he said.
When shares of North Fork Bancorp surged two weeks ago after its announcement of new Internet banking services, Mr. Quackenbush rushed to confirm Sandler O'Neill's links with the company.
"We're fine," said Mr. Quackenbush, who has worked closely with North Fork. "Herman Sandler (senior managing principal at Sandler O'Neill) is playing tennis with John Kanas," North Fork's chief executive.
Victor M. Richel, chief executive of Statewide Financial Corp. in New York, turned to Sandler O'Neill when he decided to sell his thrift to Independence Community Bank Corp. of Brooklyn. The deal was unveiled two weeks ago; Sandler O'Neill had helped take the thrift public in 1995.
"They took the time to know our company, know our business, and get a real intuitive feel for what our plans were," Mr. Richel said of the investment banking firm.
Sandler O'Neill has also been striving to become active outside the Northeast-Middle Atlantic region. It advised four clients who sold to BB&T Corp., an acquisitive $35 billion banking company in Winston-Salem, N.C. Sandler O'Neill was the financial adviser to First Liberty Financial Corp. of Macon, Ga., which agreed Wednesday to sell to BB&T.
"Chris is a very tough negotiator, meaning he is tough on us, which is good for his clients," said Burney S. Warren, executive vice president in charge of acquisitions at BB&T.