As banking undergoes unprecedented consolidation, a handful of companies have remained serenely above the fray, seeming immune from the acquisition game except on their own terms.
In an era when megadeals are unveiled regularly, the status of such institutions as Fifth Third Bancorp, Star Banc Corp., First Tennessee National Corp., SunTrust Banks Inc., Northern Trust Corp.,and State Street Corp. both captivate and baffle Wall Street.
While these companies operate differently from one another, analysts generally agree these banks perform so well for shareholders that there is no reason for them to either sell out or make a back-breaking deal.
Fifth Third and Northern Trust, in particular, are making so much money on their own that there appears to be no compelling reason for them to deviate from the paths they've followed, analysts say.
"There's no substitute for good management and top-line revenue growth," said Michael A. Plodwick, an analyst at Lehman Brothers, who said Fifth Third and Northern Trust are the top two revenue generators among the 50 banks he covers.
Most mergers are touted as boons to efficiency, primarily through expense saving, that will eventually show up in the bottom line. But Mr. Plodwick noted that "you can only cut costs for so long. In the end, you need some sort of revenue growth."
Northern Trust and State Street might be expected to remain outside the merger game, since they both specialize in the fee-generating business of trust and custodial bank services. State Street, however, appears to have been eyed another big trust bank, Bank of New York Co., which tried to double its stake in the Boston banking company last year.
Wall Street has rewarded Northern Trust and State Street with shares valued at more than 20 times earnings - meaning they trade at levels associated more with mutual funds than commercial banks.
And indeed they are not like most other banks. Neither takes many customer deposits or delves much into the commercial or retail lending that keeps most banks busy.
The companies have also benefited from the high cost of entry into their business. More and more banks have forsaken trust and custodial banking because of the massive technology costs necessary to provide the service at a competitive cost. First Chicago NBD Corp., for example, recently got out of the business and started referring customers to its neighbor, Northern Trust.
State Street, in particular, has been especially aggressive in being the lowest-cost provider of these services. "They've gotten huge volumes of business doing that and it's great now," said one Wall Street dealmaker, "but if market psychology shifts in some major way, that volume has a way of crashing down on you."
Northern Trust, this dealmaker said, is even less likely to sell anytime soon, in part because a single family, the Smiths, owns about 14% of the company's stock.
"Northern Trust is the bank everyone wants, which is probably why they're not selling," said one investment banker. "But really, it's up to the Smiths whether Northern Trust is ever to sell."
The other so-called "untouchable" banks - Fifth Third, Star Banc, First Tennessee, and SunTrust - owe their continued aloofness from merger mania as much to their geographic isolation as to their lofty share prices.
Fifth Third and Star Banc, both based in Cincinnati and both considered among the best-run banks in the nation, trade at industry-high multiples for plain-vanilla commercial banks. Fifth Third trades at 27.3 times estimated 1998 earnings, and Star Banc trades at 20.6 times.
That means a buyer would have to fork over an enormous amount of money for banks located in markets that are not considered essential to building a national franchise.
"About the only bank that could buy Star Banc is Fifth Third," Lehman Brothers' Mr. Plodwick said. Indeed, Fifth Third launched a bid for Star Banc several years ago, but was rebuffed and quickly withdrew.
Advisers to mergers doubt many outsiders would make a bid for either bank now.
"Nothing wrong with Cincinnati, but it's not the first place anyone looks when they're talking about building a bank from coast to coast. Same for First Tennessee," said a merger adviser who's advised many of the biggest banks on their biggest deals.
SunTrust might be the most beguiling bank franchise in the business. The Atlanta-based company has remained independent while empire-builders NationsBank Corp. and First Union Corp. have snapped up its neighbors. The bank has avoided a major acquisition of its own, and intends to continue that path for the foreseeable future, said chief executive James B. Williams in a recent interview.
But analysts think that SunTrust is likely the most vulnerable of the untouchables, if only because its franchise in Georgia and Florida might tempt a buyer to make the same eye-popping offer that persuaded Barnett Banks Inc. and CoreStates Financial Corp. to sell.
"SunTrust's fee generation business is nothing special," an investment banker said. "But like that rabbit on TV, they just keep going and going."