If anyone still doubts whether the consolidation of U.S. banks has kicked into high gear, the frantic pace of mergers and acquisition activity in the dog days of summer - when things are usually pretty quiet - should confirm it. At the rate things are going, bank M&A in the second half of this year could easily exceed the first six month's record-setting pace.

According to U.S. Banker's survey of M&A activity for the first six months (See "Shake, Rattle and Roll," September 1995), there were 100 announced bank deals with a total value of $37.7 billion. Included in this period were several notable transactions, including First Union Corp.'s purchase of First Fidelity Bancorp.

[Expanded Picture]But through the summer months of July, August and September - when much of the nation was caught in the grips of a brutal heat wave - bank M&A stayed just as hot. Through this period there were seven deals whose combined value alone totaled $24.1 billion. included was - for now at least - the largest U.S. bank merger ever: the long-rumored marriage of two New York City money centers, Chemical Banking Corp. and Chase Manhattan Corp.

Assuming bank stocks don't collapse or the economy stalls, there's no reason why this pace won't continue. The mergers are being driven by a variety of factors. Revenue for most banks has been modest at best - although curiously enough, bank stocks have remained high in part because interest rates have stayed low. This has given many institutions a strong currency - virtually all major bank deals are done for stock - and a compelling reason to spend it.

There's also a lot of strategic jockeying going on. Smaller banks worry about being boxed in by a larger competitor - a threat that should remain in place for the foreseeable future. This probably explains UJB Financial Corp.'s $1.2-billion acquisition of Summit Bancorp in mid-September. Both institutions are located in New Jersey - as were First Fidelity and Midlantic - and when faced with competing against First Union and PNC, sought comfort in one another's arms.

Larger banks view M&A as a zero sum game: Once a smaller instutition has been acquired by one of their competitors, the target list shrinks by one. Gruntal & Co. analyst Kate they don't do them fast, they could all be gone," she says.

The second half has also seen the continuation of dillutive acquisitions-both NationsBank Corp. and UJB paid about 2.4 times book value in their deals. "Since stock prices are up 30% to 35% this year, investors are willing to take some dilution since (the deals) are usually accretive later on," Blecher says.

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