The slump in bank stocks has slowed bank merger activity.
High stock prices propelled mergers earlier this year. The value of new deals rose 27% from the fourth quarter to the first quarter.
But since early April, many bank stocks have fallen 15% to 20%. In many cases, gains for the year have been wiped out.
Data on bank mergers in this quarter are not yet available, but attorneys in the merger arena say activity has slowed to a crawl - and they blame lower stock prices.
Slowdown Seen Continuing
"There are absolutely things that would have gotten done if prices had held up," said Edward D. Herlihy, a lawyer with Wachtel, Lipton, Rosen & Katz.
The slump in prices has been harmful, agreed H. Rodgin Cohen, an attorney at Sullivan & Cromwell. "It is my experience that this will continue to be the case for a while," he said.
He added that since stock prices of both potential buyers and potential sellers are falling, deal activity should not have been affected by the correction. "But invariably it happens."
No |One-way Street'
Since peaking on April 12, the American Banker index of the largest 225 bank stocks has fallen 16.50%, and is back at its December level.
In contrast, the Dow Jones industrial average is ahead 6.3% this year and established several record highs in the past month.
"The correction has served to remind many managements that we are not on a one-way street to prosperity," said Brent B. Erensel, bank analyst at UBS Securities Inc.
"We had a 30-month bull market with stock prices nearly tripling," he added. "That bolstered confidence and relaxed pressure to find partners. But now some intelligent managements will have to rethink their positions."
Analysts think adjustments, including necessary psychological ones, will be made. And they think a cooling of merger prices also may be healthier for the industry overall.
Sellers will eventually come to realize that deals aren't materializing and have to lower their sights," said Gerard M. Cassidy of Tucker Anthony Inc. "Over time, the going prices at the top may slip back to 2.25 times book value or perhaps to twice book from the 2.5 times book levels reached earlier this year. That won't be so bad."
Francis X. Suozzo of S.G. Warburg & Co. said he also anticipates resistance to reduced selling prices by banks, "since the tendency is always to look at the last sale" and fundamental financial trends remain strong at many banks.
"But I think we're still in a fairly high-activity period for acquisitions," Mr. Suozzo said.
Mr. Suozzo said he thinks there are several reasons that deal activity will remain high despite the recent fall in stock prices.
"There are just fewer and fewer acquirees, and acquirers are anxious to solidify their market positions."
In addition, he said values remain relatively higher for buyers than sellers, which limits the dilution incurred by buyers and encourages deal-making.
The principal buyers, superregional banks, currently trade around 11 times expected 1993 earnings on average, while smaller regional banks, which are mostly sellers, trade at about 10 times anticipated 1993 profits.
"That's a 10% differential, and it still gives the buyers room to maneuver, to deal," he said.
The Cash Factor
With earnings strong, credit costs falling, and new lending moribund, capital is abundant at many banks, particularly in the Midwest and the South.
Acquisitions involving cash payments - as opposed to the more common exchanges of stock - are an effective way of leveraging capital, he said.
In several recently announced acquisitions, cash makes up all or a part of the purchase price. These include the proposed acquisitions of Ohio Bancorp. by National City Corp. and of MNC Financial Corp. by NationsBank Corp.
In addition, there have been a number of deals in which banks agreed to buy nonbanks. These typically are cash transactions.