A popular investment strategy for betting on bank mergers may not be all that it's cracked up to be, a new study finds,

Keefe, Bruyette & Woods Inc. threw cold water on the "buy the buyer" approach for speculating on mergers.

The firm, which specializes in bank securities, found that buying shares of acquirer banks on price weakness during last year's merger boom did not ensure profits, despite a red-hot market in bank stocks.

Acquirer stocks almost always fell on the news of a deal as the market assessed the impact on earnings and shareholders. Most didn't bounce back quickly enough to satisfy large investors.

Overall, stocks of the buyers in the 14 major deals of 1995 underperformed other banks over a three-month period for investors who bought the stocks as much as month after the transactions were news.

"Conventional wisdom holds that acquirer stocks take such a hit right after a deal is announced that you can buy them and outperform. The numbers don't bear this out," said Marni Pont, a Keefe analyst.

The firm assessed the performance of the 14 acquirers against its market-weighted Keefe Bank Index. The index comprises 24 money-centers and superregionals and is the basis for an option traded on the Philadelphia exchange.

Generally, investors who went contrary to the market last year and bought shares of acquirers on the days that deals were announced found themselves 2.9% behind other major banks three months later.

Those who waited a day to invest were not quite as badly off, with relative underperformance of 2.1%. Holding off a week yielded underperformance of 2.0% and waiting a month held the setback to 0.3%.

But the worst fate befell those investors who innocently bought shares of an acquirer bank the day before it unveiled a major transaction last year. They endured a comparative reversal of 7.3%.

Hardest hit of all were stocks of banks that were regarded as potential targets until they suddenly turned out to be acquirers.

"Some of the stocks had considerable run-ups before deals were announced and that magnified the reaction," said Ms. Pont, whose assessment of acquirer stock performance is entitled "Stuck in the Penalty Box."

Shareholders of UJB Financial Corp., Princeton, N.J., a day before it said it would purchase Summit Bancorp., on Sept. 11, 1995, found themselves 18.2% behind the curve by Christmas. Those who bought a month later got the snap-back effect, gaining a comparative 10.7%. UJB now does business under the Summit Bancorp name.

Similar 90-day damage hurt owners of U.S. Bancorp shares. They got a 15% pasting after its deal for West One Corp. was announced on May 8, 1995. Those who bought a month later still posted a 1.8% relative loss.

The least pain was inflicted on shareholders of Chemical Banking Corp. They were only 0.5% behind the pace, three months after Chemical and Chase Manhattan Corp. announced a merger of equals. Conversely, those who bought a day later were down 10%.

That ground has largely been made up. Most analysts view this deal as a strategic coup at a reasonable price and recommend shares of the "new Chase."

The Keefe survey also highlights the hit-or-miss nature of trying to capitalize on the consolidation of the banking industry by investing in acquirer stocks. Existing shareholders of two acquiring banks actually enjoyed gains after their banks announced deals.

Three months after it agreed to a merger of equals with First Chicago, NBD Bancorp shares were up 6.3% on a relative basis, although down 4.9% for those who bought a month after the deal date.

The most notable acquirer stock performance was by Wells Fargo & Co., San Francisco, which bought First Interstate Bancorp earlier this year waging a hostile takeover campaign.

Wells opened its pursuit on Oct. 18, 1995; three months later, those who had held shares at the time were 4.1% ahead, those who bought a week later were 4% ahead, and those who held off until mid-November were up 8.7%.

But the award for patience surely goes to holders of Boatmen's Bancshares stock. Shares of the St. Louis bank were down 9.2% three months after it punctured takeover rumors in August 1995 by acquiring Fourth Financial Corp., Wichita, Kan. A year later, Boatmen's was indeed acquired, by NationsBank Corp.

And it was NationsBank holders' turn to pay the price after the deal for Boatmen's was announced on Aug. 30. On a one-month basis, they have absorbed a 10.5% shellacking. Those who waited a week while the stock plummet were a mere 1.8% off the pace.

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