- Top Financial Advisors:
2000 Bank & Thrift Mergers 2000 Bank Mergers 2000 Thrift Mergers
Ostensibly, J.P. Morgan & Co. was the top advisor on bank and thrift mergers announced during 2000, with deals worth almost $40 billion under its belt. But of that, $34.5 billion was advising on its own merger with Chase Manhattan Corp.--and if J.P. couldn't get that business, well, maybe it should get out of the M&A advisory field.Other than its own merger, J.P. Morgan advised on $5.49 billion in deals, which would have put it in sixth place.
Chase Securities, which advised only on its own deal, would have ranked third, but it was excluded from the tables because of its merger with Morgan, and because it had no other deals.
Excluding self-advisory business, the No. 1 advisor in bank and thrift M&A in 2000 was Credit Suisse First Boston, which advised on deals worth $36.8 billion. Even that was a bit muddled because the CSFB deals are combined with those of Donaldson, Lufkin & Jenrette--the two firms merged last year. DLJ was responsible for $6.7 billion of the CSFB transactions in 2000. In 1999, DLJ was the No. 1 advisor, with $37.2 billion in deals. Richard Barrett, who headed DLJ's bank and thrift M&A business in 1999, now heads CSFB's financial institutions group.
M&A activity was strong last year, although not as strong as in the record year 1998, according to Sheshunoff Financial Services, an affiliate of U.S. Banker. The total value of bank and thrift mergers in 2000 was $97.3 billion, up almost 20% from the depressed level of 1999. There were a handful of very large deals, such as Chase Manhattan's merger with J.P. Morgan, but many were relatively small, which put such firms as Sandler O'Neill & Partners and Keefe, Bruyette & Woods into the top 10 deal makers in terms of value of deals announced.
Advisors, in general, expect most M&A activity among banks and thrifts to continue to occur among mid-cap companies. Barrett says CSFB is "making a big push in the mid-cap" market. Credit Suisse First Boston is taking a "number of initiatives to replenish client relationships," he says, including efforts to attract new clients through electronic means.
Among the larger players, CSFB also seems well-positioned for the future. In five of the six deals it advised on, it represented the acquirer (in Royal Bank of Canada's acquisition of North Carolina's Centura Bancorp, it advised both sides). That means these companies are likely to use CSFB for future deals.
Credit Suisse First Boston's biggest transaction was Firstar Corp.'s $21.2 billion acquisition of U.S. Bancorp. CSFB advised Firstar, and Goldman, Sachs & Co. advised U.S. Bancorp.
CSFB's second biggest deal, done by DLJ, was FleetBoston Financial Corp.'s $7 billion acquisition of Summit Bancorp. CSFB together with Goldman advised FleetBoston, and Merrill Lynch & Co. advised Summit.
Goldman took the No. 3 spot, advising on deals worth $32.3 billion, a bit below 1999's $36.8 billion. In two of the deals it advised the buyer, and two the seller.
The value of advised deals dropped sharply from there. Merrill Lynch & Co. came in 4th, having advised on $14.6 billion in M&A transactions. It advised the seller in five of the six transactions.
In all four of the $5.9 billion in deals Salomon Smith Barney advised on, it represented the buyers. But except for Fifth Third Bancorp's $4.9 billion acquisition of Old Kent Financial Corp., the buyers were relatively small and unlikely to generate big deals in the near future.
J.P. Morgan advised on four deals in addition to its own, representing the sellers in three of them.
Sandler O'Neill and Keefe, Bruyette & Woods advised on the largest number of deals, 18 and 19 respectively. The total value of deals Sandler O'Neill advised on was $3.3 billion, and KBW, $3.1 billion.
On the thrift side, Lehman Brothers led the pack with deals amounting to $1.7 billion. Goldman Sachs came in second, with $1.5 billion
Sandler O'Neill and Keefe Bruyette were strong contenders, with total deals of $963 million and $811 million, respectively.
Most M&A advisors are optimistic about business in 2001.
Gail Rogers, managing director of J.P. Morgan, expects bank M&A activity to continue to be brisk throughout 2001, but not among the biggest banks. She says most deals will come from banks with market capitalizations between $1 billion and $15 billion.
The biggest banks are still integrating deals they've already done and most are under some sort of earnings pressure, she says.
Among the smaller banks, it is unlikely there will be "eye-popping premiums" because there will be more sellers than buyers.
Rogers sees the possibility of more foreign financial companies buying financial companies within the U.S., but not in retail banking. The greatest interest, she thinks, would be in asset management and brokerage firms.
John Duffy, KBW's CEO, also reports that "deal activity has picked up since the beginning of the year." He attributes a good part of the activity to the recovery of bank stocks, which gives buyers "a greater capacity to pay and sets the stage for more activity."
Duffy also believes that sellers have moderated their expectations of what they can get for their banks. Memories of the huge premiums of the past are becoming dim, and "many now realize they may never see those heady days again."
The changes taking place in the way mergers are accounted for are giving bank acquisitions a big boost, Duffy says. Originally, talk of eliminating pooling accounting worried bankers and their advisors. They feared that having to use purchase accounting would mean carrying large amounts of goodwill on their books that would have to be written down over a number of years, reducing future earnings. But the rules for purchase accounting have changed, and the goodwill need not be written down unless the bank's accountants deem that it has been impaired.
"We're most excited about the world of purchase accounting," says Duffy. "You'll see a greater variety of deals. Rather than just stock-for-stock deals, you'll probably see more combinations of stock and cash. In purchase accounting, cash is really the thing to look at rather than historic GAAP accounting. Outside banking there are many more cash deals."
An example is Charter One Financial of Cleveland acquiring Chicago's Alliance Bancorp with 21% cash and 79% stock.
The change in the accounting rules "took the handcuffs off managers on how they can run their business, and that's good for the industry," Duffy says.
Morgan's Rogers likewise believes that the new accounting rules will be healthy for M&A activity, but she also believes that some banks will rush to get deals done before the new rules come into effect this summer.
The reason for any hurry by banks is that in deals involving mergers between companies of similar size, the amount of goodwill generated could be fairly large, and there may be concern about future impairment of that goodwill and its effect on earnings, Rogers says. Under current pooling methods, "once a deal is done, it's done." Yet, on a net-net basis, Rogers believes the new rules are a positive.
Christopher Quackenbush, head of investment banking at Sandler O'Neill, expects his business to be strong because it focuses on mid-sized banks. "This is a critical time for mid-sized banks and thrifts to find the right financial partners and the right strategies," he says. They must ask themselves, "What's the right size? How do I get the products my customers need?"
Quackenbush says he's seeing a good deal of activity all over the country, and he also expects the new accounting rules to increase business.
The atmosphere is about perfect, he says. Three factors contributing to the good outlook: Financial companies have strategic reasons to do mergers, the interest-rate environment is favorable and so is the accounting environment.
The only negative factor, he says, is the economy, and whether credit conditions will deteriorate. "So far, the credit problems have been manageable," he says.
