In a measure of how slow the bank merger market has become, the most talked-about deals of the year are two that fell apart.

Banks and thrifts announced only $10.4 billion of mergers in the first quarter - a mere trickle after the $66.6 billion last year and $250.3 billion in 1998. The biggest deal was U.S. Trust Corp.'s sale to Charles Schwab & Co. for $2.6 billion. (See tables, pages 14-20.)

Activity was crimped by a falling market for financial stocks that also compounded the challenge of completing previously announced deals.

In Utah, the much-delayed combination of Zions Bancorp and First Security Corp. was abandoned after an earnings warning by First Security sent its stock into a tailspin. The failure also forced cancellation of the biggest branch sale announced during the quarter, BancWest's purchase of 68 branches and $2.1 billion of deposits that would have been divested if the Salt Lake City banking companies closed their deal.

Across the country, a pair of thrifts - Hudson United Bancorp, of Mahwah, N.J., and Dime Bancorp., of New York - abandoned a $3.6 billion merger of equals announced in September, after Melville, N.Y., rival North Fork Bancorp moved in with a $1.9 billion hostile bid for Dime.

The failures serve to show how closely deal-making and the stock market are linked. A 5.64% decline in the American Banker index of 225 bank stocks and a 13.5% drop in the index of 25 thrift stocks in the quarter not only slowed new deals, it helped kill two that might have sailed through in better times.

"When prices are high there is more of a margin for error," said Kathleen Smythe, managing director and head of banking and finance at Putnam Lovell.

The decline in bank mergers, following a series of huge mergers in early 1998, actually began in the wake of the Russian debt crisis in July of that year. The slump in stocks at the time threatened some deals - notably Roslyn Bancorp's acquisition of T.R. Financial Corp. But unlike this year, those deals were completed.

In the end, Roslyn gave up one more seat on the board but completed its purchase at the original exchange ratio. At $664 million, it was the largest bank or thrift deal completed in the first quarter of 1999.

That quarter also included the announcement of the $16 billion merger of BankBoston Corp. and Fleet Financial Group.

Mergers and acquisitions announced in this year's first-quarter were much smaller. Schwab's deal for U.S. Trust was followed by National Commerce Bancorp's $1.9 billion deal for CCB Financial and North Fork's bid of the same amount for Dime. With megadeals on a back burner, the two big previously announced deals - Dime-Hudson and Zions-First Security - were in big trouble.

When their merger was announced last June, Zions agreed to pay $5.9 billion, or a 55% premium to the price of First Security shares.

But First Security's shares dropped almost 40% in the wake of a negative earnings announcement March 3 that prompted already skittish investors to dump its shares.

Zions shareholders pressed to renegotiate the deal at an exchange ratio that would make up for the loss in the First Security's stock price. When that didn't happen, shareholders voted against the merger, prompting First Security to back out April 1.

Ten days later First Security chairman and chief executive Spencer F. Eccles announced he had agreed to sell his company to Wells Fargo & Co for $2.9 billion.

Zions and First Security were left to absorb more than $60 million in charges between them from preparations for the failed merger. And First Security now has the task of refocusing customers and employees on a new identity.

"Often with transactions involving financial institutions, the glue that holds them together is the premium," said David A. Budd, managing partner at the bank and thrift boutique McConnell, Budd & Downes Inc.

Sellers, naturally, hope to make a quick profit on their shares when a deal closes. And it is easier for buyers to justify a premium in a rising stock market.

When Hudson United and Dime announced their merger, some Dime shareholders were upset that they would not get more than market value for their shares. That set the stage for North Fork to jump in.

North Fork, aided by a $250 million investment from FleetBoston Financial, came in with a bid that offered 35% premium over the Hudson deal. Investors began to pressure Dime chairman and chief executive Lawrence J. Toal to change course. After a campaign to sell shareholders on the original agreement, Dime eventually threw in the towel. But as of last week Mr. Toal was not ready to embrace North Fork, whose offer he called "fraught with risk."

Because bank and thrift stocks are still shaky, those who might be considering deals are especially wary of possible pitfalls. Investment bankers say that buyers and sellers have been more careful about adding clauses like "collars" or "walk-aways" that protect buyer and seller in case of a price drop. Bankers have always considered including such clauses in merger agreements, but "they become more important in a time of volatility," Ms. Smythe said.

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