With commercial bank stocks depressed and going nowhere, the outlook for mergers and acquisitions in 1995 appears less than electrifying right now.

Perhaps more than any other industry, banks rely on the value of their shares, not cash or debt, as the medium for dealmaking. That exposes them to the market's fears and whims.

Slipping stock prices threatened or knocked out several pending combinations announced last year. Shawmut National Corp.'s deal for Northeast Federal Corp. is thought to be in trouble, and Meridian Bancorp's planned purchase of United Counties Bancorp has already been canceled.

"Until the potential buyers get back up to prices at which their stocks are valuable to sellers, it's going to be hard to do much of anything," said Miles P.H. Seifert of Gray Seifert & Co., a major bank stock investor.

But most Wall Street analysts and money managers see little likelihood of a sustained rally in bank stocks until short-term interest rates finally reach their peak, a key economic turning point that is shrouded in mystery.

"The important thing to remember about the rate cycle we are going through is that we are laying the groundwork for the next round of mergers and acquisitions," said Dennis Shea of Morgan Stanley & Co.

Historically, the analyst said, two factors must be present to spark a surge in industry consolidation.

The first is pressure on earnings that puts the industry under some stress. "We are just beginning to get some of that now," Mr. Shea said.

"The stress factor is important because it leads managements to acknowlege that the best strategic option for their bank is to combine and sell out," he said.

"We've just been through a few years in which nearly everybody in banking was quite profitable and comfortable and not very willing to sell out for less than a significant premium," he noted.

The second factor necessary to rekindle consolidation is "a fairly big spread in (stock price) valuations between the high and low end, giving highly valued banks the opportunity to prey on the weaker-value companies."

The predictable bank earnings of the past two years narrowed the differences in valuation between banks. Then, as interest rates rose last year, almost all banks fell in value on investors' general wariness about financial stocks.

This year, Mr. Shea and some other analysts think increased earnings volatility will prompt bank stock investors to separate winners from also- rans in the industry.

"Even under the most likely scenario of only two more credit tightenings (by the Federal Reserve), we will have stress that will ultimately be transferred to the earnings stream," the Morgan Stanley analyst said. In fact, he thinks many 1995 bank earnings estimates are too high and will have to be cut, making price-to-earnings ratios less attractive.

In short, Mr. Shea does not feel banks as a group of stocks are as oversold as some others contend they are after dropping in value through much of the last four months of the year.

Nancy A. Bush, regional-bank analyst at Brown Brothers Harriman & Co. thinks bank stocks right now reflect investors' feelings that the central bank will have to create "a flat to slightly inverted yield curve" to slow down the economy.

The yield curve refers to the line traced by returns available on various maturities of U.S. Treasury securities, from three-month notes to 30-year bonds. When short-term yields exceed long-term yields, the curve is said to be inverted, a sign of cooling business conditions.

"We are already at a point where it will be very difficult to do any meaningful consolidation, at least in non-merger of equals pooling type exchanges (of stock)," Ms. Bush said.

She thinks this situation "could drive the merger of equals scenario a lot more dramatically than has occurred up to now." But the analyst added that Wall Street would not be thrilled by such deals, which do not carry a strong reputation among investors.

Indeed, the largest recent banking deal announced is a merger of equals, the proposed combination of BB&T Corp., Wilson, N.C., with Southern National Corp., Lumberton, N.C.

Mr. Seifert, the fund manager, expressed typical reservations about such deals, which offer minimal premiums to shareholders. "I wouldn't be very happy about this except that it's going on in North Carolina, where economic growth is good," he said.

A decidedly optimistic note about prospects for mergers and acquisitions among banks this year was offered by Robert A. Bonelli, manager of the Ernst Bank Equity Fund at Ernst & Co., New York.

The industry consolidation's movement "has been on the shelf because of the depressed stock price of acquirers," he said, "but the last few months of 1994 have readjusted prices of both acquirers and targets and we should start seeing some deal making again."

In the final analysis, the country still has too many banks, Mr. Bonelli said, and it remains cheaper for banks to buy other banks than build new markets from scratch.

Moreover, he said, the era of unrestricted nationwide banking set to debut in September when new federal legislation takes effect "is going to force a lot of banks to start picking their partners soon."

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