When Chase Federal Bank was ready to sell itself last month, it may have been surprised by the paltry number of buyers willing to take a look.
The Miami-based thrift, whose parent is TAC Bancshares, agreed in late April to be acquired by NationsBank Corp. after reportedly receiving little interest from other banks.
That is a far cry from just a year ago when a bank or thrift that wished to sell was like the prom queen: Everybody wanted to dance.
But today, the larger buyers are prowling far higher up the food chain. That leaves banks and thrifts that have less than $5 billion of assets - Chase Federal has $2.8 billion - with few options, experts said..
Many banks that once dotted the landscape in areas like Florida, the Northeast, and the West were merged or acquired years ago.
And that seems to have left the remaining independent companies facing the prospect of having to settle for less-than-premium prices for their franchises.
"There was clearly a window of opportunity over the last two or three years for banks and thrifts to sell," said Adam Hitt, an investment banker with Alex. Brown & Sons Inc. "The window is still open, but while it was wide open in the past few years, today there is a slim glimmer of light that shines through.
"Have they missed an opportunity?" he asked rhetorically. "Yes, I think they have."
The $280 million purchase price for Chase Federal might well have been higher if the thrift had been sold sooner.
The acquisition price of $5.24 per share was well below the $7.25 closing stock price on the previous trading day. Indeed, it was even below the $5.50 closing price two days earlier.
And at 14 times the thrift's earnings, the price paid by NationsBank was below last year's 18.9 price-to-earnings average for thrift acquisitions.
To be sure, Chase Federal was a turnaround project that had been engineered by some high-profile investors and bankers. The thrift may not have been primed for sale until recently, and so there may have been little chance of cashing in on last year's merger frenzy.
Still, other companies do not have the same excuse.
Banks like Colonial BancGroup Inc. in Alabama and Whitney Holdings Corp. in Louisiana have thus far remained independent, despite speculation they are destined for obsolescence because they are small.
In New Jersey, UJB Financial Corp. and Summit Bancorp. - both considered prime acquisition candidates in a state where 80% of the deposits changed hands last year - opted instead for a merger of equals.
"There is an argument going forward that the marginal country bank that is still out there" is not as attractive to larger banks, which are increasingly looking to nontraditional purchases, said Tod Perkins, a vice president in UBS Securities' financial institutions group.
Many large banks are no longer quite as keen as they once were on buying brick and mortar - the familiar branch networks that serve as the hub of smaller banks' franchises. Banking behemoths like BankAmerica Corp., KeyCorp, and First Union Corp. have made statements to that effect.
The value of the traditional bank branch has decreased in the emerging age of electronic commerce and supermarket banking. In south Florida, NationsBank probably will close most of Chase Federal's branches and convert deposit accounts at the thrift to its own.
NationsBank and others like it appear at this point to only be interested in bank acquisitions only on a fill-in basis.
Instead, larger banks seem more intent on buying nonbanks like leasing, finance, and asset management companies.
And this could be a major setback for the many small and midsize banks and thrifts that had hoped to eventually sell out.
In California, many thrifts have indicated a desire to sell, but to date there have been few takers.
"Even if a large non-California bank wanted to move into the state and buy one of the thrifts, it would take four or five years to integrate the thrift into its balance sheets," Mr. Perkins said.
In general, a lot of bankers feel that thrifts are no longer core franchises, he added.
"The strategic imperative of a larger bank to take on a smaller one is less so today then ever," Mr. Hitt concluded.
To be sure, many bankers and investment bankers contend the slim pickings so far this year for bank mergers and acquisitions is just the result of "deal hangover." After more than $70 billion of bank mergers last year, they feel the biggest buyers are still assimilating their purchases.
In fact, if more banks and thrifts wishing to sell decide to follow Chase Federal's lead in accepting a below-premium price, deal activity could accelerate.
However, when First Bank System Inc. agreed to buy Firstier Financial Corp. last year for less than the Nebraska bank's trading price, the deal spurred similar predictions of a "return to sanity" marked by generally lower merger prices. But that trend has yet to materialize.