The summer's plunge in bank stocks has sparked an angry flare-up between two merger partners in the South.

New Orleans-based Hibernia Corp. this week slapped a lawsuit on First Guaranty Bank, saying the Hammond, La., institution was walking away from a solid deal because Hibernia's stock had slid.

"We're just trying to get them to do what they agreed to do," said Hibernia chairman Stephen A. Hansel. "This is the first time we've had anybody try" to back out of a deal.

First Guaranty, for its part, is accusing Hibernia of a "bullying attitude." Though acknowledging it no longer likes the deal, it denies doing anything wrong.

Such disputes could become increasingly common as bankers across the country try to close deals in the face of an exceptionally turbulent stock market. As of mid-August, some 266 bank mergers were pending.

While several deals have shown clear signs of unraveling, none has yet become as openly contentious as the Louisiana case.

First Guaranty, with assets of $244 million, agreed in July to be bought by Hibernia in a deal valued at $78 million. But subsequent market drops hammered the transaction value to $64.5 million.

"Obviously there's been a material change," said Marshall T. Reynolds, chairman of First Guaranty. "What appeared to be very good is now less than good."

In an interview, he said his advisers are now against the deal and shareholders probably will shoot it down. However, he said, his bank is complying with steps required by the agreement.

That's not how the $12.8 billion-asset Hibernia sees things. On Tuesday, it filed suit in Tangipahoa Parish district court alleging that First Guaranty officials are canceling meetings and delaying the filing of regulatory documents in order to kill the merger.

The suit claims Mr. Reynolds, who controls about 41% of the privately held First Guaranty, is trying to undermine the merger by directing his officers not to cooperate with Hibernia.

Mr. Hansel said he met with Mr. Reynolds on Sept. 3 to discuss the situation after hearing rumors that First Guaranty wanted the deal to fall apart.

"He came and saw me and he said 'let us out,'" Mr. Hansel said. "I said the contract does not have a price out."

Since that meeting First Guaranty officers have failed to sign a merger application that must go to the Office of the Comptroller of the Currency for approval. They also canceled a meeting planned for October in which First Guaranty employees would learn about Hibernia employment benefits and other transition-related matters.

Last week, First Guaranty officials canceled another meeting, scheduled for Sept. 21, to plan computer conversions, Hibernia officials said.

Mr. Reynolds maintains that the real problem is that Hibernia is trying to rush the proceedings. Now that the deal has lost is luster, he said, First Guaranty doesn't want to move any faster than required, or disclose any more competitive information than is absolutely essential.

"It's a little of a bully attitude," he said of Hibernia.

Out of obligation, he said, he will vote his shares in favor of the deal. But he said the other shareholders are likely to give a thumbs down.

Observers say the agreement between the two banks was unusual because it did not contain termination provisions related to swings in stock price.

"The intelligent ones have pricing mechanisms built into the merger documentation," said Steven Dunlevi, an Atlanta-based banking attorney. "It's good business practice."

But J. Reid Moore, a mergers and acquisitions consultant at Speer & Associates Inc., said the prolonged bull market lulled some bank executives into regarding such provisions as unnecessary.

"In the go-go days of the market, nobody was worried about it heading down," said Mr. Moore.

Hibernia said many of its recent acquisition accords have contained provisions to terminate in the event of a downturn. But during negotiations with First Guaranty, no one from the Hammond bank asked for such language.

"Stocks go up and stocks go down," said Mr. Hansel. "Everybody takes that price risk."

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