the year and seems likely to grow hotter as summer goes on.
Unhindered by rich stock prices, banks and thrifts launched $30.6 billion worth of merger deals within their own industries during the first six months of the year, up from $25.6 billion in the second half of last year.
That was apart from the spate of bank purchases of securities firms and other nonbanking businesses during the first half. Those transactions aggregated at least $12.3 billion in value and probably closer to $20 billion when all are accounted for, observers believe.
The largest deal unveiled in the first half was First Bank System's $9 billion purchase of U.S. Bancorp., Portland, Ore., with Washington Mutual Inc.'s $7 billion acquisition of Great Western Financial Corp. ranking second.
Washington Mutual acted as a white knight for Great Western, which had been pursued against its wishes by H.F. Ahmanson & Co., its longtime southern California rival.
The largest nonbank transactions were Banc One Corp.'s $7.9 billion takeover of First USA Inc., the credit card issuer, and Bankers Trust New York Corp.'s $1.7 billion buyout of Alex. Brown Inc., the Baltimore investment banking firm.
Major acquisition activity has continued unabated in the third quarter - which over previous years has frequently been the most feverish dealmaking part of the calendar.
Some of the recently action likely is accountable as an end to the hibernation of many major banking companies over the past two years as they digested previous large deals. The last significant wave of dealmaking occurred in 1995.
"It's probably the longest period of time on record where, of the top 20 banks, 14 or 15 have not done a deal for another bank," veteran banking lawyer H. Rodgin Cohen noted last spring.
"I also said I couldn't believe that situation would last," Mr. Cohen commented last week.
Since then, First Union Corp. has weighed in with its proposed $3.25 billion purchase of Virginia' Signet Banking Corp. And that move came in the wake of two deals in Virginia by rival Wachovia Corp., which is purchasing Central Fidelity Banks and Jefferson Bankshares.
"It seems like there is something magical between the second-quarter earnings release period and Labor Day" for major banking merger announcements, said Thomas H. Hanley, banking analyst at UBS Securities.
Last year, for example, NationsBank announced its acquisition of Boatmen's Bancshares in late August.
One reason for the summer pickup in deals, Mr. Hanley ventured, is that banks by this point have a solid handle on what they and others will earn for the full year. He also suggested that management compensation is an important factor.
With the six to nine months required to complete a bank deal, a transaction arranged now means that top management will still be employed at yearend, meaning a full year's bonus, stock options and other compensation.
"What usually happens, is that the first quarter is slow, then there are couple of major deals in the second quarter that get everyone thinking and then more deals appear in the third," said Mr. Cohen, a partner in Sullivan & Cromwell, the New York law firm.
Price paid in deals remain strong, averaging 213% of the book value of the acquired bank during the second quarter. That ratio appears certain to go up in light of First Union's deal to pay 3.5 times book value for Signet.
Mr. Hanley acknowledged that the Signet transaction "raises the bar several notches," but he is not worried about prices paid in deals. In fact, he sees rich prices as an important motivator for more deals soon because selling banks can more nearly reach their price expectations.
"M&A people feel the Signet deal gives them the room to finish deals that were well along toward the pricing stage anyway," he said. "This may be the extra thing needed to persuade the board of directors" to sell.
"I think we will be seeing a lot of deals. The market is really running right now with some of the takeover candidates," he said, naming Old Kent Financial Corp., Grand Rapids, Mich.; Summit Bancorp, Princeton, N.J.; First American Corp, Nashville, Tenn.; First Commerce Corp., New Orleans; and Firstar Corp., Milwaukee.
Also on Mr. Hanley's takeover list are Union Planters Corp., Memphis; Compass Bancshares, Birmingham, Ala.; Mellon Bank Corp., Pittsburgh; and Comerica Inc., Detroit.
"The fundamental rationale for acquisitions, including the difficulty in generating top-line revenue growth and an ever-increasing need to invest in technology, should remain intact for the foreseeable future," according to Michael A. Plodwick, banking analyst at Salomon Brothers Inc.
Indeed, an important factor that could impel consolidation is the looming Year 2000 problem - involving costly upgrades to computers so they can roll over to the new millennium - may
be a major factor in bank consolidation.
The $22 billion that banks are expected to spend this year on technology may not be enough. More notably, the top 15 banks account for 70% of the industry's technology spending, according to Seamus McMahon of First Manhattan Consulting.
"Bankers aren't going to go out and spend a ton of money and then sell. That just doesn't make sense," said Mr. Cohen. "So either they are going to have to start spending money now or think seriously about selling."
