The next big wave of bank mergers may not hit the beach for a long time and the reason is credit quality, according to Ronald H. Janus, a banking lawyer who has helped arrange many deals.

Those expecting an encore performance of 1995's record-breaking merger boom just as soon as the big buyers finish digesting their last acquisitions could well be disappointed, he cautioned.

Industry consolidation will go on, he said, but is unlikely any time soon to match the pace of last year, when banks' credit quality was at its most pristine level of the current business cycle.

"A high level of credit quality allows deals to happen because earnings are growing and acquisition prices can move higher," said Mr. Janus, a partner in the New Jersey law firm Pitney, Harden, Kipp & Szuch.

"If credit quality moves lower, buyers begin worrying about how much they may be overpaying," he said. "That brings prices down, but not seller expectations, of course, and things come to a halt."

"Some analysts are saying the seeds are already sown for an upturn in nonperforming loans," he noted. "Once this begins to happens, you don't know how far it is going - and deal pricing gets harder."

Delinquencies among consumer and mortgage loans have been on the rise recently. Problems among business loans remain at a low level, but that will ultimately change for the worse, analysts say, although no credit quality disasters are predicted.

All this means that industry consolidation will probably take the form of smaller deals, primarily to fill in the gaps in the larger banks' existing franchises. And that, along with bank regulatory matters, is Mr. Janus' specialty.

His firm, based in Morristown, N.J., has special expertise in transactions involving institutions under $10 billion in assets.

Last year, with the addition of eight lawyers, Pitney Hardin formed a separate financial services department of 20 lawyers to enhance its ability to serve its banking and related clients.

Mr. Janus' firm is active across the Northeast, but its home base in New Jersey has conveniently been among the hottest merger and acquisition markets in the country.

Last year, the firm served as local counsel to First Union Corp. as the North Carolina superregional acquired New Jersey's First Fidelity Bancorp.

It has also been counsel to Hubco of Mahwah, N.J., among the Northeast's most active bank acquirers over the past few years.

The activity in New Jersey has been so brisk, especially last year and early this year, that Mr. Janus and Pitney Hardin have several times ended up being counselors in consecutive deals involving the same banks.

The firm represented United Counties Bancorp. in its acquisition by Meridian Bancorp., Reading, Pa., and in connection with the subsequently announced purchase of Meridian by CoreStates Financial Corp., Philadelphia.

It has also represented Garden State Bancshares in its sale to Summit Bancorp. and in connection with the subsequent deal in which Summit was sold to UJB Financial Corp. with the new entity retaining the Summit name.

One of the most important bank merger issues right now, the New Jersey lawyer said, is the changing nature of management severance agreements - better know as golden parachutes.

A decade ago the primary purpose of these sometimes controversial packages for top managers at target banks was to "tide them over while searching for a new job," as well as being a final bonus for work at their old company, Mr. Janus said.

But as the banking industry has relentlessly consolidated, the prospects of comparable jobs for bank managers caught up in the process have steadily diminished and the contracts have grown in importance.

Today, said Mr. Janus, the first purpose of these contracts has shifted to "basically providing people with a retirement nest egg, because this may be the last large amount of compensation they will ever receive."

Tax questions are also crucial. Congress in 1984 imposed a 20% excise tax on those portions of parachute payments made after the change in control of a company.

"There is a complicated formula," he said, "but basically it can mean a 55% effective tax rate, so providing a $600,000 payment may mean paying them $300,00 or $400,000 more as a 'gross-up' to keep them at the same amount after taxes.

"This extra amount is not deductible by the acquirer, so there are, in effect, two hits involved in settling these management contracts," he said.

But these contracts are often crucial in the decision-making by independent banks to sell out, he noted. Managements at these banks often start from a position of wanting to stay independent, "but on the flip side want assurances about what is going to happen to them if the situation changes," he said.

Often, such contracts are the most important precondition for a bank's directors and managers to begin seriously thinking about a sale of the company, Mr. Janus noted.

Mr. Janus, 48, also advises banks on regulatory and securities law issues. And he has helped develop banking legislation on various subjects in New Jersey, most recently concerning credit cards.

A graduate of Harvard University and the New York University School of Law, he is also fluent in the Korean language and an avid student of Korean culture.

He has represented a variety of Korean banking and corporate clients and is vice chairman of the Asia Pacific law committee of the American Bar Association.

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