The bank merger business has turned brutal.
The highest-priced deals in U.S. banking history took place in 1997.
In true industry tradition, each was celebrated as a triumph of strategic logic and of the chief executive officers' collegiality and shared vision.
But beneath the happy surface, the game had changed forever.
Maybe it was Wells Fargo & Co.'s hostile bid for First Interstate Bancorp in 1996 that turned the tide. Maybe the lesson should have been learned as long ago as 1987, when Bank of New York Co. launched its successful attack on Irving Trust Corp.
The hostile takeover has become almost unexceptional in banking.
"In the coming year, you'll probably see more unsolicited bids that won't be made public at least for a while," said Michael T. Mayes, head of the financial institutions group at Advest Inc. "These bids usually come in the form of letters to the target's board, and they're getting more formal and more specific, sometimes even including price indications."
The most recent, high-profile example was Pittsburgh-based Mellon Bank Corp.'s approach to CoreStates Financial Corp. in October. Directors of Philadelphia-based CoreStates rebuffed Mellon twice, but that greatly increased the pressure on the company and its independent-minded chairman, Terrence Larsen, to sell.
In November, CoreStates sealed a deal with First Union Corp. of Charlotte, N.C.
But this was hardly the only example of an outside bank forcing a reluctant rival's hand.
In October, Carnegie Bancorp of Princeton, N.J., said it received an "unsolicited expression of interest" from an unidentified suitor. Two months later, Carnegie agreed to sell to Sovereign Bancorp., a $14.6 billion-asset bank and thrift holding company in Wyomissing, Pa.
On Dec. 18, Success Bancshares of Lincolnshire, Ill., said it had made an unsolicited bid for North Bancshares of Chicago. On Dec. 29, North announced it had rejected Success' offer.
Deposit Guaranty Corp. of Jackson, Miss., is said to have invited bids in November after receiving an unsolicited offer from Union Planters Corp. of Memphis. Deposit Guaranty eventually agreed to sell to First American Corp. of Nashville.
These were not public brawls like Wells Fargo's fight with First Bank System (now U.S. Bancorp) for First Interstate Bancorp or Washington Mutual Inc.'s fending off H.F. Ahmanson & Co. to take over Great Western Financial Corp. But people who advise on mergers say such activity underscores bank executives' sense of urgency.
"Having your own expansion strategy is a good way to prevent being sold to someone else," said Barry P. Taff, partner at the Washington law firm Silver, Freedman & Taff.
By bulking up, a bank might also attract the bigger acquirers that are willing to pay the massive premiums that shareholders dream about.
Union Planters is an example of an acquirer that may be on the way to eventually selling out. Having made several regional acquisitions in 1997, it is seen as a couple of deals away from warranting the attention of a bank elsewhere that wants to expand in the South.
While behind-the-scenes unfriendliness is expected to crop up at a lot of community banks-if only because there are more small banks than big ones-the CoreStates example suggests the dwindling number of potential big- bank targets will not be spared.
"Think about how many banks are out there that NationsBank would want," said John Duffy, director of corporate finance at Keefe, Bruyette & Woods Inc. "Not many."
Investment bankers expect the competition for a shrinking number of desirable targets to keep prices at their unusual heights.
Companies like NationsBank and First Union, which set successive records last year in their negotiated prices for Barnett Banks Inc. ($15.5 billion) and CoreStates ($16.6 billion), respectively, may find it necessary to sit out 1998 as they absorb these megadeals. But investment bankers expect other acquirers to seize the moment.
"Some past acquirers like Norwest haven't been active as they were when prices were lower," said Mr. Duffy. "Their stock is trading at 19 times earnings, so they can afford to pay the 23 times it costs for a bank these days. You have to ask at what point their competitive juices will change their view on deals."