A year ago, the commercial banking and thrift industries were setting records for mergers and acquisitions. Every week seemed to bring another, unthinkable blockbuster.
This year, the consolidation steamroller has pretty much run out of gas. But enthusiasts of the merger game need not despair.
The American Banker's midyear M&A review indicates activity has indeed slowed down, but the seeds are there for a resurgence.
To start with, the long-awaited wave of big thrift mergers seems ready to break on the West Coast.
Seattle-based Washington Mutual Inc. last week announced a deal to buy American Savings Bank in California. And a deal is said to be close between First Nationwide Bank and Cal Fed Bancorp. That could trigger transactions involving Coast Savings Financial Inc., Glendale Federal Bank, and Golden West Financial Corp.
Smaller-bank consolidations will probably continue apace. First Union Corp. is still in the market for midsize banks, and community banks are actively combining.
Much remains to be done in southern states. Union Planters Corp. of Memphis agreed to buy Leader Financial, also of Memphis, in one of the year's top deals so far. And Union Planters itself could be a target.
In North Carolina, a host of middle-tier banks are ripe for acquisition, but some observers think these companies may turn to mergers of equals before selling to superregionals.
A return to the fray by banking companies that have been inactive in the merger market would certainly heat things up. Banc One Corp. is said to be eyeing deals again, and Fleet Financial Group is expected to consider purchases that might break its retail unit out of New England.
Acquisitions are also proceeding of nonbank entities like mutual funds, leasing companies, investment banks, and finance companies. As rates of return in traditional banking diminish, banks are looking to fee-based businesses that can generate healthier margins.
First Union agreed to pay $900 million for a freight-car leasing company, and Bankers Trust New York Corp. agreed to pay more than $200 million for Wolfensohn & Co., a prestigious merger advisory firm.
Perhaps no factor is more important to the bank merger trend than stock values. The bull run in bank stocks over the last 18 months has pumped up share prices.
Potential targets who are enjoying eye-popping returns may not find it attractive to sell out and take a merger premium. But their expectations could fall back to earth if a true bear market materializes.
Meanwhile, the industry is still debating the merits of acquisitions. For example, if electronic commerce is soon to be a reality, why buy a bank and have to absorb its costly branch locations?