Stocks of independent Connecticut banks and thrifts have swelled in value recently after a spate of mergers.
As the number of banks dramatically dwindles, investors are moving to snap up ownership stakes in the few remaining companies with significant market shares across the state.
Other than those being acquired, there are five independent institutions with a Connecticut deposit share of at least 1%. Just since June 1, their shares have risen in value by an average of 6.6%, whereas the Nasdaq bank index fell roughly 1% in the same period.
"Connecticut banking stocks have enjoyed some real sex appeal recently and a P/E (price to earnings multiple) rally that is based" on merger speculation, said John Carusone, president of the Bank Analysis Center, an investment banking boutique in Hartford that counts 25 of the state's banks as clients.
"Connecticut remains among the most attractive banking markets in the country," he said, "and certainly the southwestern corner in Fairfield County is the crown jewel of the country."
Out-of-state banks apparently agree. Last month, First Union Corp. agreed to buy Center Financial Corp., parent of $3.7 billion-asset Centerbank of Waterbury, for $379 million. It was one of the Charlotte, N.C.-based bank's first deals since its blockbuster purchase of New Jersey's First Fidelity Bancorp. last year. First Union now ranks third in Connecticut market share.
Hubco of Mahwah, N.J., has been on a merger blitzkrieg through Connecticut, being involved in three of the five mergers announced in the state this year. When those deals are completed, the bank will control 1.81% of the state's market share, and 5.8% in Fairfield County.
Finally, Rhode Island-based Citizens Financial Group, jointly owned by Scottish and Irish banks, doubled its Connecticut presence by buying Farmers and Mechanics Bank in Middletown for $53 million.
Who is next?
Look for New Milford Bank and Trust and three thrifts - Eagle Financial Corp., Bristol; Dime Financial Corp., Wallingford; and Webster Financial Corp., Waterbury - to be the most sought after, said Kenneth Puglisi, a bank analyst with Sandler O'Neill & Partners.
But the state's largest plum, $6.9 billion-asset Peoples Mutual Holdings, may be more difficult to pluck.
The Bridgeport-based thrift, No. 2 in deposit share at 8.6%, is organized as a mutual holding company, meaning the majority of the stock is controlled by the company itself. This would make an acquisition of Peoples more problematic, he said.
Mr. Puglisi expects Hubco and First Union to keep buying and says Bank of New York Co., ranked fifth in Connecticut market share, may soon do a deal. Also, KeyCorp, which has long had a snowbelt strategy of buying banks in northern states, could be eyeing Connecticut, he said.
The bank with the largest share in the state, Fleet Financial Group, is unlikely to make a purchase after recently divesting some Connecticut branches as part of its purchase of Shawmut National Corp.
Mr. Carusone of Bank Analysis Center predicted there would be an average of three to four bank mergers annually through the end of the decade. In the last five years, he said, the number of Connecticut banks and thrifts has declined by 40%, either through merger or failure.
In 1990, there were roughly 150 banks and thrifts in the state; there are 95 today, and he expects that number to shrink to 75 by 2000.
Connecticut's economy is improving from the deep recession of the early 1990s, he said, and the dealmaking should keep humming.
Bank-stock investors, for the moment, would seem to agree.
