One indication of how low expectations have fallen in the area of bank and thrift acquisitions is that the slowest January in recent memory struck some observers as surprisingly brisk.
Through January, 12 deals had been announced, according to data from Sandler O'Neill & Partners LP and SNL Financial, compared with 35 in January 2007 and 20 in January 2006. If the pace holds, 2008 will go down as the slowest year for bank mergers and acquisitions since at least 1990.
Several investment bankers, lawyers, and analysts said the drought could easily have been more intense. With credit quality deteriorating, the capital markets drying up, and bank stock prices sagging, M&A conditions are hardly ideal, they said.
"Twelve? Really?" said David P. Lazar, a managing director and the head of Middle Atlantic bank M&A at Stifel, Nicolaus & Co. Inc. He said he would have guessed five.
Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said he would have guessed "maybe two."
Of course, the 12 are hardly blockbusters. Other than Bank of America Corp.'s agreement to acquire Countrywide Financial Inc. for $4.1 billion, most of the deals were for banks or thrifts with assets of less than $300 million.
Matthew Schultheis, an analyst at Ferris Baker Watts Inc., said the size of the announced transactions indicates the market is far from robust.
"When I look at these deals, I am not particularly wowed," he said.
Mr. Schultheis said that the rest of the quarter could be even slower and that the January activity is likely just overhang from last year. "The negotiation cycle" for the deals announced this past month probably started before the market turmoil, he said. "These things don't get done very quickly. It's generally at least a six-month process."
Brian R. Sterling, co-head of investment banking at Sandler O'Neill, said he expects a yearlong dry spell because of credit-quality concerns.
"We don't expect to see a turn in the environment through the end of the year," Mr. Sterling said. "You need buyers with a belief that they have their own problems in hand who have the confidence to go out and look at other companies. We're seeing people not yet being that confident."
Others predicted an improvement in the second half.
"There are institutions that are ready sellers, so there are eventually going to have to be deals," said Richard A. Schaberg, a partner with the law firm Thacher Proffitt & Wood LLP.
Recent goodwill impairment charges could add to the other hurdles keeping some traditional buyers out of the market, Mr. Schaberg said.
But he said one emerging trend could help spur more activity: new types of buyers, including private-equity firms and foreign financial institutions, shopping for community banks and thrifts.
Still others said the pace of deals would be heavily influenced by how credit-quality issues play out over the next few quarters.
"It would be tough to buy a lender that has a lot of trouble right now, because you don't know the bottom," said Michael A. Nemeroff, the president of Vedder Price PC in Chicago. "But you will, eventually, in 2008."
Mr. DelMonte said KBW's economic outlook was revised Tuesday from a mild recession to a full-blown one. "So I think there's more pain to be felt," he said. "Once that happens, it's going to get people to think about their ability to remain independent. I think that'll start to set the wheels in motion for more deals."
