The value of bank merger deals tumbled 24% in the third quarter, to $ 3.2 billion.
Analysis attributed the drop from the second quarter to lower bank stock prices as well as the economic and legislative uncertainty created by the approaching presidential election.
Another factor deterring new deals is that some of the big buyers took to the sidelines, preparing for mergers announced earlier this year.
Last quarter's volume was about one-fourth the record $14.1 billion in third-quarter 1991, when a slew of mega-mergers were announced.
The relative prices of acquisitions also fell. The average, as a multiple of the book values of acquired institutions, dropped to 1.58, versus 1.75 in the second quarter and 1.83 in the first quarter.
Several weak banks agreed to takeover proposals last quarter, causing premiums to slide, analysts said.
The high number of thrift acquisitions, which typically command lower prices, also curbed premiums.
Lower premiums have eased concerns on Wall Street that prices were getting too high and would ultimately dilute the investments of the acquirers' shareholders.
"We are seeing a healthy but certainly not overwhelming level of consolidation going on at this point, and the price tags do not appear to me outrageous," said John J. Manson, bank analyst in Atlanta at Interstate/Johnson Lane.
"Right now, there seems to be a relative hiatus in bank mergers and bank stocks," said Bradford M. Johnson, managing director for financial institutions at Sterne, Agee & Leach Inc., Atlanta.
Raly in Relapse
The American Banker index of the nation's 225 largest publicly traded bank stocks fell 2% in the quarter, interrupting the sector's yearlong rally.
Stock prices weakened as worries grew on Wall Street about whether banks can sustain their recent earnings momentum. The stock market in general has also been sluggish.
Banks in the early stages of recovery from loan problems accounted for a large percentage of institutions acquired earlier in the year.
For example, three such institutions signed on with Banc One Corp., Columbus, Ohio: Valley National Corp., Phoenix; First Security Corp., Lexington, Ky.; and Affiliated Bancshares, Denver.
The group also includes First Florida Banks, a Tampa company being acquired by First Union Corp., Charlotte, N.C.; and SunWest Financial Services, Albuquerque, being bought by Boatmen's Bancshares, St. Louis.
But the list of these banks is growing shorter, dampening merger activity, Mr. Johnson said.
The two largest deals announced in the third quarter involved turnaround banks, he noted. He was referring to First Union Corp.'s $900 million stock purchase of Dominion Bankshares, Roanoke, Va., and the $340 million stock purchase of Equimark Corp., Pittsburgh, by local rival Integra Financial Corp.
"With stock prices a little uncertain, you probably are not going to see big acquires move out and pay big prices for healthy banks at this point," Mr. Johnson said.
Because regulators want banks to pay for acquisitions with stock, not cash or debt, bank share prices are the currency of mergers.
In the meantime, the approaching election and possibility of change in the White House have prompted a number of buyers to wait before making new deals.
Government takeovers of weak banks and thrifts are expected to pick up after the election, which would offer lower-cost expansion opportunities for healthy buyers.
At the same time, the prospect of the Democratic Party gaining control of both the presidency and Congress has prompted some bankers to think that the movement toward interstate banking may be accelerated.
"That could change a lot of plans involving a lot of money," said a new York analyst. "The smoke will start to clear after the election."
One recent consolidation trend did continue during the third quarter, acquisitions by banks of healthy thrifts.
Bank of Boston Corp. agreed to pay $214 million in stock, or 1.3 times book value, for Society for Savings, Hartford, Conn.
The premium was slightly higher than the Boston bank agreed to pay in its other major deal of the quarter, the acquisition of Multibank Financial Corp., Dedham, Mass., for $209 million in stock, or 1.2 times book value.
And Society Corp., Cleveland, agreed to pay $141 million in cash, or about 1.6 times book, for First Federal Savings and Loan Association, Fort Myers, Fla. -- one of the nation's strongest thrifts. [TABULAR DATA OMITTED]