Bank mergers gathered some steam in the first quarter, and the pace is expected to pick up further in the months ahead.
The value of announced bank deals in the United States climbed to $20 billion for the period, from $12.6 billion in the fourth quarter of last year, according to data from Sheshunoff Information Services and American Banker.
Investment bankers and others say dealmaking should accelerate further as banks get ready for a possible accounting change and wrap up work on year-2000 computer preparations. Rising stock prices also could lend a hand.
"We expect an improvement in valuations, and banks should have double- digit earnings growth," said James McDermott, chairman of Keefe, Bruyette & Woods Inc. "Once the market absorbs that information, that will be the catalyst for more activity."
Many observers had expected a big decline in mergers in the first quarter. And in fact, the dollar volume would have been off sharply had Fleet Financial Group not announced its $16.8 billion deal for BankBoston Corp.
But the number of deals remained strong-80, compared with 94 in the fourth quarter. And prices were robust: Premiums to market value climbed to 37.71% in the first quarter, from 34.4% in the fourth, the Sheshunoff data indicate.
After Fleet and BankBoston, the biggest deals were Union Planters Corp.'s $411 million agreement with Republic Banking Corp. of Coral Gables, Fla.; Summit Bancorp's $304 million deal with Prime Bancorp of Fort Washington, Pa.; U.S. Bancorp's $300.2 million deal with Bank of Commerce of San Diego; and BB&T Corp.'s $247.2 million deal for Mason-Dixon Bancshares of Westminster, Md.
The activity was still a long way off from the record levels of early 1998. In the first quarter of 1998 there were 131 announced bank deals, worth $27.2 billion. And the second quarter had a whopping 149 deals, worth $213.1 billion.
Relatively weak prices for bank stocks have clearly dampened mergers. Though the Dow Jones industrial average has risen to 10,000, bank stocks- the currency for most mergers-have yet to rebound to the highs of last summer.
"We've had a punk bank-stock market," said Mr. McDermott. Keefe's bank stock index is down 1.5% so far this year, while the Dow Jones industrial average is up 9%.
Some bank chiefs considering selling also have been put off by the prices. Though deal prices are up from the end of last year, they have yet to match the levels seen in early 1998, experts noted.
"There is an element of ego in this, but sellers are not willing to settle for lower prices," said investment banker Karen Edwards of Friedman Billings Ramsey.
H. Rodgin Cohen, a partner at Sullivan & Cromwell in New York, agreed.
"The premiums that some banks have been able to get this quarter may be attractive, but when you measure it against the high prices of last year, there are still some people who do not want to sell," Mr. Cohen said.
Still, most experts see increased deal activity during the rest of the year. For starters, many bankers may try to move before a possible accounting change that would bar pooling of interests-an approach used in many mergers. The end of the pooling would usher in purchase accounting, which leaves goodwill on the balance sheet.
"If people come to believe that pooling is dead, there may be a flurry of activity in the next few months," said Ms. Edwards of Friedman Billings Ramsey.
Mr. McDermott said the industry remains ripe for further consolidation.
"Banking is still a fragmented financial system," he said. "There are still some companies that have some strategic issues to sort out. I quite sure there are some conversations going on."