After a record-setting 1995, an eerie quiet has settled over the bank merger and acquisition market.

By this time last year, there were already two major bank mergers announced. This year, except for Wells Fargo & Co.'s $12.3 billion purchase of First Interstate Bancorp - a process which began with a hostile tender offer in November 1995 - mergers have been few and far between.

According to data provided by SNL Securities, there were 99 bank and thrift acquisitions announced in the first quarter of 1995, with a total deal value of $7.9 billion.

In this year's first quarter, there were 75 bank and thrift acuisitions announced - not including the Wells transaction - for a total deal value of $4 billion.

Many experts pin the decline on so-called merger hangover: Large banks are busy digesting their gains from last year. Once this is completed, some say, mergers will accelerate. The factors driving mergers - slow revenue growth and the need for banks to achieve economies of scale - persist.

But there are others who say the falloff may be more fundamental. Acquirers are questioning the value of buying branch systems in an expanding electronic age.

"Banks are seriously looking at alternative retail delivery systems, whether it is phone banking or store banking. They are beginning to realize that alternatives to traditional brick and mortar may be more cost effective," said R. Russell Meyer, a partner with Los Angeles-based Metier Capital Group, which advises institutional investors on financial services investments.

"If you look at BankAmerica in Illinois, they really have acquired nothing in the state after Continental" Bank Corp. in 1994, he added. "It appears that they are going to try to develop a major retail presence in that market off a store- and ATM-driven system. The fact that there are alternatives on the retail side has significantly changed the merger landscape."

BankAmerica Corp. announced a major initiative last year in Illinois to place ATMs in supermarkets. The bank, which made no major acquisitions in 1995, is not alone.

First Union Corp. CEO Edward Crutchfield, for example, has said his bank used to focus 80% of its energies on external growth and 20% on internal growth; but now says that ratio is reversed.

KeyCorp CEO Robert Gillespie has said his bank, which went through a large merger of equals, is no longer interested in acquiring other banks.

Instead, the bank now acquires customer bases and product expertise, he said. To that end, it has bought an investment bank and an auto finance company, and started a leasing unit.

Don't try to convince J. Christopher Flowers the merger party is over, however. The director of Goldman, Sachs & Co.'s financial institutions group, Mr. Flowers said he heard the same arguments in 1994 - and then there were $73 billion of mergers the next year.

Wells Fargo, the industry's most vigorous proponent of alternative delivery systems, just completed the largest bank merger in history, so clearly there is value left in branches, Mr. Flowers said.

"One of the main reasons for the merger slowdown is buyers are busy digesting their purchases," he said. "Also, a lot of the banks that wanted to sell did so last year. Temporarily, the inventory of sellers is at a low level."

Another explanation for the dearth of consolidation activity is sellers' stock prices are high, so there is little room for takeover premiums, added William Rubenstein, a partner with Skadden, Arps, Slate, Meagher & Flom.

Indeed, the average price-to-book ratio paid for banks and thrifts in 1995's first quarter was 168.2%, according to SNL. But in the first quarter this year, the ratio jumped to 180.9%, SNL reported.

Observers agree that banks are also preoccupied with looking at nontraditional businesses - like finance and technology companies - as a way to boost the revenue missing from bread-and-butter banking.

Bank of New York Co. has been acquiring custody businesses, while others like Citicorp and Bank of Boston Corp. have made new commitments to the mortgage business.

When, if ever, will bank mergers heat up again?

In a recent interview, UBS Securities analyst Thomas Hanley said to look for more mergers by Labor Day.

There is always a thin stream of bank mergers early in a year, and then activity typically seems to heat up in the summer, he said.

Still, by the end of April last year Fleet Financial Group had already announced it would acquire Shawmut National Corp. for $3.64 billion and First Australia Bank had agreed to buy Michigan National Corp. for $1.52 billion.

Not including the Wells Fargo purchase, the largest merger deal this year has been Union Planters Corp.'s agreement to buy Leader Financial Corp. for $505 million.

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