Midwestern bank stocks failed to ignite on Tuesday, in spite of reports that Star Banc Corp. was in talks to acquire Firstar Bancorp.
Shares of Firstar, based in Milwaukee, surged more than 13% on five times daily volume after a report in The Wall Street Journal that the two banking companies would combine in a deal valued at $5 billion.
But in a departure from the merger mania pattern, shares of many midwestern banks fell on a day when most banks stocks were struggling to tread water.
Huntington Bancshares, Columbus, Ohio, fell 25 cents, to $33.50; and Old Kent Financial Corp. of Grand Rapids, Mich., was down 25 cents, to $35.31. Provident Financial Group, Cincinnati, was off $1.29, at $45.625; and Marshall & Ilsley Corp. of Milwaukee slipped $1.3125, to $51.0625.
Shares of Star Banc, based in Cincinnati, also fell, by 50 cents, to $63.875. Firstar rose $4.50, closing at $38.1875.
Overall, the Standard & Poor's bank index declined 0.90%, while the blue-chip Dow Jones industrial average slid 0.50%. The Nasdaq Bank index rose 0.05%; the best-known broad market gauge, the S&P 500 stock index, backed off 0.41%.
Investors were apparently too distracted by corporate earnings weakness, the Asian financial crisis, and the meeting Tuesday and Wednesday of the Federal Reserve's policymaking open market committee to bid up stocks on merger prospects.
In fact, bank stock investors have recently been less inclined to jump on a rumor or even an announced deal because speculation is already in the stocks, market experts said.
"There is no deal yet. And as scary as it sounds, it's only $5 billion," said one trader.
Market players have also been made wary by several large no-premium or merger-of-equals deals, observers said. Banks that are buyers "are becoming more rational about price," said Francis X. Suozzo of Alliance Capital Management, New York.
"We don't believe that Star Banc will pay a premium for Firstar," said banking analyst Fred A. Cummings at McDonald & Co., Cleveland. And if a merger of equals is announced, "it will douse enthusiasm because investors want to see premiums in the market."
Of course, another bidder stepping into the picture could quickly excite investors.
Banking analyst Michael A. Plodwick of Lehman Brothers Inc. said other potential acquirers could include Marshall & Ilsley, Fifth Third Bancorp of Cincinnati, and even U.S. Bancorp of Minneapolis, which is headed by John F. Grundhofer, the older brother of Star Banc's chief executive Jerry A. Grundhofer.
"I'm don't think one brother is trying to steal another's deal," Mr. Plodwick said. "But they both have probably looked at Firstar. And if Star Banc does merge with Firstar, who's to say that U.S. Bancorp will not approach the newly merged entity?"
Investors have been punishing these midwestern banks for not selling out earlier, said Gerry M. Cronin, another bank analyst at McDonald.
"When you look at the multiples of these banks, there is limited upside," Mr. Cronin said. "So they are getting killed as investors make a flight to quality.
"What the market is saying is if you can't do the job, turn the keys over to Star Banc or U.S. Bancorp and they will turn you into great performers."