New Offerings Likely in Takeover Frenzy

Merger mania is expected to spur bank stock offerings.

With the acquisition market suddenly heating up, banks that want to jump in the fray will likely be raising equity to finance deals.

The timing seems right. The three recently announced industry megamergers have driven bank share prices hold, bankers and analysts say, some of these companies will surely be tempted to float stock.

Wall Street Receptive

An added incentive is that word of an offering would probably further elevate a company's shares. The reason: Wall Street is searching for signs of the next takeover, and an equity issue by a potential acquirer would be seen as a tipoff.

Investors "would think you were building a war chest . . . and would gobble it up," said David Berry, an analyst at Keefe Bruyette & Woods Inc.

Banks that pop up on analysts' lists of candidates for an offering include Wells Fargo & Co., CoreStates Financial Corp., Bank of New York Corp., and First Union Corp.

All have solid capital ratios, have not issued equity so far this year, and are perceived as potential acquirers. The recent rally has also sent most of their stock prices to their highest levels in some time.

Pressures to Merge

Bank of New York, which has said it is scouting acquisitions, could not do a big takeover without additional capital, analysts say. Now that the rally has driven its stock price above its $34.58 book value, it could issue equity without substantial dilution.

Wells Fargo's shares, now about $80, were trading higher a few months ago. But since BankAmerica Corp. and Security Pacific Corp. announced their merger, the pressure on Wells to acquire another bank has increased. The stock is still substantially above its $58.59 book value, and most observers believe Wells would have to issue equity to make an acquisition.

Since the BankAmerica merger was announced Monday, the American Banker Index has climbed 6%. It has risen a whopping 13% since Chemical Banking Corp. and Manufacturers Hanover Corp. announced they would merge a few weeks ago.

Robert Baer, a managing director at Merrill Lynch & Co., said some banks may decide to issue equity after they've announced a merger, as Chemical and Manufacturers did.

Ultimately, however, most agree that this route is less desirable. "The more capital you have, the more options you'll have going forward," says Raphael Soifer, an analyst at Brown Brothers Harriman Inc.

Acquisition Opportunities

Mr. Berry points out that Banc One Corp.'s strong capital position was a key reason why the Ohio-based company was able to buy the failed banks of MCorp from the FDIC in 1989. Furthermore, he says, many more opportunities to buy failed banks and thrifts from the government will develop in the next year.

The run-up in bank stock prices doesn't mean all banks will be able to issue equity, analysts say.

Bank of Boston Corp. stock, at about $11 a share, is at its highest level all year, but Mr. Berry says it will not be able to issue equity unless it merges with another bank and can get the market excited about cost cutting.

Furthermore, if the rally proves to be overblown and share prices fall, those considering an equity issue might reconsider, Mr. Soifer said.

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