Hoping to cash in on a boom in bank acquisitions in Texas, the investment bank Hoefer & Arnett Inc. will open an Austin office next month to advise the state's more than 700 community banks.

The San Francisco-based firm has hired Thomas R. Mecredy, an investment banker with Alex Sheshunoff & Co., to head the office. Joining him will be Denna Mc-Ghee, also an investment banker with Sheshunoff.

The opening of the new office reflects a growing belief that the Lone Star State could be fertile ground for bank merger business.

About 50 Texas banks have been acquired so far this year, compared to the dozen or so in each of the past few years, according to one estimate.

While Texas banks now enjoy profitability after the dark ages of the late 1980s - when all but a handful of Texas' leading independent banks and thrifts either failed or were acquired - M&A activity has been slow to arrive.

But Hoefer & Arnett hopes this year's uptick is a signal that the lean years for Texas bank M&A are over.

"The performance of Texas banks is better, the level of activity is increasing, the prices that are being paid for banks are increasing, and the interest of out-of-state buyers is increasing, so we feel in Texas and the Southwest there is going to be a lot of activity over the next few years " Mr. Mecredy said.

The new office's focus will be Texas, but Mr. Mecredy said he hoped to expand into neighboring Louisiana and Oklahoma and as far away as Florida and Georgia.

If successful, Hoefer & Arnett would suddenly move from being a one-state firm to one with a national profile.

Earlier this year, Hoefer's bank analyst, Steven J. Didion, initiated coverage on 18 Texas banks. (See map above.)

Murray G. Bodine, a partner with Hoefer, said the firm hopes to translate its success in California into Texas, which is dominated by small, privately held banks.

Roughly 20% of Texas banks control assets of between $100 million and $500 million, and 77% have less than $100 million of assets.

Only a dozen or so banks are even publicly listed, and only one - BancTexas - is listed on the New York Stock Exchange.

Roughly 20 Texas banks are listed on bulletin boards, and the rest are privately held.

That marketplace has been ignored by many of our competitors, and we believe that is where a lot of the activity will be taking place," said Gregory H. Madding, a principal in the firm.

Hoefer found a similar situation in California in the early 1980s when it set out to provide liquidity to the banks there.

The firm now makes markets in I 10 California bank stocks, or roughly 25% of all banks in the state.

And Hoefer was involved in 13 of the 41 M&A deals in California since 1990 that required an adviser.

Its one foray into Texas so far was a joint effort with Keefe, Bruyette & Woods Inc. in a $50 million stock offering for Benson Financial Corp.

The $452 million asset bank is owned by Thomas Benson, the owner of the New Orleans Saints football team.

Originally, Hoefer was to go it alone, but sources close to the deal said Hoefer struggled, and asked Keefe Bruyette to be co-manager.

Mr. Madding, a former Salomon Brothers investment banker, said that Keefe Bruyette was brought in for distribution power only. The deal went to market in September.

To date, Texas M&A activity has been stunted by a number of factors, foremost of which is that the leading banks were already acquired in the mid to late-1980s by large out-of-state banks such as Banc One Corp. and Chemical Banking Corp.

In fact, of the top 10 independent banks in Texas 10 years ago, only Cullen/Frost Bankers Inc. survived. Today, roughly half the bank market is controlled by out-of-state banks.

A number of factors are converging on Texas to force the smaller community banks, which have been fiercely independent, to consider selling.

The state's economy is vastly improved. It is no longer dependent on the oil and gas industry, but enjoys a strong services industry and increased trade with Mexico, spurred in part by the passage of the North American Free Trade Agreement.

Also, rising interest rates and improved technology will force these banks to sell or form mergers of equals, said John J. McKenna, an investment banker with McKenna & Co. in Houston and formerly an executive with Citicorp.

Texas M&A activity will take place away from the large metropolitan areas because the out-of-state banks already dominate the cities, said Bill Towsend, director of the financial institution practice at Rauscher, Pierce & Refsnes Inc. in Houston.

He said Boatmen's Bancshares recently bought a tiny bank in the Texas Panhandle, and Norwest bought a bank of similar size.

At least Texas 50 banks have been sold so far this year," he said. "This is a significant jump because in prior years there had been no more than a dozen or so, banks changing hands."

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