Investors seemed to yawn Friday at the possibility that National Commerce Bancorp. of Memphis is for sale.
National Commerce shares rose 6% Thursday on reports that it had hired investment bankers, but the stock gave up most of that gain Friday, falling 4.6%.
The lukewarm reaction may have to do with National Commerce itself, a $5.2 billion-asset company whose branches are mainly in supermarkets.
Or it may be a fresh sign that bank share prices have bumped against a ceiling. Not long ago, sale rumors were virtually guaranteed to drive up a bank's stock price.
For example, when reports surfaced in January that First Commercial Corp. was in takeover talks, shares of the Little Rock, Ark., banking company rose 5% immediately and kept advancing until it agreed to sell Feb. 9. Shares of Deposit Guaranty Corp. of Jackson, Miss., soared 18% after people found out it was up for auction last December.
The fact that these nonsuperstar banks sold for big premiums prompted investors to buy stock in just about every bank that could conceivably be taken over, including National Commerce.
This buying binge propelled the value of National Commerce's stock from 17 times earnings in January, according to brokerage Morgan Keegan & Co., to 29 times earnings before the for-sale report emerged last week.
Few banks could afford National Commerce at these levels without hurting their own earnings per share.
In effect, investors who bought the bank's stock in hopes of a takeover premium have effectively priced it out of a bidding war that could bring the desired result.
"Who can realistically afford this bank?" said Doug Penn, a bank analyst at American Express Financial Advisors, Minneapolis. "We see reports about Mercantile Bancorp., but such an acquisition would really dilute their stock. Really all you're left with is Fifth Third."
Fifth Third Bancorp of Cincinnati trades at 31 times earnings and has a stellar reputation for cutting costs and building revenues.
But even Fifth Third would be challenged to cut any fat from National Commerce, investors and investment bankers said.
Most of National Commerce's business is done through supermarket branches, so a buyer would have few opportunities to cut costs by the popular method of closing branches.
National Commerce reported a second-quarter efficiency ratio of 48.9%, meaning its costs are already among the lowest in the business. Its nonperforming asset ratio was a tiny 0.30%.
National Commerce's supermarket strategy grew from the conviction of chairman and chief executive Thomas M. Garrott that thin profit margins would drive traditional banking to extinction.
Three years ago he told American Banker he was considering dividing his business into bank and nonbank units and selling the banking part.
Even today, National Commerce bills itself as a "sales and marketing organization," offering banking and nonbanking services.