Shares of several midsize banks jumped sharply Monday in the wake of Firstar Corp.'s deal to acquire Mercantile Bancorp. of St. Louis.
Analysts said the $10 billion deal, announced after the close of trading Friday, signaled that banks are back in a dealmaking mode now that year- 2000 computer preparation has become less of a preoccupation. And some said the Firstar-Mercantile deal may be the first in a spate of mergers as bankers scurry to get deals done before new financial accounting rules take effect within two years.
"This is another flag that tells you bank deals are not dead," said Joseph A. Stieven, an analyst for Stifel, Nicolaus & Co. "With one less company out there, you have to go look at who are the other big franchises left."
Much of the speculation centered on banks seen as vulnerable to takeover. Shares of Hibernia Corp., which have slumped since the New Orleans banking company reported losses of more than $60 million on nonperforming loans, were up 43.75 cents, to $13.8125.
First Security Corp., Salt Lake City, also got some attention because it has a presence in several growth states in the West, but had modest earnings growth in the first quarter. It's shares rose 46.88 cents, to $19.4688.
First American Corp., Nashville, which has struggled to integrate Deposit Guaranty after purchasing the Jackson, Miss., bank last year, increased $1.25, to $40.0625. And shares of Union Planters Corp., Memphis, which reported a decline in earnings of 6.8% in the first quarter 1999 over the same period a year earlier, were up $1.125, to $43.9375.
First American and Union Planters were seen as especially attractive because they are in Tennessee.
"That is a state ripe for something to happen" said Joseph Roberto, analyst for Keefe, Bruyette & Woods Inc. "If you want a national franchise, you have to go into Tennessee."
First Virginia Banks Inc. was mentioned as a last chance for larger banks to enter the Washington metropolitan area. Its shares $1.25, to $51.25.
While merger speculation helped midsize companies, a round of favorable economic data reports Monday morning provided an additonal boost to bank stocks generally. (See story below.) The Standard & Poor's bank indexed rose 1.48%, to 729.41, while the Dow Jones industrial average jumped 2.09%, to 11,014.69.
The Mercantile deal had analysts buzzing. "What we are starting to see is the year-2000 issue dissipate," said Michael L. Granger, analyst for Fox-Pitt, Kelton in New York.
Meanwhile, the clock is ticking for banks to purchase other banks using pooling of interests accounting, several analysts said. The Financial Accounting Standards Board will prohibit the practice for deals that close after Jan. 1, 2001.
Though some analysts were mentioning Union Planters as a takeover target, Mr. Roberto-who follows the bank-downplayed any near-term possibilities, citing its string of acquisitions last year and in 1999 as potential sticking point.
For any bank looking to purchase banks integrating recent purchases, "it is a challenge to make sure you have your hands around the company" Mr. Roberto said.
Mercantile, by contrast, has completed its integration of recent acquisitions, reducing the chances for headaches down the road for Firstar.