It's too quiet. The third quarter has typically been the busiest season for major bank merger deals, but not this year.
With Labor Day less than three weeks away, banking industry acquisition activity this summer - and indeed through 1996 so far - has chiefly amounted to small and medium-size fill-in transactions at high prices.
July's largest deal was significant, the $1.2 billion deal to buy American Savings in Irvine, Calif., by Seattle's Washington Mutual. But it was also a long-expected event.
However, the calm won't last, according to several observers, and they offer some important reasons why considerably more dealmaking action may be on the way late this year or early next year.
*Too many irresistible targets in important markets remain available for what might be the last major round of consolidation.
*Major acquirers who pulled off big deals last year will soon finish the digestion process and be back at the table.
*Several big players who skipped last year's acquisition binge may finally be ready to move.
*The earning-dilution level from potential deals is running at a relatively low level.
"I expect there will be more deals this fall," said Anthony R. Davis, senior vice president of Dean Witter Reynolds Inc.
"The primary reason for the recent absence of large deals is that the big superregional banks have been in a digestion mode after the flurry of sizeable transactions in 1995," said Kathryn H. Bissette, senior vice presdient of Sterne, Agee & Leach Inc.
"With digestion of these megadeals behind them, we believe that a new wave of acquisition announcements by the superregionals is no more than six months away," she said.
Ms. Bissette listed nine banking companies - all among the nation's 25 largest - that could be targeted in potential 1997 blockbuster deals.
They include Barnett Banks, the last big Florida independent, and Amsouth Bancorp. and Suntrust Banks Inc., both of which have major Florida operations.
She also pointed to four midwestern banks with strong franchises - First Bank System, Boatmen's Bancshares, Comerica Inc. and Mercantile Bancorp., as well as a western independent, Utah's First Security Corp., and a Virginia prize, Crestar Financial Corp.
Ms. Bissette also cited a pool of 16 potential buyers, calling half of them "aggressive" buyers. They are Banc One Corp., BankAmerica Corp., Fleet Financial Corp., KeyCorp, NationsBank Corp., Norwest Corp. and Wells Fargo & Co., as well as First Bank.
Perhaps the most attention is centered on Banc One. The Columbus, Ohio- based superregional has long been among the most nation's most expansion- minded banks, but notably sat out last year's big hunting season.
"They've had their gun on the rack for a long time," Mr. Davis said, "but they haven't lost interest at all."
Banc One has acquired 140 banks in 28 years, but only two in the last two years, he noted. It has been striving to improve its efficiency and profitability through an internal reorganization program.
"In a perfect world, Banc One and a lot of other banks would probably wait until the banks they might want aren't selling for 10 or 11 times earnings," Mr. Davis said, "but they aren't in control of that."
Banc One's reoganization effort is beginning to pay off, the analyst said. He expects Banc One's efficiency ratio to improve to 55% next year, from 59% this year and 60% in 1995. As a result, earnings growth should accelerate, particularly in 1998.
Mr. Davis said there is not the usual gap betwen stock prices of acquirers and targets. "Everybody's valution is clustered together," meaning buyers do not have the usual market-driven advantage in beneficially structuring a deal.
At the same time, however, he said, potential first-year earnings dilution from deals - their true cost to the buyers' shareholders - is now running at around 3%, which is at the lower end of its historical range.
Quarterly since 1988, Dean Witter has calculated the cost for a typical superregional bank covered by the firm if it acquired a typical regional bank, paying twice book value on a pooling-of-interests basis with no cost savings.
The dilution level peaked at a stratospheric 14% during 1990, during the industry's worst earnings and credit-quality crisis since the Great Depression. It fell to 1.7% in the first quarter of 1993 as bank earnings and stock valuations staged a strong recovery. It has hovered near 3% for about a year.
"I think the larger, acquiring banks think they really ought to see a bigger advantage over the next several quarters," he said.
