July and August used to be filled with merger mania, but this year bankers and dealmakers seem to have a lot more time for the beach.
Despite a recent surge of small transactions -- including M&T Bank Corp.'s agreement to buy Premier National Bancorp for $342 million and Wells Fargo & Co.'s plan to buy Brenton Banks for $264.5 million -- the pipeline for bank-to-bank deals looks far less busy than it did in the late 1990s, when blockbuster merger announcements were a common Monday news event.
Case in point: For the first half, Wells Fargo's $5.9 billion announced deal for First Security of Salt Lake City topped the charts. But its price tag was less than half the size of the largest announced first-half deal last year, Fleet Financial Group's $16 billion combination with BankBoston Corp.
The long list of banks that have failed to reach the goals they laid out in their merger announcements may have made investors much more wary of big mergers, particularly if the new company will not generate benefits like cost savings for some time, analysts said.
"Among the major banks, few are likely to do any major deals," said Catherine Murray, an analyst at J.P. Morgan Securities.
Instead, the latest fad seems to be deals for asset management firms. A flurry of such transactions have been announced since Memorial Day, including last month's $12 billion merger plan between UBS AG and PaineWebber Group and June's $3.5 billion deal by Alliance Capital Management for Sanford C. Bernstein & Co.
Observers said the reasons for merging have not changed much -- deals help a company boost product offerings, increase distribution, and gain assets under management -- but the depressed stock prices of banks and the bad publicity about some high-profile stumbles in recent months have choked off activity.
"If some institution [today] does a large pooling of interests that's modestly accretive, that won't be well received," said Henry C. Dickson, an analyst previously with Citigroup who recently moved to Lehman Brothers. "You're exposing too much market capitalization to risk."
Some of the last decade's most acquisitive companies are now struggling with internal issues and have been sidelined altogether. First Union Corp. of Charlotte, N.C., was built by more than 20 deals since the 1980s but is now scaling back. Though the company has not taken itself out of the merger fray entirely, any deals it makes are likely to be modest in size.
During a press conference in June that unveiled a massive restructuring, G. Kennedy Thompson, First Union's newly appointed chief executive officer, said that any acquisitions he would do in the near future would most likely be for small asset management or brokerage-type deals.
U.S. Bancorp is another highly acquisitive company that has been forced to slow down. The company is pursuing a strategy to expand in California, but cautiously. In late June it said it would buy a small San Diego bank for about $155 million.
That deal was small potatoes for U.S. Bancorp's management, led by John F. Grundhofer, who presided over 20 acquisitions in the 1990s as he marched his company -- the former First Bank System of Minneapolis -- across the Great Plains states to the Pacific Ocean.
U.S. Bancorp's scaled-down approach to acquisitions has a lot to do with its megamerger history. The product of First Bank's 1997 acquisition of U.S. Bank of Portland, Ore., for $9.3 billion, U.S. Bancorp looked in its first year as if it would work through the big deal easily, as its new branch network converted without a hitch.
But when it started to introduce new compensation plans and product lines into the old U.S. Bank network, the promising merger began to unravel. Cost-cutting initiatives also began to drain customer deposits and to push down growth levels, and in the third quarter of 1998 the company missed earnings estimates.
Though U.S. Bancorp appeared to regain some of its momentum last year, tighter margins and slow deposit growth led it to revise its earnings outlook downward in December. The announcement jogged investors' memory of the previous year's earnings, and its stock fell 27% in one day.
U.S. Bancorp says it is now in a transition stage and is focusing on investments in technology and its branch network. That strategy involves improving its retail and small-business customer experience, and ratcheting up commercial and domestic deposits.
"Banks with the best effectiveness grow revenues faster than costs," said Ben Crabtree, an analyst at George K. Baum & Co. Emphasizing revenue growth, particularly by organic expansion, "is a significant change for U.S. Bancorp," he said.
