Almost half of U.S. thrifts are selling below book value, and now that their owners are getting used to such low valuations, a new round of merger and acquisition activity may be in the offing, experts say.

Deal activity in the thrift sector stalled this year because sellers have been angling for last year's high prices in this year's down market, said Ben A. Plotkin, president of Ryan, Beck & Co. in Livingston, N.J. But that attitude is changing, he said.

Last year some thrifts were selling at 225% of book value. Sale prices now average 112.81%. Thrift shares, like those of most other financial companies, have fallen because of concerns about rising interest rates.

Stocks of larger thrifts tend to perform much better than those of smaller ones. San Francisco's $56.8 billion-asset Golden State Bancorp Inc., for example, has been selling at 184% of book, while $1.5 billion-asset Life Financial Corp. of Riverside, Calif., is selling at 52.8%.

This means that, in a stock-for-stock deal, a high-performing company like Golden State needs to issue fewer shares to acquire a small company like Life Financial.

Some 47% of U.S. thrifts trade below book value, according to a Ryan Beck study. Because thrift owners were holding out for higher prices, and because few buyers were willing to pay excessive premiums for their shares, the once free-flowing deal activity in the thrift sector has faltered.

Merger and acquisition activity fell to $10.9 billion so far this year, down from $27 billion during the same period last year, according to statistics compiled by Thomson Financial Securities Data, an American Banker affiliate.

The quest by senior thrift executives for higher buyout prices is changing, Mr. Plotkin said. "Sellers are adjusting to lower valuations," he said.

The most likely deals will consist of one thrift buying another, in an effort to improve its efficiency ratio. Other acquirers are expected to be banks seeking to convert the thrifts into commercial banking units, Mr. Plotkin said.

Deal activity in the sector recently got jump-started. In the last two weeks, North Fork Bancorp, a $11.5 billion-asset thrift in Melville, N.Y., scooped up JSB Financial Inc., a $1.62 billion-asset thrift in Lynbrook, N.Y., for $570 million in stock, and Reliance Bancorp, a $2.5 billion-asset thrift in Garden City, N.Y., for $352 million in stock.

John Adam Kanas agreed that the lull in thrift deal activity was the result of sellers wanting high prices and buyers not wanting to pay them.

"Overzealous buyers have been punished dramatically for paying those high prices of last year," said John Adam Kanas, North Fork's chairman and chief executive officer. "And that has not gone unnoticed by potential buyers."

"I'm not sure if those prices ever really existed," Mr. Kanas said. "The market has punished any company that did an expensive deal."

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