As bank stocks have declined in value since mid-1998, it has come as no surprise to the banking sector's analysts and investment bankers that acquisition activity has slowed dramatically. The primary reason cited for the slowdown is "sticker shock" on the part of potential sellers. Bank managers who are considering being acquired look at the absolute valuations that were assigned to their franchise in late-1997 and early-1998 and say, in effect, "Hey, I want that price for my bank, not the piddling 14 times earnings that is being offered today."

Acquirers, most of whom have been using their stock as currency in the acquisition process, are unwilling to pay previously high multiples because of the sad state of their own stocks, which render the economics of high-priced acquisitions less palatable. Such deals are more likely to be diluted to the acquirer's per-share earnings. As a result, as bank stocks have fallen, acquirers must pay less to make acquisitions work, while sellers still believe that they are worth the multiples that sellers were receiving two years ago.

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