It has been a long time since the bank merger scene was as uncertain as it is now.
Traditional buyers such as Bank One Corp. and BankAmerica Corp. have their hands full. Other regional and superregional banking companies, shaken by the stock market's recent dizzying gyrations, are keeping their powder dry.
Many community banks and thrift institutions cannot find serious buyers. Pricing benchmarks from six months ago are now seen as useless.
And then there is the ever-present Year-2000 issue.
"It is so muddled out there," said Steven B. Wolitzer, head of mergers and acquisitions at Lehman Brothers. "There are lots of talks going on and no industry dynamics have changed, but bank stocks have been hit incredibly hard and everyone is circumspect right now."
Ask any investment banker if consolidation will resume, and the invariable answer is yes. The industry still has too many companies, they say, and companies that fail to meet shareholder expectations will face tremendous pressure to sacrifice their independence.
But the fact is that deals are getting considerably harder to do. Stocks-the currency used to pay for nearly all bank acquisitions-were thrown for dramatic losses in the third quarter. Indeed, the top 100 banks in the country lost a fifth of their collective market value.
Meanwhile, stakes are going up. The first truly nationwide banking companies, long envisioned by Wall Street, are emerging.
No bank chief executive with nationwide ambitions will admit his company is not destined for that elite group. These CEOs want to make deals to reach that goal. But how?
Christopher Quackenbush, an investment banker at Sandler O'Neill & Partners, New York, said CEOs may strike more mergers of equals than before to achieve the size believed necessary to survive. But many dealmakers see mergers of equals as a last resort. Shareholders don't like them because no premium, or at most a low one, is paid. Moreover, lines of management authority can become entangled and the vital impetus for creating a competitive new organization from two older ones can be blunted.
Not least, such deals effectively contradict human nature and leave top bank managements without something they really care about-large sums of money in exchange for giving up big power.
In a merger of equals, a "change in control" often does not occur in a legal sense, said John J. Spidi, partner at the Washington firm of Malizia, Spidi, Sloane, and Fisch. Such changes in control enable selling CEOs to cash in their options and restricted stock and reap millions of dollars in exchange for giving up their power.
Without a change in control, the CEO forsakes his personal windfall for the potential good of the shareholders. As shareholder-friendly as CEOs profess to be, that is a deal few are willing to make. "It's the most difficult thing about mergers of equals," Mr. Spidi said.
Still, such talks are going on, investment bankers say. The CEOs of New York's three big thrifts, GreenPoint Financial Corp., Astoria Financial Corp., and Dime Financial Corp., have conducted periodic talks about a merger of equals between two of them this summer, people familiar with the situation say. But no one has been willing to give up the throne yet, these people say.
With companies like Bank One and First Union Corp. busy with their own megadeals, some investment bankers say it is an opportune time for companies to follow the leads of Norwest Corp. and Star Banc Corp. and make a big deal after sitting on the sidelines.
"This is a good time for midsize banks to act," observed Richard J. Barrett, head of the financial institutions group at Donaldson, Lufkin & Jenrette.
But at the same time, it has been lost on no banker that SunTrust Banks Inc.'s stock plunged after the company agreed to buy Crestar Financial Corp. Many shareholders evidently had invested in the company because they thought management would avoid the acquisition game. No one knows how investors would react to a new acquirer's entering the market at this stage of the game.
Meanwhile, Wall Street dealmakers keep making presentations to boards. Their message du jour: The market has stabilized and even if share prices fail to return to previous levels (and then again, they might), it is best to act before someone else does.
"I absolutely think the market has stabilized enough to do deals," said J. Christopher Flowers, head of the bank mergers group at Goldman, Sachs & Co. That is echoed Mr. Quackenbush. "The market fall didn't stop a lot," he said, "it just postponed a lot."
