Magazine article American Banker

Merger Talk Boosts Bank Shares to Point of Diminishing Returns

Magazine article American Banker

Merger Talk Boosts Bank Shares to Point of Diminishing Returns

Article excerpt

It seems everybody's got a theory about bank mergers these days.

High-profile acquisitions by First Union Corp. and First Chicago, and abortive talks involving Bank of Boston have pushed bank mergers onto the front pages of the nation's newspapers, attracting the hordes of arbitragers, institutional investors, and mom-and-pop investors - all placing bets as to which bank is next to be taken over.

Trading volume in banks, which had been on the rise, surged to 146% of average monthly volume in July, according to SNL Securities.

"All the amateurs have come to the party," said Joseph Stieven, a bank analyst with Stifel, Nicolaus & Co. "I sat down and had my shoes shined, and the shoeshine boy started telling me which bank would be the next."

But as is often the case when amateurs join the fray, the late-comers could be in for a disappointment. The high level of interest has already pushed bank shares so high that there is little room left for takeover premiums.

Indeed, First Bank System Inc. on Monday agreed to buy Firstier Financial Inc. for $38 per share, $1 less than the market price the day before announcement. And Mercantile Bancorp. last Friday agreed to pay only a 13% market premium for Hawkeye Bancorp. That was less than half the 28% average market premium paid for a bank this year.

Bank of Boston Corp., which remains independent, received a paltry takeover offer of $45 per share last month from Banc One Corp., compared with expectations in some quarters that the bank would fetch $55 per share in a buyout.

Among other takeover candidates, BayBanks Inc. is now trading at 185% of book value, a 42% gain since Dec. 30, 1994. The company's stock price is up a whopping 56% in that time.

Or take Compass Bancshares, the Alabama regional that was subject to a bitter proxy fight earlier this year, which management won narrowly against a dissident slate seeking to sell the bank. …

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