Magazine article American Banker

Bull Market Raised Prices to Forbidding Heights

Magazine article American Banker

Bull Market Raised Prices to Forbidding Heights

Article excerpt

An 18-month bull market in bank stocks created an impasse between would- be buyers and sellers of banks and thrifts.

Since January of last year, the American Banker index has soared from 730 to 1,030, a 54% increase mirroring the rise in the broader stock market.

Oddly, the increase, driven in part by merger mania, has helped cool off the M&A frenzy. Through July 24, $17.4 billion in bank deals have been announced this year, versus $25.7 billion in the same period last year, according to SNL Securities. SNL tallies only 162 deals through July 24 of this year, compared with 187 last year in the same period.

Analysts say the problem is that bank executives hoping to sell their companies remember the premiums paid in 1995 and are applying them to today's stock prices - which remain relatively high despite the recent selloff.

While the sellers now have high price expectations, buyers are suddenly wary of spending too much, because of credit quality concerns and new regulations, analysts say.

"Investment bankers and acquiring bank executives themselves are saying selling expectations are too high," said James Marks, of Hancock Institutional Equity Service. "And some of these same banks were willing to make these same transactions in the not too distant past."

Some recent deals have been only slightly below the expected price, encouraging sellers to stand firm on premiums, Mr. Marks added.

Analysts said buyers' attitudes have changed, however.

Mr. Marks pointed out that the most widely watched deal of the year Wells Fargo Corp. …

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