Magazine article American Banker

Bear Stearns Analyst Debunks '7 Deadly Myths' of Mergers

Magazine article American Banker

Bear Stearns Analyst Debunks '7 Deadly Myths' of Mergers

Article excerpt

Bank mergers seem to be losing some of their magical effect on investors.

Earlier this year news of an acquisition deal was a cinch to lift share prices, and even rumored deals could fuel a rally in the sector. But not recently.

The market has been awash in worries about economic turmoil in Asia and its widening effects here, but one Wall Street analyst said he thinks bank stocks also have eroded because of growing misperceptions about industry consolidation.

Sean J. Ryan of Bear, Stearns & Co. has summarized these impressions as the "seven deadly myths" about bank mergers:

Banks are preoccupied with the year-2000 problem.

Mergers of equals signal the end of big merger premiums.

The year-2000 problem will hurt premiums.

Midsize buyers are less likely to become sellers.

Mergers will slow because they fail to yield efficiencies.

The franchise value of midsize banks is on the decline.

Costly hostile bids are bound to increase.

First, the impact of the year-2000 issue on consolidation has been greatly exaggerated, contended Mr. Ryan, who acknowledged that he once had these concerns.

"Every bank management we talk to claims to be on schedule with plans to be compliant by yearend 1998 and to spend 1999 on testing" said Mr. Ryan. "And if a bank turns out to be hopelessly noncompliant, it has an irresistible incentive to merge and regulators have every incentive to expedite such a merger."

The millennium bug is also unlikely to undermine the hefty merger premiums that bank investors crave, said Mr. …

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