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Three more financial deals were announced Tuesday, as competition and looming revenue pressures spur the sector's fastest acquisition pace since the go-go M&A days of 1998.
The latest activity brings year-to-date announced banking deals to 48 worth $71.3 billion. That's the most to start a year since 1998, when the same period saw 503 deals worth $274 billion, says Thomson Financial.
Similar to those in the last wave, the current bank deals are a mix of superregional empire building and smaller transactions that add states or cities to an institution's branch networks. Tuesday's mergers fell into the latter category.
In the biggest of Tuesday's bunch, Melville, N.Y.-based North Fork Bancorp (NFB) will pay $6.3 billion for GreenPoint Financial Corp. (GPT)
GreenPoint operates 90 branches in the New York metro area and owns the nation's No. 18 mortgage lender, according to National Mortgage News. The acquisition will make North Fork the fourth-largest New York bank by deposits and round out its commercial focus with GreenPoint's consumer bank, said John Kanas, chairman and chief executive of the $20 billion-asset North Fork.
In Ohio, National City Corp. (NCC) of Cleveland will pay $2.1 billion for Provident Financial Group. (PFGI) National City, the nation's 13th largest bank with $114 billion in assets, says its second deal in four months gives it a long-desired branch presence in Cincinnati and makes it the No. 1 bank in Ohio.
And in New Jersey, $2.6 billion-asset Sun Bancorp (SNBC) said it would pay $83 million for Community Bancorp of New Jersey to bulk up its network in nearby Monmouth County.
These all pale beside last year's Bank of America Corp.'s $47 billion offer for FleetBoston Corp., which adds New England to Bank of America's West Coast-Midwest-Southeast reach, as well as J.P. Morgan Chase's (JPM) $59 billion January bid for Bank One Corp. (ONE)
But smaller, fill-in deals have their purpose, too.
"Banks realize that when you stay in market, you have the best cost saves," said Amy LaGuardia, portfolio manager of the Legg Mason Financial Services Fund.
Time For Banks To Buy, Sell
Banks are rushing to do mergers because they have the capital now. And buyers and sellers face revenue pressures.
After a three-year refinance boom, mortgage originations have slowed and are likely to keep doing so. Savers are shifting money back into the stock market from bank accounts, which have provided banks with a cheap source of funding.
Meanwhile, lenders are waiting for commercial borrowing to pick up and higher interest rates to take the pressure off margins.
"Banks are going to have tougher fundamental trends in '04 and '05," said Steven Wharton, an analyst at investment manager Loomis Sayles.
National City saw mortgage profit surge to over four times its normal level last year, thanks to record low rates. But in January it warned that other loan growth wouldn't offset declining profit from holding mortgages. It forecast lower net interest income in the first half of this year.
National City Chairman and CEO David Daberko cited the earnings mix as a reason for its Tuesday deal for Provident.
"We're at a point in the cycle where outsized profit from our mortgage business is likely to decline while our core banking is positioned to grow in an economic recovery," he said. "We have amassed a significant and growing amount of excess capital. With Provident, we are reinvesting some of our excess capital in our core banking business."
And would-be acquirers are "emboldened by their higher stock prices," said Wharton.
The Philadelphia bank stock index rose 30% last year after falling 13% in 2002 and 5% in 2001. IBD's northeast regional bank group, which includes North Fork, rose 36%. IBD's money center banks, which include J.P. Morgan, rose 40% last year.
Other buyers expected to be trolling for deals are Wachovia Corp., (WB) Wells Fargo & Co., (WFC) Citigroup (C) and BB&T Corp. (BBT)
With the big exception of the BofA-FleetBoston deal, most banks aren't offering big premiums like those of the late 1990s. National City's deal offered a 15% premium for Provident, about the same that Morgan is paying for Bank One. Provident shares rose 11% to 38.70.
North Fork's $46-a-share offer was actually a 2% discount to GreenPoint's Friday close. That disappointed investors, who had driven up shares by 16% after GreenPoint signaled it was up for sale Feb. 4. GreenPoint shares fell 3% to 45.25.
National City and North Fork shares declined only slightly.
These deals show disciplined pricing, analysts agree. But the merger wave is just starting.
"It's still early yet," said LaGuardia.
© Investor's Business Daily, Inc. 2004. All Rights Reserved.
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