Market Considerations: We believe three major market factors will affect bank merger activity in 2002:
First, the continued decline in the relative value of bank stocks [P/E ratios] reduces the purchasing power of bank acquirors. Investors do not want acquirors to dilute earnings per share. As a result, market conditions continue to put downward pressure on bank acquisition premiums.
Second, we continue to expect 'more sellers than buyers' in 2002, a condition that will continue to put downward pressure on bank acquisition premiums.
As illustrated below, bank acquirors are becoming more selective - the past three years have seen a decline in both the number of transactions and merger valuations. The record year for both the number and value of bank merger transactions was 1998.
