The merger mania of the 1990s saw 14 of the area's locally based banks bought, taken over or merged out of existence. But since bank stock investors often make their big money from mergers, the down market has reduced the value of mergers for both buyers and sellers. However, there are still strong forces pushing banks toward merging. Mergers tend to mean growth, and growth is essential for a bank's health, says Gary Gall, president of Western Sierra Bancorp in Cameron Park. You grow or you die.
Mergers create efficiencies by shaving management, processing and insurance costs.
Furthermore, the cost of maintaining modern technology is a burden on small banks as they try keep up with the online services offered by larger banks. The larger the bank, the more it can spread its costs. In the immediate future, there is still too much uncertainty in the economy for bankers to make deals, says Murray Bodine, managing director of corporate finance in the San Francisco office of the brokerage Dain Rauscher Wessels. He predicted mergers will accelerate next year. Bank stock valuations suffered in comparison to technology stocks through 1999 and the first half of 2000.