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M&A Deals Up, But Values Down

Deal value decreased in the financial services sector in the third quarter while volume was mixed, with bank and specialty finance deals up but insurance and specialty-finance deal volume on the decline, according to SNL Financial.
Banking M&A deals announced during the period totaled 71, about on par with the year ago quarter’s 68, but well above the prior quarter’s 59. The largest single transaction was TD Bank Financial Group’s $3.8 billion offer for Banknorth Group. The second-largest transaction of the period was a $1.58 billion offer for First National Bankshares of Florida by Fifth Third Bancorp. The third-largest transaction of the period was the $850 million offer for Laredo National Bancshares by Banco Bilbao Vizcaya Argentaria SA.

Due to the absence of mega-mergers in the third quarter of 2004, volume by total deal value declined 74% to $9.6 billion from $36.5 billion in the previous quarter. According to Mike Scott, manager of M&A research for SNL Financial, the second quarter deal value figure was skewed by three such transactions:

Royal Bank of Scotland/Charter One, SunTrust/National Commerce and Wachovia/ SouthTrust, which account for about $30.3 billion of the second quarter’s total.

“Take the two, billion dollar or more deals out of the equation from the third quarter (Fifth Third/First National Bankshares of Florida and TD Bank/Banknorth) and you’re running nearly even, quarter over quarter,” he says.
Offers averaged 232.4% of book compared to 217.7% in the previous quarter and 205% in the year-ago period. On a price-to-earnings basis, deals posted a median 24.5x, compared with 22.1x in the previous quarter and 20.9x in the same period one year ago.

The number of insurance deals announced declined 21% to 58 deals from last quarter’s 73 deals and was down almost 35% from 89 deals in third quarter 2003.

Williams Becomes Acting Comptroller of the Currency

Julie L. Williams became acting comptroller of the currency in October succeeding John D. Hawke Jr. who completed a five-year term of office and served as comptroller for nearly six years.

“Today, the attributes of the national bank charter are increasingly attractive to banks of all sizes, but with the benefits of being a national bank also come responsibilities,” Ms. Williams noted, commenting on some of the areas she will be closely monitoring. “Some of the greatest challenges that our banks face today arise from nontraditional sourcesu00e2u20ac”such as reputation risk.”

Williams has been first senior deputy comptroller since 1999 and chief counsel since 1994. Williams was acting comptroller from April to December 1998. Under the National Bank Act, she automatically became acting comptroller following Mr. Hawke’s departure.

John D. Hawke Jr. has rejoined the Washington, D.C. office of law firm Arnold & Porter LLP as a partner.

Directors and Senior Execs Don’t See Eye to Eye on Shortcomings

According to a new survey conducted on behalf of Deloitte Touche Tohmatsu by the Economist Intelligence Unit (EIU), only about 34% of board members and top executives polled say their companies are proficient at monitoring critical nonfinancial indicators of corporate performance.

The majority of board directors and senior executives surveyed for the study called “In the Dark: What Boards and Executives Don’t Know about the Health of Their Businesses”u00e2u20ac”said that factors such as customer satisfaction, innovation, supplier relations, and employee commitment are critical to corporate success. But they admitted that there were difficulties in monitoring these drivers of organizational performance. By contrast, the study indicates that 86% of executives believe their companies are excellent or good at measuring and tracking the performance indicators necessary for financial reporting purposes.

“The findings are a warning sign that unethical behavior by a small number of executives is not the only critical issue in corporate governance,” says William G. Parrett, Global CEO of Deloitte. “It takes more than tracking financial performance to properly mind the store. And most board members and executives acknowledge that the tools and systems to monitor nonfinancial performance are either underdeveloped or are missing altogether.”

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