Mergers and Acquisitions (M&As) in the Banking Sector

Term Paper , 2002 , 15 Pages , Grade: 1,0 (A)

Business economics - Investment and Finance

The last decade of the 20th century was a decade of enormous changes in the banking sector worldwide. If one compares the largest banks of the world in 1995 with those at the end of 2000 it is obvious to see that many changes have happened in recent years: In 1995 all top five banks were from Japan (total assets in million USD in brackets): Dai-Ichi Kangyo Bank (626,171), Sumitomo Bank (617,053), Sakura Bank (607,245), Sanwa Bank (600,111) and Fuji Bank (587,154.

At the end of 2000 the top five banks ranked by total assets were: Sumitomo Mitsui Banking Corp., Japan (958,189), CitiGroup, USA (902,210), Deutsche Bank Group, Germany (882,577), HSBC Holdings, U.K. (673,814) and Bayerische HypoVereinsbank, Germany (672,720). These newly-formed banking groups arose from mergers and acquisitions (M&As) and therefore they are good examples for all the M&As that have taken place in the banking sector worldwide in recent years.

In this scientific paper the M&A activity in the banking sector is being analysed on a global basis and, where appropriate, with a special focus on European activities. To do so, the following procedure has been chosen: After the presentation of typical patterns of consolidation the main causes of consolidation and risks arising from M&As will be examined. Afterwards the economical results of the M&A process will be analysed to give a conclusion and an estimation on future activities

Inhaltsverzeichnis (Table of Contents)

• The global bank merger wave
  • Worldwide overview
  • European merger and acquisition activity
  • Development of concentration in European countries
• Typical patterns of consolidation
• Main causes of consolidation
  • Cost reduction
  • Revenue enhancement
  • Forces encouraging consolidation
• Risks of consolidation
  • Pricing of the operation
  • Underestimation of post-merger management
  • Cultural differences
• Measurement of economical results of M&As
• Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This homework aims to analyze the global bank merger wave, particularly focusing on European activities, during the last decade of the 20th century. It examines the typical patterns of consolidation, the main causes behind these mergers and acquisitions (M&As), and the associated risks. The analysis also delves into the economic results of the M&A process, providing a conclusion and an estimation of future activities.

• Global bank merger wave and its impact on the banking sector
• Typical patterns of consolidation in the banking sector
• Main causes of consolidation, including cost reduction and revenue enhancement
• Risks associated with mergers and acquisitions in the banking sector
• Economic results of mergers and acquisitions in the banking sector

Zusammenfassung der Kapitel (Chapter Summaries)

The first chapter provides an overview of the global bank merger wave during the 1990s, analyzing the number and value of M&A deals in the 13 most important industrial countries. It highlights the significant increase in both the number and value of transactions, particularly in the latter half of the decade. The chapter also emphasizes the prevalence of domestic M&As, accounting for over 85% of all transactions.

The second chapter focuses on European merger and acquisition activity, presenting data from the Banking Supervision Committee of the European System of Central Banks. It reveals a similar trend of increasing transactions, particularly in the last two years of the decade. The chapter also examines the distribution of domestic bank M&As, highlighting the predominance of "small" bank mergers, attributed to the larger number of small institutions in the EU.

The third chapter delves into the development of concentration in European countries, analyzing the degree of concentration based on the total assets of the five largest credit institutions in each country. It identifies three groups of countries based on their concentration levels: high, medium, and low. The chapter also observes an increase in concentration in the highest concentrated countries, a slight reduction in the medium group, and a slight increase in Germany, the country with the lowest concentration level.

The fourth chapter explores typical patterns of consolidation, categorizing M&A transactions into four groups based on the geographic and industry affiliations of the companies involved. It highlights the prevalence of domestic bank M&As in the EU, with Germany, Italy, France, and Austria accounting for the majority of transactions. The chapter also discusses the frequency of conglomeration, where banks acquire companies from other financial sectors, and provides examples of both domestic and international bank M&As and conglomeration.

The fifth chapter examines the main causes of consolidation, focusing on the pursuit of increased profitability through cost reduction and revenue enhancement. It analyzes the motivation factors for achieving higher profitability through cost reduction and revenue enhancement, drawing on data from interviews with financial sector participants and industry experts. The chapter also explores the environmental forces encouraging consolidation.

Schlüsselwörter (Keywords)

The keywords and focus themes of the text include bank mergers and acquisitions, consolidation in the banking sector, global financial industry, European banking sector, cost reduction, revenue enhancement, risks of consolidation, and economic results of M&As. The text examines the drivers and consequences of the bank merger wave, particularly in Europe, during the last decade of the 20th century, providing insights into the dynamics of the global financial industry.

• College: Berlin School of Economics
• Course: International Corporate Finance
• Grade: 1,0 (A)
• Author: Matthias Schubert (Author)
• Publication Year: 2002
• Pages: 15
• Catalog Number: V106140
• ISBN (eBook): 9783640044191
• ISBN (Book): 9783640707829
• Language: English
• Tags: Mergers, Acquisitions, Banking, Sector, International, Corporate, Finance