Bank Mergers and Acquisitions
Bank mergers and acquisitions are actually quite common, especially during a financial crisis such as the one recently experienced by the world. When handled properly, this type of action within the banking industry can be beneficial but because this is such a serious change, numerous factors must first be considered. Keep in mind that bank mergers and acquisitions are seen with both national and international institutions with the primary goal being to boost the economy
Again, when done right, bank mergers and acquisitions can help banks grow while also reduce expenses. This action comes with a long list of benefits that also includes reducing competition. Obviously, when one bank takes over another bank, the bank being acquired is eliminated. One aspect of bank mergers and acquisitions different from other industries that go this route is that a type of horizontal merger is created. The reason is that the entities being merged are the same type of business or involved with the same type of business activities.
In other words, when you see many companies going through an acquisition or merger, it is because the primary company is looking to add products or services not currently offered to customers. For instance, if a telecommunication company acquires another telecommunication company, some type of technology or system is being acquired. However, when looking at bank mergers and acquisitions, both the primary bank and the secondary bank offer the same products and or services. Therefore, instead of the marriage being to add on, it is more to boost economic value.
With the completion of bank mergers and acquisitions, the greatest value typically seen is a greater number of locations, giving the primary bank a stronger presence. However, this type of marriage also results in an increased customer base for the primary bank. Today, both private and government banks are following policies for this type of action, realizing that a number of benefits exist. In fact, global and multinational banks are now seeing the value that comes from bank mergers and acquisitions, allowing operations to be extended.
When bank mergers and acquisitions are finalized for global and multinational banks, it is referred to as “cross border mergers and/or acquisitions”. With this, global banks have the opportunity to become positioned as a dominant force within the banking industry. In addition, these banks can capture a greater amount of market share and achieve economies of a much greater scale. In most cases, bank mergers and acquisitions provide the chance for enhanced synergy, efficiency, and profitability.
In many cases, the bank being acquired has faced some degree of financial distress, which could mean that once the acquisition or merger were complete, some employees would be out of work. Probably the greatest concern when it comes to bank mergers and acquisitions is to avoid monopolizing the market. The government has strict rules and regulations set up to make sure that no one company or bank controls the majority of the market. When this happens, that company monopolizes the market, which means setting up pricing and forcing other companies/banks to follow suit.
If any bank mergers and acquisitions pose risk of this, approval to go through with the plan may not be provided. To ensure bank mergers and acquisitions are fair, a number of processes have been established such as market liberalization, economic reform, financial market deregulation, and more. Ultimately, the apex financial authority for the country in which the primary bank is located has the responsibility of controlling which bank mergers and acquisitions go through and which ones are stopped.