Mergers and Acquisitions

The domestic mergers and acquisitions in the financial services industry have been growing steadily over the past two decades. International mergers between the banks were rare. The share of cross-boarder mergers in the banking industry is low compared to the other industries (Claudia M Buch, Gay le DeLong. Journal of Banking & Finance. Amsterdam: Sep 2004.Vol.28, Iss. 9; pg. 2077). The wave of the bank mergers started in the United States in the 1990 and spread to other countries, especially Europe and Japan. The number of non-US bank mergers increased from 15 in 1985 to more than 500 in 2000 (annually) (Journal of Financial Research, Winter 2003 v26 i4 p487(14) ). The regulatory changes have indirectly and directly influenced the boom of mergers in banking industry. Changes, such as “Great Britain\'s "Big Bang" that opened the securities business to banks or Japan\'s repeal of Article 65 that separated commercial from investment banking--have led to greater competition among banks and between banks and other financial institutions” (Journal of Financial Research, Winter 2003 v26 i4 p487(14) ). The increased competition causes many banks to exit the industry or to merge. The birth of euro also enhanced this trend, as the banks merge to remain competitive (Journal of Financial Research, Winter 2003 v26 i4 p.487(14) ).

The wave of mergers and acquisitions in the United States started with the Riegle-Neal Interstate Banking and Branching Efficiency Act, passed in 1994, eliminated most of the regulatory barriers to interstate banking. Before the act passed, large banks were only allowed to maintain separate subsidiaries in states outside their home territory. The law enabled banks to operate as a single entity with branches in multiple regions. Thus, the new law encouraged the mergers between the banks. Between 1993 and 1997, 21 percent of all commercial banking institutions merged with other banks or were acquired by them. “Consolidation among large banks appears to be on the rise. Analysts have been debating whether Bank of America\'s $47 billion deal for FleetBoston Financial, announced in October, would drive further deal making in the industry” (Andrew Dolbeck. Weekly Corporate Growth Report. Santa Barbara: Feb 2, 2004., Iss. 1275; pg. 1, 3 pgs).

The mergers in Europe remained very domestic. The reasons for the absence of many cross-boarder mergers are different taxes, regulations, cultures and languages. This implies that the bank products remain to be specific to each country and thus cannot be easily sold in other countries. Therefore, many of the usual reasons for merging (Taking existing products into new, similar markets, cutting overlapping branches etc.) do not apply. In fact, most mergers have been small, between neighbours and not always successful. A Danish-Finnish-Norwegian-Swedish combination called Nordea is considered to be a truly cross-boarder bank, but is not seen as a success (The Economist. London: Jul 31, 2004. Vol.372, Iss. 8386; pg. 65). One quarter of the mergers were among the players with close cultural ties: Belgium, the Netherlands, and Luxembourg, for example. Opportunities for domestic mergers in some countries have been already exhausted (Benelux countries, Ireland, Spain, Sweden, and the United Kingdom, where the banking market is already highly concentrated), and some banks have already reached the maximum market share permitted by antitrust regulations. The cross-border deals should come into play, but the Europe’s cross-boarder activity remains quiet. It happened mostly because the economic benefits of international deals are unlikely to be as high as those of their domestic counterparts. “Large differences among countries in labour, management, and corporate-governance practices also complicate bank mergers. Even so, the economic, regulatory, and cultural conditions for mergers and acquisitions among Europe\'s major banks are improving by degrees” (The McKinsey Quarterly, Summer 2002 p.117 (10)

Mergers and acquisitions within the Asian bank industry started in 1999. Governments across Asia have been forcing different strategies to relax limits on foreign ownership which implies the governments’ willingness to cross-boarder mergers ((The McKinsey Quarterly, Spring 1999 i2 p60(9)). In 2001 the mergers of Japan’s big banks were successfully used to manage chronic banking crisis. Now another big merger is in the works. Mitsubishi Tokyo Financial Group Inc., the best of the money-centre banks, wants to absorb UFJ, the worst. That will create a biggest bank in the world with $1.7 trillion in assets (Business Week,