Mergers and Acquisitions in Banking Sector About Mergers and Acquisitions in Banking Sector Mergers and acquisitions in banking

sector have become familiar in the majority of all the countries in the world. A large number of international and domestic banks all over the world are engaged in merger and acquisition activities. One of the principal objectives behind the mergers and acquisitions in the banking sector is to reap the benefits of economies of scale. With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent. Another important advantage behind this kind of merger is that in this process, competition is reduced because merger eliminates competitors from the banking industry. Mergers and acquisitions in banking sector are forms of horizontal merger because the merging entities are involved in the same kind of business or commercial activities. Sometimes, non-banking financial institutions are also merged with other banks if they provide similar type of services. Through mergers and acquisitions in the banking sector, the banks look for strategic benefits in the banking sector. They also try to enhance their customer base. In the context of mergers and acquisitions in the banking sector, it can be reckoned that size does matter and growth in size can be achieved through mergers and acquisitions quite easily. Growth achieved by taking assistance of the mergers and acquisitions in the banking sector may be described as inorganic growth. Both government banks and private sector banks are adopting policies for mergers and acquisitions. In many countries, global or multinational banks are extending their operations through mergers and acquisitions with the regional banks in those countries. These mergers and acquisitions are named as cross-border mergers and acquisitions in the banking sector or international mergers and acquisitions in the banking sector. By doing this, global banking

corporations are able to place themselves into a dominant position in the banking sector, achieve economies of scale, as well as garner market share. Mergers and acquisitions in the banking sector have the capacity to ensure efficiency, profitability and synergy. They also help to form and grow shareholder value. In some cases, financially distressed banks are also subject to takeovers or mergers in the banking sector and this kind of merger may result in monopoly and job cuts. Deregulation in the financial market, market liberalization, economic reforms, and a number of other factors have played an important function behind the growth of mergers and acquisitions in the banking sector. Nevertheless, there are many challenges that are still to be overcome through appropriate measures. Mergers and acquisitions in banking sector are controlled or regulated by the apex financial authority of a particular country. For example, the mergers and acquisitions in the banking sector of India are overseen by the Reserve Bank of India (RBI). Major Mergers and Acquisitions in the Banking Sector of the United States Following are some of the important mergers and acquisitions that took place in the banking sector of the United States:

The merger of Chase Manhattan Corporation with J.P. Morgan & Company. The name of the new company formed as a result of the merger is J.P. Morgan Chase & Company.

The merger of Firstar Corporation with U.S. Bancorp. The name of the resultant entity is U.S. Bancorp.

The merger of First Union Corporation with Wachovia Corporation. The name of the newly formed company is Wachovia Corporation.

The merger of Fifth Third Bancorp with Old Kent Financial Corporation. The name of the merged company is Fifth Third Bancorp.

The merger of Summit Bancorp with FleetBoston Financial Corporation. The new company is named FleetBoston Financial Corporation.

The merger of Golden State Bancorp, Inc. with Citigroup Inc. The name of the newly formed company is Citigroup Inc.

The merger of Dime Bancorp, Inc. with Washington Mutual and the name of the merged entity is Washington Mutual.

The merger of FleetBoston Financial Corporation with Bank of America Corporation. The newly formed entity is Bank of America Corporation.

The merger of Bank One with J.P. Morgan Chase & Company. Name of the new company is J.P. Morgan Chase & Company.

The merger of SunTrust with National Commerce Financial and the newly formed entity is also named SunTrust.

The merger of Hibernia National Bank with Capital One Financial Corporation and the merged entity is known as Capital One Financial Corporation.

The merger of MBNA Corporation with Bank of America and the resultant entity is known as Bank of America Card Services.

The merger of AmSouth Bancorporation with Regions Financial Corporation and the name of the newly formed entity is Regions Financial Corporation.

The merger of LaSalle Bank with Bank of America and the new entity formed is called as Bank of America.

The merger of Mellon Financial Corporation with Bank of New York Company, Inc. and the newly merged entity is known as Bank of New York Mellon.

When banks merge

The merger process is an art and a science. A strategic business union requires blending company cultures, core values and key leaders the soft part of a business that defines its personality and makes an

impression on customers. But a merger also must make financial sense. Mergers should allow two parties to combine operations, leverage one anothers strengths and, ultimately, produce a stronger balance sheet and greater profit potential. A merger is a mutual decision between two companies, as was the case with Huntington Bancshares Incorporated and Sky Financial Group. We think we are better together than separate, says Rick Hull, president, Greater Akron/Canton Region, with Huntington Bank. On Sept. 21, Sky and Huntington will have completed all conversions. The same philosophy is still in place, Hull adds. We are a local bank with national resources, and we can deliver the same local decision-making that we always have. The difference is that combined resources mean a wide range of products for customers, enhanced technology and more convenient locations. Smart Business asked Hull to discuss why organizations merge and how these unions affect customers, employees and shareholders. Why would a financial institution make the decision to merge? Banking has become a more difficult, competitive environment. There are greater demands for technology, and customers want more services. All this requires a lot of capital, which is why larger, regional financial institutions can accommodate these demands and smaller community banks face challenges when trying to compete in the same market. First, technology is expensive, and banks must be able to afford upgraded services to compete. And second, regulatory compliance involves investing in

processes that are costly for banks. Businesses decide to merge so they can leverage strengths and provide the best services, technology and products, while at the same time compete effectively in todays market. How does a financial institution decide whether to partner with another organization? Any acquisition must be accretive to earnings. The two organizations must gain operational synergies that benefit the whole from a cost-savings perspective. Prior to a merger, the two companies should take stock of their resources: people, locations, customers, technology, etc. Next, each business should consider its future. How will a merger provide better value for customers and shareholders? Then, the companies should evaluate whether they share core values and philosophies so the merger transition is as seamless as possible. Huntington and Sky shared the same vision and had similar organizational configurations. Both banks were driven by a community bank philosophy, albeit on a large scale. Having the same bank model in place provides the best continuity for employees and customers. For us, the operational capability was obvious. Huntington had invested heavily in technology and systems and, as an example, created one of the best online banking systems in the business. Sky had used its capital primarily to expand its footprint both organically and through acquisitions. How do business customers benefit from a bank merger? A greater distribution network translates into convenience for business customers more locations that are closer to their own offices. Customers can appreciate a more sophisticated system. And because the merged banks capacity is greater, business owners can access

programs that may not have been available to them in the past. In our case, despite the mass that will allow the new Huntington to give customers more, branches will retain their autonomy and 99 percent of decisions will still be made locally. What should a business customer experience during the integration phase of a merger? Transition in a merger should be as seamless as possible. By ensuring that the two companies share values before merging, the new combined company will not surprise customers. They can conduct business as usual. For our customers, signage will change to Huntington Bank and customers will get new debit cards, but little else will change. Bankers will walk customers through the process. Communication during transition is critical, so customers can expect to receive multiple notices explaining the merger. Many of these mailers are required by the FDIC for regulatory purposes, so while the flurry of mail may seem excessive, it is necessary. Bank representatives will also explain the merger in person or call customers at home. How can a business leverage the benefits of a bank merger? A merger is an excellent opportunity for bankers to interact and catch up with customers to see whats going on in their lives. Many time-pressed clients are busy running their businesses, and its a banks job to suggest the best products and financial strategies to meet their needs. At the same time, business customers can review new products and access other markets and products that were not available before