BANCOLOMBIA

GROUP 13

INTRODUCTION
Jorge Londoo CEO of Bancolombia for 15 years, retired in January 2011.
Under his leadership, the bank successfully performed the two largest mergers ever carried out in

Colombia in less than 10 years.

When Londoo became CEO in 1995, when Bancolombia was called Banco Industrial Colombiano

(BIC), the preferred share price was US$6.85; in December 2010, Bancolombias preferred share price
reached US$59.20.
Bancolombia had managed to consolidate 19.2 percent of the Colombian assets market and 21.7

percent of the net loans market share; additionally, it had handled more than seven million customers.
Its market value topped US$12.2 billion and it was among the 10 largest financial institutions in Latin

America.
Internationalization and continuous growth of new Bancolombia meant that the company would face

new challenges, particularly in maintaining its culture.

RATIONALE FOR THE MERGER

At the end of 2004, three banks were merged: Conavi, Corfinsara and Bancolombia.
As a result of regulation changes and the countrys economic downturn in the late 1990s, the number of

financial entities decreased by 37 per cent from 1995 to 1999, and by 2006, it had decreased by 62 per
cent.
Before the merger, 28.51 per cent of Conavis shares were owned by Bancolombia and Corfinsara held

6.46 per cent.

The merged entity hoped to consolidate a financial organization under a universal banking model by

integrating different systems, operations and businesses that had been scattered up to that time in
several entities and under different brands: this was a reaction to the banking industrys global trend
towards consolidation fewer, bigger institutions and internationalization.
Growth was the rationale for the merger as well as the improved business opportunity due to the

favourable global economic conditions at that time both in Colombia and abroad.

PRE-MERGER STRATEGIES OLD BANCOLOMBIA

BIC was founded in Medellin in 1945. It had a niche strategy focused on investment banking and high income

individuals.
By 1997, its market share was below six per cent of the Colombian financial services industry.
Due to the competitive environment in the mid 1990s, BICs board of directors considered the option of a more

aggressive strategic position that involved not only strengthening the company, with the aim of facing potential
international competition, but also seeking new possibilities in markets abroad.
The decision to register BIC on the NYSM propelled the company to the international capital market and was

a cornerstone in the banks history. Such a change to BICs strategy made the board consider growth options
via acquisitions.

Banco de Colombia was a promising option. By late 1997, Banco de Colombia had 4,850 employees, ranked

second in assets size and had a branch network of 268 offices around the country, in addition to having a
brand solidly positioned at the national level; in comparison, BIC had 110 offices and 3,416 employees.
On April 3, 1998, the banks officially merged, and by the end of the same year Bancolombia the company

name used once they were integrated was ranked first in the countrys financial industry with a market
share of 11.5 per cent.

Cultural differences between the entities were a challenge that demanded careful management in order to attain integration of the two banks.

There was a defined strategy to disseminate and consolidate the culture of the new bank, whose slogan was United for an Ideal Bank.
- Cultural Transformation Workshops

- permanent Cultural Management Network

In 2001, Bancolombia implemented a customer profiting strategy called Added Value System (AVS) that focused on clearly defining how value was going to be created;
the tool permitted a segment of the sales force to measure performance against sales targets and budgets.

By 2003, the old Bancolombia had 14.6 per cent of the countrys market share.

In late 2004, the sales force included about 4,300 employees and continued handling an aggressive sales plan supported on measurement systems such as the AVS.

With the merger, the bank had already consolidated the strategic decision to evolve into universal banking, and by the end of 2004, the old Bancolombia provided services
to two main segments: commercial and corporate.

Its customers included large, medium and small companies as well as individuals.

Its services included debit and credit cards, certificates of deposit, personal and corporate credit, checking and savings accounts, fiduciaries, storage services, insurance
banking and international transfers.

Its mortgage banking businesses continued to be marginal, although legislation had made this legal.

Its distribution network was the nations largest, with 377 offices operating in 127 cities, in addition to its automated teller machine (ATM) network and online and telephone
banking services.

In December 2004, the bank had 16.1 per cent of the assets market share, 14.3 per cent in loans and 12.6 per cent in deposits, strengthening its leadership in the
Colombian financial services market.

The ADR closed that year at US$14.12, which represented a 244 per cent increase from 2003.

CONAVI

Conavi began operations as a mortgage institution in 1974, making use of the government regulations that granted special
prerogatives to fundraising for home-building.
- Monopoly of mortgage credit
- protected by legislation
- preferred access to the Bank of the Republic
- special tax regulations

Different attitude on employees regarding competition.

Great difficulty faced by mortgage banks to move on in order to become a truly competitive entity.

By December 2004, Conavi, which had been a commercial bank since 2001, was the nations largest mortgage underwriter with 19.3
per cent of the market share; additionally, it possessed some important strengths in debit and credit cards. It had 3,977 employees and
257 offices.

The largest composition of its loans were in mortgage credit (55 per cent), with 35 per cent in commercial loans.

By 2004, it was already a medium-sized bank specialized in financial intermediation such as savings, operations and financing, with
five per cent of the Colombian assets market and a base of almost three million individual clients.

At Conavi, there was high job stability and the interaction between employees and managers was characterized by friendliness and
closeness.

Conavi was widely known for a superior and personalized customer service delivery supported by an advanced technological platform.

Different in Bancolombia meeting 100% of the targets was bare minimum.

CORFINSURA

Created in 1993, Corfinsura was the industry leader in large corporate clients, with credit lines and

financial services, treasury management, investment banking and stock market operations.
By December 2004, it had 47 per cent of investment banks assets in Colombia.
Integration with those coming from Corfinsura, especially with those in the sales force, was not easy.
Neede to retain Corfinsura executives to grow in investment banking which was a very small segment in

Old Bancolombia. This those sales executives a higher status, and due to it perhaps they were reluctant
to enter into the retail segment.

THE INTEGRATION PROCESS: BEING ONE, WE ARE MORE

The Santa Marta Meeting
On September 14, 2004, the decision to merge the entities was publicly announced, and by October of

the same year, the top management teams of the three companies met in the city of Santa Marta for two
days to work on the vision, mission and values of the new company that would emerge from the
integration.
In the Santa Marta meeting, the top managers of the three companies agreed on the Golden Rules of

Integration, a document that became the road map for the processes.

Jairo Burgos as the Integration Project Leader

By November 2004, Londoo designated Burgos as the manager of the integration project.

Burgos decided to invite people from the three firms and then build cross-company integration teams:

these were assigned full-time dedication to the integration project.

Decreasing Uncertainty
In March 2005, the shareholders meetings had already approved the merger and endorsed Londoo as

CEO of Grupo Bancolombia.

In July 2005, once the legal requirements were met, Londoo proceeded to formalize the top

management team.
Employees main concerns

- Job security
- Preservation of the benefits they had
- Changes associated with day to day activities
- Implementation of new processes and procedures

THE BEST OF EACH OF THE THREE: MERGER OF EQUALS

The relative contribution of each of them to the new integrated entity was 75.5 per cent from the old Bancolombia, 12.7 per
cent from Corfinsura and 11.8 per cent for Conavi.

Surprise and a feeling of loss for the employees of Conavi.

Biggest challenge of the integration - transference of the desired capabilities from each to the new company.

Preserving the brands posed the risk of people continuing to identify with the company they came from.

Integration of the operative and administrative processes

It was decided that the new brand would be Grupo Bancolombia, although there was a lot of risk involved in this decision.

Slogan and corporate image was changed.

Bank combined the branch personnel and also the headquarters staff in such a way as to modify the status quo while
maintaining the ongoing operations.

Systems and telecommunications finally adopted and final product portfolio were of Bancolombia.

Those who worked in Conavi had to tackle a very intense training process