Intra-Industry effects of European Bank M&A announcements
Ζορμπάς, Ιωάννης Γ.
SubjectBanks and banking -- Europe ; Τράπεζες και τραπεζικές εργασίες -- Ευρώπη ; Bank mergers -- Europe ; Συγχώνευση τραπεζών -- Ευρώπη
This analysis studies Mergers and Acquisitions (M&As) involving the European banking sector over a five year time period (1996-2001). The questions discussed in this theoretical section are what happened, why and how did it happen, and what are the implications of these European Bank M&As. From a historical point of view it observes that until the 1980s the financial industries in most EU Member States operated in highly regulated markets and government ownership played a more significant role. The market for corporate control was less developed at that time. A bias existed towards stability of ownership structures and cross-shareholdings in some countries. At the same time, markets for banking services were predominantly local by nature. All in all, the environment prevailing until the 1980s limited M&As as efficient ways to change the strategies of relevant players and the structure of the market. In the late 1980s and 1990's, the European banking sector experienced two significant Merger and Acquisition waves (M&As). Both waves appear to be largely related to the increasing integration of the European economies, which are a direct result of the European Union integration strategy. In particular, the Second Banking Directive, issued in 1989 and implemented in January 1993, tried to remove most of the barriers to cross-border bank mergers. It introduced the idea of a single banking license that is valid throughout the European Union. The "relevant market" was expanded to include the whole Union. The creation of the European Monetary Union has further reduced barriers because it has put all banks of the participating countries under the supervision of the European Central Bank. Besides that, the introduction of the EURO has eliminated exchange rate risk within the EU and has made it easier for customers to compare prices of services between banks in different countries. So, in the last two decades, it is observed great changes in the banking industry. M&As are changing the structure of the European banking sector. However, they are not a driving force for change themselves. M&As are responses to the driving forces for change and to changes in market structures. The major forces driving these changes are national deregulation, integration of international capital markets, dis- intermediation, demographics, information technology, entry of new competitors, and particularly the creation of the Euro, that can create the need for larger size to operate on capital markets. Larger size, with a large capital will facilitate underwriting and trading in specific segments of the capital markets. All the aforementioned reasons, along with the expected bank attempts to exploit potential synergies, economies of scope and scale, and other benefits, will further increase competition between the European banks.