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Banks’ Domestic & Cross-border M&As: Where Can They Go Wrong?

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  • George Mountis

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    (Bank of Cyprus)

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    Abstract

    The recent financial market turmoil has produced significant structural changes, and created historic opportunities for banking institutions to launch mergers with, and acquisitions of, competitors. Nevertheless, numerous institutions fail to anticipate strategic aspects that could affect the real value of such transactions. This is a well-established fact, but the reasons for it are less clear. This paper aims to assist banking professionals and institutions to improve the quality of their M&As, especially in an era where mistakes could have catastrophic effects on a bank’s balance sheet (B/S) and reputation. To address some of the strategic challenges, we shall review some practical measures that executives could put into practice to maximise and unlock synergies from M&As, and establish possible areas where mergers can go wrong. Additionally, the study explores the pre/post-merger financial performance of key M&As in the Greek banking sector, whilst reviewing prospects for the Cypriot banking sector. This paper contributes to the financial and strategic management literature by analysing key reasons whereby banks’ M&As (both cross-border and in-border) can go wrong. From the research, it has been established that such reasons include: errors in estimating real revenues and failure to account for income “dis-synergies”; income enhancement and cost-cutting incentives; the impact of “one-off” costs; timing; past experience; and organisational culture and integration strategy. This event-based study finds that from the combined view of the target and bidding Greek banks, M&A transactions are on average successful and create value. The emphasis on M&As, as an argument for the survival of Greek and Cypriot banks in the competitive European market, seems convincing, as significant economies of scale could be achieved. Nevertheless, the long-term success of the Greek and Cypriot banking sectors’ restructuring, via M&As, necessitates a more careful monitoring of the endogenous factors related to the banking operations. Banks’ strategists have to recognise that the strategic fit among merging banks is a critical element in determining the success or failure of a deal.

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    Bibliographic Info

    Article provided by University of Cyprus, Economics Research Centre in its journal Cyprus Economic Policy Review.

    Volume (Year): 6 (2012)
    Issue (Month): 1 (June)
    Pages: 39-67

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    Handle: RePEc:erc:cypepr:v:6:y:2012:i:1:p:39-67

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    Related research

    Keywords: mergers and acquisitions (M&A); strategy; synergies; market share; financial performance.;

    References

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    1. Asimakopoulos, Ioannis & Athanasoglou, Panayiotis & Georgiou, Evangelia, 2005. "The effect of M&A announcement on Greek bank stock returns," MPRA Paper 16450, University Library of Munich, Germany.
    2. Claeys, Sophie & Hainz, Christa, 2007. "Acquisition versus greenfield: The impact of the mode of foreign bank entry on information and bank lending rates," Working Paper Series 210, Sveriges Riksbank (Central Bank of Sweden).
    3. Panagiotis Liargovas & Spyridon Repousis, 2010. "The impact of mergers and acquisitions on the performance of Greek Banking Sector," Working Papers 0051, University of Peloponnese, Department of Economics.
    4. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, . "Liquidity, Information, and the Overnight Rate," IEW - Working Papers 186, Institute for Empirical Research in Economics - University of Zurich.
    5. Maditinos D. & Theriou N. & Demetriades E., 2009. "The Effect of Mergers and Acquisitions on the Performance of Companies – The Greek Case of Ioniki-Laiki Bank and Pisteos Bank," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 111-130.
    6. Stengos, Thanasis & Panas, E, 1992. "Testing the Efficiency of the Athens Stock Exchange: Some Results from the Banking Sector," Empirical Economics, Springer, vol. 17(2), pages 239-52.
    7. Athanasoglou, Panayiotis & Brissimis, Sophocles, 2004. "The effect of M&A on bank efficiency in Greece," MPRA Paper 16449, University Library of Munich, Germany.
    8. Halkos, George & Salamouris, Dimitrios, 2001. "Efficiency Measures of the Greek Banking Sector: A Non-Parametric Approach for the Period 1997-1999," MPRA Paper 2858, University Library of Munich, Germany.
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