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European Financial Cross-Border Consolidation: At the crossroads in Europe? By exception, evolution or revolution?

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  • Morten Balling
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  • Jean-Paul Abraham
  • Peter van Dijcke
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    Abstract

    In the context of the New Economics of Banking, the study analyses crossborder financial consolidation from the point of view of bank strategies. The main hypothesis of the work is that, in the present decade, the Pan-European landscape of the financial sector will be determined by what is happening in a limited number of banks, this number being rather arbitrarily fixed at 100. The basic issue to be clarified is not whether a second round of cross-border mergers and acquisitions will occur after the present pause; but how it will occur: according to an ' evolution' or a ' revolution' scenario. In the study, the sample comprises the 100 largest banking groups in Europe, selected on the basis of the Bankscope data. This sample is supposed to be composed of subgroups with similar characteristics, which can be discovered by statistical analysis, using clustering techniques. The clusters help identify peer groups. Particularly interesting for the study are the cases where banks want to overcome the constraints of a domestic market, which, in the perspective of European integration, no longer suffices to satisfy their ambitions and the competition rules of the national and European authorities. After a general discussion of motives, driving forces and discouraging factors in cross-border financial consolidation, the study concentrates on four topics, mostly discussed within the same conceptual and statistical framework: (i) a factual analysis of the M&A activity of the late Nineties and the first years of the present decade, where cross-border deals were overshadowed by domestic transactions; (ii) a presentation, via self-organising maps, of the European banking panorama in the year 2000 and of the panorama changes in the period 1995- 2000. The clusters in this panorama feature at the same time national and comparative advantage aspects. In the clusters of high efficiency British and Nordic Banks predominate. In the clusters of higher vulnerability German and some Italian banks are prominent; (iii) a discussion of the track record of 29 European banking groups, divided into three groups according to their M&A activity (domestic M&A, cross-border M&A, steady state without much M&A). On the average, the performance of the domestic M&A reference group is stronger than the results of the other groups; (iv) a more detailed discussion of four cases, all of them belonging to the crossborder M&A reference group: ABN-AMRO, ING and FORTIS in the Benelux area, NORDEA in Scandinavia. The origin of the consolidation differentiates the three Benelux cases from the Scandinavian one: necessity to overcome the limitations of the national domestic market in a perspective of growth on the one hand, new perspectives in the aftermath of the Scandinavian banking crisis of the early Nineties on the other. On the basis of the preceding analysis, the answer to the basic issue favours the ' evolution' scenario,where the cross-border M&A activity remains a gradual enlargement of and a complement to the domestic market activity, but with an increasing weight of cross-border deals, when large banks become more sensitive to the limitations of their own national domestic market. In this way Europe would gradually and partly become the enlarged home market of the national champions and their challengers.

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    Bibliographic Info

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    This book is provided by SUERF - The European Money and Finance Forum in its series SUERF Studies with number 22 and published in 2002.

    ISBN: 978-3-902109-14-9
    Handle: RePEc:erf:erfstu:22

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    Related research

    Keywords: Financial consolidation; cross-border M&A; European and global financial integration.;

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    References

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    1. John Calverley & Sarah Hewin & Kevin Grice, 2000. "Emerging Stock Markets After the Crisis," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    2. Dario Focarelli & Alberto Franco Pozzolo, 2000. "The Determinants of Cross-Border Bank Shareholdings; an Analysis with Bank-Level Data from OECD Countries," Temi di discussione (Economic working papers) 381, Bank of Italy, Economic Research and International Relations Area.
    3. Engwall, Lars & Marquardt, Rolf & Pedersen, Torben & Tschoegl, Adrian E., 1999. "Foreign bank penetration of newly opened markets in the Nordic Countries," Working Papers 2-1999, Copenhagen Business School, Department of International Economics and Management.
    4. H.P. Huizinga & J.H.M. Nelissen & R. Vander Vennet, 2001. "Efficiency Effects of Bank Mergers and Acquisitions," Tinbergen Institute Discussion Papers 01-088/3, Tinbergen Institute.
    5. Francisco Pérez García & Javier Quesada Ibañez & Joaquín Maudos Villarroya & José Manuel Pastor Monsálvez, 1999. "- Cost And Profit Efficiency In European Banks," Working Papers. Serie EC 1999-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    6. H.P. Huizinga & J.H.M. Nelissen & R. Vander Vennet, 2001. "Efficiency Effects of Bank Mergers and Acquisitions," Tinbergen Institute Discussion Papers 01-088/3, Tinbergen Institute.
    7. Vennet, Rudi Vander, 1996. "The effect of mergers and acquisitions on the efficiency and profitability of EC credit institutions," Journal of Banking & Finance, Elsevier, vol. 20(9), pages 1531-1558, November.
    8. George Gelauff & Corina den Broeder, 1997. "Governance of stakeholder relationships: The German and Dutch experience," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    9. Cem Karacadag & Michael W. Taylor, 2000. "The New Capital Adequacy Framework: Institutional Constraints and Incentive Structures," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    10. Rolf Skog, 1997. "Does Sweden Need a Mandatory Bid Rule? A critical analysis," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    11. William R. White, 1998. "The coming transformation of continental european banking?," BIS Working Papers 54, Bank for International Settlements.
    12. Peter R Haiss & Gerhard Fink, 1998. "Seven Years of Financial Market Reform in Central Europe," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
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