Mergers and Acquisitions in the Bank Sector

1. Mergers and Acquisitions in the Bank Sector • A flashlight on the European situation • Developments in a small country like Austria • Three Austrian examples: How to manage merger problems • The EUROCADRES symposium of Brussels 2000: The challenges for P&MS • Discussion groups on the Cypriote situation: questions

2. Accelerating mergers and acquisitions from 1995 to 2000 • Total bank M&A raises from 300 to more than 500 • The majority of M&A were in domestic markets (market clearence) • Up to 2000 less than 10% crossborder M&A in the European Economy Area • Stagnation of domestic, increase of transnational M&A in the last 2 years • Highest growth of M&A between EU and Third-country banks (EU enlarging process...)

3. Developments in the Austrian bank sector • „Österreich ist eine kleine Welt, in der die große ihre Probe hält.“ (Austrian poet Franz Grillparzer)„Austria is a small world mirroring the big one.“ • A long tradition of strong domestic and local markets • A broad diversity of regionally, industry-focussed and social-politically oriented banks, saving banks and cooperative banks with Austrian private or public ownership till the 90ies • A 3 step development of mergers, takeovers and acquisitions changed the situation completely

4. Development of the Austrian bank sector: The three steps • Concentration on the domestic finance market and partly withdrawal from industry engagement to avoid involvement into globalisation: banks keep their traditional core business and home markets • Accumulation of national bank capital through big mergers an takeovers in the 90ies • Takeovers or mergers of big and fusioned Austrian banks by huge German banks, takeover of the privatized postbank in the last few years

5. Development of the Austrian bank sector: The situation now • The sector, for a longer time behind global M&A trends, now in an accelerated process • The most important Austrian banks dominated by big German bank concerns • They keep the domestic market and play a new role in the strategic expansion into EU candidate countries (regional concept) • Small and middlesized banks keep their spezialized fields, despite partly taken over • Accelerated mergers cause severe problems

6. Severe problems caused by mergers, takeovers and privatization • Staff redundancies; competition or demotivation • Especially redundancies of managerial staff • Incompatibilities of company cultures • Incompatibilities of electronic or logistic systems • Incompatibilities of collective or company agreements with the employees • Difficult merger of employees‘ representative bodies • Legal incompatibilities and lack of information especially in crossborder mergers • Frictional loss instead of expected synergy

7. Austrian examples: case studies • Erstebank – GiroCredit: a merger accompanied by outsourcing of some departments an insourcing of new elements • The merger processes leading to Austrians biggest bank Bank Austria and its takeover by the Bavarian Hypovereinsbank • A special case: The trade union and semi-Bavarian BAWAG takes over the privatized postbank

8. 1: Downsizing increases problems • Incompatible data processing systems • Downsizing: golden handshakes for those who leave • But trend to bullying as means of carreer competition • Redundancy of managerial positions, enormous stress for managerial staff and „white elephants“ walking around • Big differences between company cultures even stronger than technical incompatibilities • A new name of the company does not automativally create a new corporate identity

9. 1: Key items to keep in mind • It is essential to reach one common structure of collective and individual rights; a two-rights system would keep merger problems alive for a long time... • It is necessary to go the integration process consequently even if conflicts arise • Beware of any temptation to press down any part of staff that looks weaker at the moment; it could destroy the integration climate • Clear legal frameworks help to manage the change • Trade unions may play an advisory role • Mind: Not every new problem is caused by the merger

10. 2: Bank Austria - the merger cascade • 1980ies: The Viennese Zentralsparkasse buys a dozen saving banks; reconstruction • 1991: The first big bank merger in Austria between Zentralsparkasse an Länderbank is a political sensation: Bank Austria is born • 1997: The biggest bank merger ever in Austria: Nr. 1 and Nr. 2 merger • 2000: The Bavarian Hypovereinsbank takes over the share majority of Bank Austria • Bank Austria becomes part of the European regional strategy of the Hypovereinsbank

11. 2: Main aims in the actual situation • To save the monetarian situation in a sensitive phase • To save the participation and influence of the works council, especially in the Advisory Board • To save the culture of Austrian social partnership in the relation to the German management • To realize a new alliance of staff, reps and managers to save a good climate • To realize a new crossborder cooperation between trade unions and within the European works council • Not to reactivate old fears and problems caused by the mergers before

12. 3: BAWAG-PSK - a two worlds merger • The cultures of the long tradition of state owned postbank with a majority staff of civil servants and that of the trade union owned and now semi-Bavarian are extremely different • Works councils are asked to be responsible for the culture merger: a dangerous trap • Works councils in both parts have power and influence: a hard temptation to play an active role in internal competition • Managerial staff has different legal background and is concerned with a difficult integration process

13. The EUROCADRES symposium of Brussels 2000: challenges for P&MS The conclusions of EUROCADRES‘ symposium on mergers, takeovers and privatisation identified four key areas of essential importance for professional and managerial staff: • Access to information • Access to the negotiation process • Establishing and access to a monitoring unit • Establishing an international network for exchange of experiencein close cooperation with the employees‘ representative bodies / works councils

14. Challenges for P&MS: Information and analysis essential on • the employer‘s aims and strategies • the role and responsibilities of external consultants • important economic, technical and social data • the inpact on employment perspectives • the inpact on request or change of qualifications • the expected costs of the change process including transparency who will pay for it • the responsibility and involvement of the managers and staff representatives.

15. Challenges for P&MS: The negotiation process should focus on • the organisation and management model aimed • employment situation including possibilities for placement, improving structures and skills • training and further qualification programmes to match the challenges of the change • professional and geographic mobility as a new chance to optimize the change, but with fair opportunities of choice • changes in labour contracts and collective agreements

16. Challenges for P&MS: Establishing a monitoring unit able to • analyse the employment situation and seek solutions • examine management models and incompatibilities • provide impacts of collective agreements and labour contracts • consider working conditions, workload, qualifications, subcontracting etc. • carry out research on possible alternatives • set up asessment and appeal bodies • encourage transparency and access to information

17. Challenges for P&MS: European networks and procedures • Establishing good and early crossborder contacts between concerned P&MS, works councils and trade unions • Exchange of experience to avoid starting from the very beginning every time again • Ensuring respect for national cultures, procedures and European legislation on information and consultation • Enlarging the European Commission‘s approval for mergers from mere competition to macroeconomic and social aspects

18. Questions to debate the Cypriote situation • How can the structure of the bank branch in Cyprus be characterized? • What are the main trends or intentions concerning mergers? • Which recent experiences with mergers, takeovers or privatisation may be useful in this context? • Which are the questions and problems mentioned in the case studies that are most relevant for Cyprus? • Which suggestions of the EUROCADRES symposium do you identify most important for you?