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Bank Mergers (1990 – 2006)

Bank Mergers (1990 – 2006). Determining the Drivers Behind the Mega-merger Wave. Overview. Bank mergers have decreased the number of banks from 16,000 to 8,000 starting from the early 1990’s The top 10 firms’ market share increased from 22% to 46%

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Bank Mergers (1990 – 2006)

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  1. Bank Mergers (1990 – 2006) Determining the Drivers Behind the Mega-merger Wave

  2. Overview • Bank mergers have decreased the number of banks from 16,000 to 8,000 starting from the early 1990’s • The top 10 firms’ market share increased from 22% to 46% • Three “super-power” bank holding companies have emerged (CitiGroup, Bank of America, and JP Morgan & Chase

  3. Bank Competition …? • Have bank mergers decreased competition? (no, due to geographic expansion instead of local concentration) • BUT… new technology can change this • Now with electronic banking, larger firms can advertise more and attract more customers • What will happen to the small banker?

  4. Mergers Playbook (Top 4)

  5. Which BHC’s are the largest?

  6. Banking Structure and Profitability • In the upper banking tier, most banks are less than $100B in assets • Three banks are larger than $1100B in assets – “super powers” • Would you want to be the $10B bank or the $1100B bank? • There is no clear profitability winner • Which banking segment would you like to be?

  7. Closer Look at Financial Performance • Wide scatter among BHC’s less than $100B • Few data points >$100B • Although trend line slope is negative, it is not statistically significant • No statistical conclusion • Wide scatter among BHC’s less than $100B • Few data points >$100B • Although trend line slope is positive, it is not statistically significant • No statistical conclusion

  8. What about % Overheads? • Another way to look at BHC performance is % overheads relative to BHC asset size • Due to small number of data points in larger asset classes, trend line slope is not statistically significant • BUT… it looks as if the mega-banks are at least equal to the smaller banks What does all of this mean?

  9. Conclusions • Visual inspection reveals that ROE and ROA and similar between $100B and $1100B bank holding companies • Executive compensation tied to asset size of BHC • Larger BHC can diversify risk better • Why not merge banks? • Better executive compensation and lower potential risk… • Your opinion?

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