Mergers and Aquisitions - 1

Mergers and Aquisitions - 1

  • Submitted By: OhioDiva1
  • Date Submitted: 08/08/2013 8:45 AM
  • Category: Business
  • Words: 568
  • Page: 3
  • Views: 151

To understand the factors driving bank mergers and acquisitions trends it is necessary to examine the past of the banking system. Opening banks started as a protector of businesses, later became the guardians of the savings, lastly the victim of lender attacks. In the time of inflation, real estate market recession of the late-80s, commercial banks survived by seeking stronger institutions as acquisition partners and trying different strategies through mergers. Thus, the beginning of the merger trends of today. The primary reasons for mergers directly relates to the changed competitive climate and the earnings prospectus for the bank. With the changing role of non-bank competition, banks could no longer remain manageable, they needed to find ways to improve their profit picture, add new products, new delivery systems, and different ways of doing business. Mergers and acquisitions provide the opportunity for the institutions earnings to increase by acquiring the earnings stream of its competitor thereby eliminating them. If the purchase price for the acquired earnings stream offsets cost reductions resulting from this combination, the acquirer has solved some of its problem by sustaining earnings growth.
Due to the continuous desire to find revenue sources and acquire businesses that are less capital intensive than traditional banking, Bank of America improved their income streams, and increased financial services through the acquisition of Merrill Lynch. The blockbuster acquisition of Merrill Lynch (MER) by Bank of America (BAC), valued at $50 billion the time of its announcement, immediately sent shockwaves through the financial world (Rinzinwangmo, Fengming, & Flavel, 2009). As reported in the April 13, 1998, International Herald Tribune, the $64.8 billion acquisition of BankAmerica by NationsBank was the largest bank acquisition in history (Martin, 1998). The resulting firm, renamed Bank of America Corporation, had combined assets of U.S. $570...

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