Latest bank deals
A recent issue of The Economist (5/20/06) includes a “special report on international banking.” Some of the highlights:
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In Eastern Europe, foreign banks have acquired 80% of the banking assets.
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Half of recent bank mergers have destroyed investor value.
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Some argue that economies of scale get exhausted by the time a bank grows into middle-size.
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There are also “diseconomies of scale” that can crop up in a megabank, as management starts losing control.
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The cause of many mergers is the ego of the Coe.
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Financial conglomerates, combinations of commercial banking, asset management, brokering, insurance, credit cards, and so on are still conglomerates, and, as such, difficult to manage profitably.
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As banks get bigger, they get more opaque in their dealing, something that may scare off investors.
Here’s a few more examples of the endless consolidation of the banking industry, both in the US and abroad.
French merger on track
French bank Caisse D’Epargne bought 35% of its own shares from its biggest shareholder (an organization called CDC) for $8.95 billion. The move comes in advance of its merger of key assets with another French bank, Groupe Banques Populaires. That merger, to be called Natixis, which will concentrate on financial services, to be sold through both chains’ retail banks (which will remain separate). The resulting operation will be large enough (€20 billion) to compete with the financial services of France’s other big banks: Societe Generale SA, Credit Agricole SA and BNP Paribas SA. In fact, the merger will make Natraxis #2 in that area, after Credit Agricole. The new company will be especially strong in asset management and mortgages.
CDC (Caisse des Depots et Consignations) has threatened to block the deal. CDC is in charge of managing state pensions in France. In addition to cash, Caisse d’Epargne has offered to sell some insurance and real estate assets to CDC.
Big deal in Alabama
Two big regional banking chains based in Alabama will merge in a $10 billion deal. Together, Regions Financial Corp and AmSouth Bancorp, both located in Birmingham, will make up the tenth-largest bank in the US, measured by market capitalization. The combined company will have over 2,000 branches spread from Florida to Texas.
The reason for the merger, according to a Wall Street Journal article (“Regions to Merge With AmSouth In $10 Billion Deal”. 5/25/06), is not hard to find:
The deal comes as banks and other financial institutions confront rising interest rates that are likely to crimp their profits and slow the booming home-mortgage business. Regional banks like Regions and AmSouth are also scrapping for consumer deposits against big players such as Wachovia Corp. and Bank of America Corp., which are pushing ever deeper into territories that were once the province of regional stalwarts.
In fact, one big local Alabama bank, South Trust, was acquired by Wachovia only a few years ago. Rumors are already rife that Birmingham’s last independent bank, Compass Bancshares, might be the next target of one of the big national banks.
The deal has been rumored for over decade. It still may fall apart, if a more tenuous bidder wins the consent of shareholders.
Other news
French bank Credit Agricole announced it was considering whether to buy UK mortgage bank Alliance & Leicester. The French bank has announced it has a war chest set aside to acquire more assets outside France.
French bank Societe Generale is in a bidding war with Citigroup to acquire China’s Guangdong Development Bank.
Swiss banker USB bought Dutch-based ABN Amro’s global futures and options business.
6:19:01 PM 
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