New Trends in Bank Consolidation - Cross Border Mergers.

[Dover]

We've witnessed mergers and acquisitions for some time, and now...the sweep up...bankruptcies.
Bigger banks with broader functions and territorial reach. That's the name of the game. So don't think
this bank failure is the end of the world. It's the end of our financial system as we've known it....all part of the plan, apparently. And the Feds want new powers of regulation to keep the riff-raff out of the competitive new and larger pool. Get the picture? Banks without borders. GLOBALIZATION.


New Trends in Bank Consolidation - Cross Border Mergers.

March 6th, 2008

The world’s biggest banking takeover, the recent $100bn acquisition of ABN AMRO by the Royal Bank of Scotland led consortium of European banks, is no flash in the pan.

The trend towards banking consolidation, and especially cross-border mergers, is moving inexorably ahead and key deals appear to indicate a fundamental shift in the evolution of mergers and the beginning of a new phase in banking structures, both domestic and global.

Not surprisingly globalisation is changing the game; but there is much more to it. Global bank mergers reached a record $370 billion up to the end of October, according to data provider Dealogic. Of that, cross border deals make up about 55 per cent – more than double the share in 2006.

Most dramatic has been the recent $100 billion acquisition of ABN AMRO by the Royal Bank of Scotland-led consortium of European banks. And, despite the summer sub-prime banking crisis, there is going to be no significant change of direction in a trend which will see an increasing number of mergers and acquisitions.

Cross-border bank deals have been evolving over recent years and have now reached a take-off stage, as the centre of gravity of global finances shifts to accommodate the growing wealth of China, India and the Gulf states along with other emerging economies.

Commenting on this evolution, Greg Fleming, president of Merrill Lynch and adviser to the RBS consortium on ABN, says: “It used to be Americans going into Europe and Asia. Now we have the Europeans doing it themselves, and buying into the United States. The newest part of this will be the Asians buying into Europe and the United States."

..snip..

What will the structure of banks across the globe look like in 2010 or 2015? The latest figures suggest that the bigger banks are continuing to take a larger share of the global banking pie and this trend is set to continue.
According to The Banker magazine’s latest Top 1000 World Banks, “the Top 25 banks by Tier 1 capital (in the
Top 1000) provide 40.9 per cent of the Top 1000 aggregate capital, 42.8 per cent of aggregate assets and 40.8
per cent of aggregate profits. This compares with 36.7 per cent, 41.6 per cent and 40.5 per cent respectively in
last year’s (2006) ranking”...>

http://www.tradedock.net/2008/03/06/new-trends-in-bank-consolidation-cross-border-mergers/



Bank exec says consolidation key to global competitiveness


Consolidation in the banking industry has given the United States a competitive edge in the global economy, according to a leading bank executive.

Anthony Terracciano, president of First Union, said "We have the opportunity now to be the strongest player in the group, where seven years ago we were perhaps number four. ... Our position has improved while the number of banks has gotten smaller. That is not a coincidence."

Speaking at a panel on The Future of Financial Services: Regulation and Market Forces held at the Alumni House during a day-long visit to UConn December 3, Terracciano said there has been enormous consolidation in the industry over the past seven years, largely as a result of stronger banks buying up other banks weakened by the recession and real estate problems.

First Union was formed by the 1995 merger of First Fidelity and First Union. In April, First Union bought Corestates, a merger that is the nation's largest to date in the bank industry.

Terracciano said consolidation is likely to remain the crucial issue for banking during the next five to 10 years and predicted that in an industry that began with 14,000 banks "we may wind up with 3,000 banks," including just a handful of large banks.

The banking industry has now embarked on a second stage of consolidation, he said: the creation of a financial services industry, in which insurance, investment banks, and mutual funds will join together.

Terracciano said banks go through cycles of struggle and prosperity...>

http://advance.uconn.edu/1997/971208/12089705.htm

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Monday, July 14, 2008
Bank consolidation and getting positive about the credit crisis

The global economy is gripped by its worst financial crisis since the Great Depression. People are losing their homes and their jobs, banks are going bankrupt, and stock markets in the U.S. and elsewhere have fallen significantly from recent highs. Yet, I am more optimistic than I have been for some time. This may strike regular readers as strange, who have read the dire warnings of impending calamity coming from this blog for some time.

The reason for my optimism is that I sense that the banking sector is consolidating as weaker institutions shed assets and stronger ones reap the reward. To be sure, we haven't hit bottom yet. The GSEs day is coming -- not now but they do need much more capital than tey have and the proposed solutions to date are inadequate. There will be many major bankruptcies in the gobal financial sector; IndyMac was just the first of many in the US in particular. And the global economy will almost certinly suffer its first major recession in quite a while.

But witness, the acquisition of Citibank's German banking unit by Crédit Mutuel of France. Look at the buyout of the former UK building society Alliance & Leicester by venerable Banco Santander. And read the WSJ's article on BBVA's tactical expansion in the US sun belt, an area hit hard by the housing downturn. Finally, there's the IndyMac failure. Far from a disaster for banking, it was an ineitability that is better having happened sooner than later. All of this speaks to banking consolidation. And consolidation and bankruptcy means a weeding out of weak institutions whose mere presence constrics credit as these zombie organizations deleverage to stay afloat...>

http://www.creditwritedowns.com/2008/07/bank-consolidation-and-getting-positive.html

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The Bank of New York Mellon Completes Bank Consolidation Program

Tue Jul 1, 2008

NEW YORK, July 1 /PRNewswire-FirstCall/ -- The Bank of New York Mellon,
the global leader in asset management and securities servicing, has completed
the process of consolidating and renaming its principal U.S. bank and trust
company subsidiaries into two new principal banks. This consolidation effort,
which follows last July's merger of the holding companies of Mellon Financial
and The Bank of New York, was an essential part of the Company's overall
integration process that required regulatory approvals and was completed on
schedule.
"This is another important step in ensuring we meet or exceed the goals we
set for integration. The bank charter consolidation provides a more effective
and cost-efficient structure to deliver our products and services to our
global clients, as well as streamlines our own regulatory and related
processes," said Robert P. Kelly, chief executive officer of The Bank of New
York Mellon. "These changes will ultimately make it easier for our company to
conduct its business and for our customers to conduct their business with us.
For most of our clients, the consolidation of these charters was largely
transparent and operationally seamless, aside from different entity names
appearing on their statements and reports going forward."...>


http://www.reuters.com/article/pressRelease/idUS112029+01-Jul-2008+PRN20080701

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Bank Consolidation, Internationalization and Conglomeration: Trends and Implications for Financial Risk


This paper documents global trends in bank activity, consolidation, internationalization, and financial firm conglomeration, and explores the extent to which financial firm risk and systemic risk potential in banking are related to consolidation and conglomeration. We find that while there is a substantial upward trend in conglomeration globally, consolidation and internationalization exhibit uneven patterns across world regions. Trends in consolidation and conglomeration indicate increased risk profiles for large, conglomerate financial firms, and higher levels of systemic risk potential for more concentrated banking systems. We outline research directions aimed at explaining why bank consolidation and conglomeration do not necessarily yield either safer financial firms or more resilient banking systems.

http://ideas.repec.org/p/imf/imfwpa/03-158.html

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Germany Steps Up Bank Consolidation Drive
http://www.monstersandcritics.com/news/business/news/article_1410813.php/ANALYSIS_Germany_steps_up_bank_consolidation_drive

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The U.S., like other parts of the world, will likely form a regional trade alliance with Canada and Mexico and perhaps share currencies in common. Of course no guarantees it will come off smoothly. Too many factors bearing down on this shift. And perhaps there are varying opinions among WE THE PEOPLE about how what we'd like the world to look like that doesn't necessarily synch with the banking/power elite.

[dixiegrrrrl]

1. Dover...I always appreciate your information and the great links..

tyvm for posting this and the other info. elsewhere you have posted.

[Dover]

2. Thanks for the kind words dixiegrrrl.

Sometimes I wonder if I'm not just crying out in the wilderness. So I really appreciate getting your
response.

Obviously I'm a big advocate of uncovering the larger picture as much as is possible, since our media and government don't seem to want to educate us or explain the process/cycle we are in. I don't necessarily agree with the direction these broader trends are taking us in, but it does help to at least recognize them so as to get my bearings. It's so easy to get tunnel vision and become swept up in an undertow of chaos and automatic response based primarily on old conditions.
While there may be some similarities to the past in this current cycle, I hope we all realize that we are in new, uncharted waters and need to learn how to swim in them.

[Hannah Bell]

3. thanks for the post. but they're not completely uncharted - the economic

history of the us can be read as a fight over who controls the money supply, & previous waves of bank/finance failures usually resulted in more consolidation. there's even speculation that some were deliberate, with that end in mind. so one way to read this one is as supra-national consolidation in the "best" capitalist tradition: small players get forced out, big ones pick up the spoils & extend their control.

[Dover]

4. True enough. It does seem they are attempting to retrofit their centralized wealth/capitalist model

at the global level. While I think globalism is an inevitability, I don't think the old models will
be appropriate to it, and who knows what might unfold to challenge it (uprisings from the bottom, or wars or economic pressures, or perhaps climatic upheaval...who knows). That is what is uncharted and what takes this more and more out of the realm of predictability.

No doubt financial and multi-national corporations would like to fill the global power vacuum with their own 'laws' and regulations (sovereign entities, unto themselves).

[Ah Xoc Kin]

5. there's one course

There's only one logical course open to financial
institutions right now - get bigger fast.

[Dover]

6. Well there are many sides to the question of whether bigger is better...and for whom?

What are the expected consequences of banking integration?

Bigger and broader banks are almost surely better diversified, but are they in fact safer? Early evidence from the 1930s and before suggests that large and geographically diversified banks weather economic downturns better than smaller banks. For example, the U.S. experienced periodic banking panics during the 19th century and into the early part of the 20th century. During the Great Depression years—1930 through 1933—5.6%, 10.5%, 7.8%, and 12.9% of U.S. banks failed in each year; by the end of that four-year stretch, almost half of U.S. banks had either closed or merged. Bernanke (1983) argues that this banking crisis worsened the magnitude of the downturn because credit supply fell as banks failed. Thus, many firms were unable to finance potential investments. Most of the failed banks were small and operated out of just a single office. In Canada, where not a single bank failed, branching was the rule; in fact, Canada had only ten large banks during the 1930s. The Canadian economy fared much better than did the United States economy, in large part because of its better diversified and integrated banking system.

History thus suggests that bigger and better diversified banks are safer. Of course, history need not repeat itself. Some studies of modern consolidation suggest that banks increase their leverage following mergers or acquisitions, which tends to offset the risk-reducing effects of diversification. Demsetz and Strahan (1997) find that large banks today, while clearly better diversified, are not safer than small banks because they tend to hold riskier loans and finance themselves with less equity (leading to higher leverage). So, active management of banks can and often does offset the potential stabilizing effects of size and diversification.

Even with no change in bank risk, geographical diversification and consolidation integrates our banking system, which has potential spillover effects on local business-cycle volatility (for example, volatility measured at the state level). Integration allows banking resources to flow between states. Small business lending, for example, was traditionally a local business dominated by local lenders. Before deregulation, the fortunes of the banker and the local business community were inextricably linked. Today, however, banks are less exposed to the local economy: they tend to lend to small businesses over much greater distances, and they tend to operate branches widely across broad regions (Petersen and Rajan, 2002). In turn, the local economy is less exposed to the fortunes of local banks, partly because firms are less likely to borrow locally and partly because local banks owned by multi-state holding companies can readily access capital through affiliated banks operating elsewhere. Thus, local downturns no longer imply declines in bank capital and credit availability. Integration reduces both the effect of local business downturns on banks and the sensitivity of local business to banking downturns.

The story does not end quite there. Integrated banks, while better diversified against local economic shocks, are also better able to drain financial resources in response to downturns. Remember, before deregulation, banks and businesses inherited each other's problems. Therefore, if the local business lost money, so did the local bank. With limited opportunities to invest, however, local banks tended to stick with their customers through good times and bad. Integrated banks—banks with operations in many markets—may choose to respond to local downturns by lending elsewhere. This kind of capital reallocation, made easier by integration, could actually worsen the impact of local shocks.

How did local volatility change after U.S. banking integrated?

Given these theoretical uncertainties, it seems natural simply to test empirically whether or not local economic volatility has increased or decreased with banking integration. Morgan, Rime, and Strahan (2004) test how the magnitude of state-specific economic shocks changed after states permitted interstate banking deregulation. They show first that the ownership of a state's banks by out-of-state banking organizations rose sharply after interstate reform, thereby integrating the state with the rest of the country. They next isolate the local business cycle for each state in each year from the middle of the 1970s (just before deregulation) to the middle of the 1990s (the end of deregulation)...cont'd

http://www.frbsf.org/publications/economics/letter/2006/el2006-10.html

[Dover]

7. Basel Accord

http://en.wikipedia.org/wiki/Basel_Capital_Accords

The Basel Accord(s) or Basle Accord(s) (see spelling section below) refers to the banking supervision Accords (recommendations on banking laws and regulations), Basel I and Basel II issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS maintains its secretariat at the Bank of International Settlements in Basel, Switzerland and the committee normally meets there.

The Basel Committee consists of representatives from central banks and regulatory authorities of the Group of Ten (economic) countries, plus others (specifically Luxembourg and Spain). The committee does not have the authority to enforce recommendations, although most member countries (and others) tend to implement the Committee's policies. This means that recommendations are enforced through national (or EU-wide) laws and regulations, rather than as a result of the committee's recommendations - thus some time may pass between recommendations and implementation as law at the national level.