Bank mergers: the cyclical behaviour of regulation, risk and returns (original) (raw)
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The Relationship Between Merger & Acquisition and Bank Risks
2021
This study aimed to investigate the relationship between merger & acquisition and bank risks. The sample of the study consisted of 55 commercial banks sector listed on Orbs from (2011-2016). The results of the study showed that there is no relationship between the net benefit and bank`s risk, and also there is no relationship between the capital ratio and bank`s risk, and also there is no relationship between the equity ratio and bank`s risk, that there is a relationship between the capital ratio and bank`s risk. Generally, we note no relationship between the merger & acquisition and banks risk. The recommended of the study recommended that the most important of which are the concentration of banks in general on the level of losses they suffer due to the loans extended to customers and other institutions. JEL: G10; G21; G15 Article visualizations:
The effects of cross-border bank mergers on bank risk and value
Journal of International Money and …, 2002
This paper examines the effects of cross-border bank mergers on the risk and (abnormal) returns of acquiring banks. We find that overall, the acquirers' risk neither increases nor decreases. In particular, on average neither their total risk nor their systematic risk falls relative to banks in their home banking market. The abnormal returns to acquirers are negative and significant, but are somewhat higher when risk increases relative to banks in the acquirer's home country.
‘Too systemically important to fail’ in banking – Evidence from bank mergers and acquisitions
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In this paper, we examine the systemic risk implications of banking institutions that are considered 'Too-systemically-important-to-fail' (TSITF). We exploit a sample of bank mergers and acquisitions (M&As) in nine EU economies between 1997 and 2007 to capture safety net subsidy effects and evaluate their ramifications for systemic risk. We find that safety net benefits derived from M&A activity have a significantly positive association with rescue probability, suggesting moral hazard in banking systems. We, however, find no evidence that gaining safety net subsidies leads to TSITF bank's increased interdependency over peer banks.
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Bank Mergers and Acquisitions Trends Under Recent Crises
Article, 2022
Financial crisis changes economists' rules and perspectives each time it hits the global economy. The catastrophic consequences affect all economic sectors and change conventional policy solutions. Mergers and acquisitions as economic activities have regulations and trends in normal economic times. However, in recent crises, mergers and acquisitions transactions indicate various behaviors and trends in banking institutions. By collecting mergers and acquisitions data of banks from authenticated sources and analyzing it based on crisis time. The current study covered the financial crises of black Monday in 1987, the Asian stock market crashes in 1997, the Dotcom bubble in 2002, and mortgage loans in 2009. The significant findings are that approximately 80% of crisis boost mergers and acquisitions transactions, specifically in countries where the crisis originated. On the other hand, the rest where mergers and acquisitions decline under crisis is attributed to going most deteriorating banks into liquidation or nationalization, causing a decline in the number of banks that are candidates to acquire under the effect of the crisis.
The Safety and Soundness Effects of Bank M&A in the EU
SSRN Electronic Journal, 2000
This paper studies the impact of European bank mergers and acquisitions (M&A) on changes in key safety and soundness measures of both targets and acquirers. Our focus is on the short term impact after completion of the deal. We find a consistent, strong tendency towards post-merger mean reversion for the acquirer's capital, liquidity and earnings two years after a deal. Further, we find evidence of weaker mean reversion for the target's capitalization and liquidity over the same time period. We also find that European bank mergers strengthen target capitalizations at the expense of the acquirer's capitalization. However, supervisory practices have a positive impact on merger-related changes in bank profitability and capitalization for both acquiring and target banks. Our results do not preclude other effects on capitalization, liquidity and profitability in the medium and long term as a result of managerial changes in strategy.
THE IMPACTS OF BANK MERGERS AND ACQUISITIONS (M&As) ON BANK BEHAVIOUR
This thesis examines the impact of bank mergers and acquisitions (M&As) on lending behaviour by commercial banks. We use the data set of large European commercial banks from 1997 to 2005. Empirical models are formulated to explain the effects of mergers on bank loan pricing behaviour, interest margin setting, credit availability and lending objectives. The analysis provides evidence that mergers have statistically significant influence on reduced lending rates, interest margins and loan supply. In addition, lending objectives for merged and non-merging banks are different, in that merge-involved banks tend to emphasise maximising their utility, while non-merging banks focus on remaining safe. These results suggest that merged banks can obtain efficiency gains through mergers and can pass these benefits to their customers in the form of lower lending rates and interest margins. In addition, diversification gains could arise from consolidations. This is because merged banks focus more on other business activities than traditional intermediary activities. As non-interest income increases in relation to interest income, banks can diversify their business activities and can reduce their non-interest costs. As a result, they can be exposed to lower risk and therefore be less risk averse than non-merging banks.
Journal of Financial Economic Policy, 2020
Purpose-This study Investigates Shareholders' value adjustment in response to financial institutions (FIs) merger announcements in the immediate event window and in the extended event window. This study also investigates accounting measures performance, comparison of post-merger to pre-merger, including several cash flow measures and not just profitability measures, as the empirical literature review suggests. Finally, the authors examine FIs mergers orientations of diversification and focus create more value for shareholders (in the immediate announcement window and several months afterward) and/or generates better cash flows, profitability and less credit risk. Design/methodology/approach-This study examines FIs merger effect on bidders' shareholder's value and on their observed performance. This examination deploys three techniques simultaneously: a) an event study analysis, to estimate and calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) in the narrow windows of the merger announcement, b) buy and hold event study analysis, to estimate ARs in the wider window of the event, þ50 to þ230 days after the merger announcement and c) an observed performance analysis, of financial and capital efficiency measures before and after the merger announcement; return on equity, liquidity, cost to income ratio, capital to total assets ratio, net loans to total loans, credit risk, loans to deposits ratio, other expenses and total assets, economic value addition, weighted average cost of capital and return on invested capital. Deal criteria of value, mega-deals, strategic orientation (as in Ansoff (1980) growth strategies), acquiring bank size and payment method are set as individually as control variables. Findings-Results show that FIs mergers destroy share value for the bidding firms pursuing a market penetration strategy. Market development and product development strategies enable shareholders' value creation in short and long horizons. Diversification strategies do not influence bidding shareholders' value. Local bank to bank mergers create shareholders' value and enhance liquidity and economic value in the short run. Bank to bank cross border mergers create value for bidders' in the long term but are associated with high costs and higher risks. Originality/value-A significant advancement over the current literature is in assessing mergers, not only for bank bidders but also for the three pillars FIs of the financial sector; banks, real-estate companies and investment companies mergers. It is an improvement over current finance literature because it deploys two different strategies in the analysis. At a univariate level, shareholder value creation and market reaction to merger announcements are examined over short (À5 or þ5 days) and long (þ230 days) windows of the event. Followed by regressing, the resultant CARs and BHARs over financial performance variables at the multivariate level. 1. Introduction Despite the limitations put in recent financial regulations, on diversification and conglomeration through ring-fencing, financial institutions (FIs) are still diversifying and benefiting from regulatory arbitrage and immunity through mergers. Between the great depression in the 1930s and the aftermath of the 2007-2009 financial crisis, there have been waves of financial stress followed by tightening regulations, then innovations to break those out followed by deregulations. The recent financial crisis (2007-2009), has led regulators to prohibit several growth strategies and FIs diversification initiatives. Increasing capital buffers and limiting FIs ability to diversify through ring-fencing were the main tools. However, quite recently, several FIs expressed discontent with the recent regulation because of their profits draining criteria. Hoeing (2018) documents a bill to the US Congress that permits banks to deduct cash held on behalf of clients from the calculation of leverage. Doing so would lower the amount of capital the banks need as buffers and allow them to yield more cash to shareholders in the form of dividends and share buybacks. Such moves are expected to grow further in an attempt to repeal many of the 2012-2015 financial regulations. The renewed debate on optimal bank structure floats two different "diversification hypotheses":