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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

Bank Mergers (1990 – 2006)

Determining the Drivers Behind the Mega-merger Wave

overview
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
bank competition
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?
banking structure and profitability
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?
closer look at financial performance
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
what about overheads
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?

conclusions
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?