MERGERS AND ACQUISITIONS IN BANKING AND FINANCE

MERGERS AND ACQUISITIONS IN BANKING AND FINANCE This page intentionally left blank MERGERS AND ACQUISITIONS IN BANKING AND FINANCE What Works, What Fails, and Why Ingo Walter 1 2004 1 Oxford New York Auckland Bangkok Buenos Aires Cape Town Chennai Dar es Salaam Delhi Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Sa˜o Paulo Shanghai Taipei Tokyo Toronto Copyright 2004 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 www.oup.com Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Walter, Ingo. Mergers and acquisitions in banking and finance : what works, what fails, and why / by Ingo Walter. p. cm. ISBN 0-19-515900-4 1. Bank mergers. 2. Financial institutions—Mergers. I. Title. HG1722.W35 2004 332.1`068`1—dc22 2003015483 9 8 7 6 5 4 3 2 1 Printed in the United States of America on acid-free paper Preface On April 6, 1998, the creation of Citigroup through the combination of Citicorp and Travelers Inc. was announced to the general applause of analysts and financial pundits. The “merger of equals”createdtheworld’s largest financial services firm—largest in market value, product range, and geographic scope. Management claimed that strict attention to the use of capital and rigorous control of costs (a Travelers specialty) could be combined with Citicorp’s uniquely global footprint and retail banking franchise to produce uncommonly good revenue and cost synergies. In the four years that followed, through the postmerger Sturm und Drang and a succession of further acquisitions, Citigroup seemed to outperform its rivals in both market share and shareholder value by a healthy margin. Like its home base, New York City, it seemed to show that the unman-ageable could indeed be effectively managed through what proved to be a rather turbulent financial environment. On September 13, 2000, another New York megamerger was an-nounced. Chase Manhattan’s acquisition of J.P. Morgan & Co. took effect at the end of the year. Commentators suggested that Morgan, once the most respected bank in the United States, had at last realized that it was not possible to go it alone. In an era of apparent ascendancy of “universal banking” and financial conglomerates, where greater size and scope would be critical, the firm sold out at 3.7 shares of the new J.P. Morgan Chase for each legacy Morgan share. Management of both banks claimed significant cost synergies and revenue gains attributable to complemen-tary strengths in the two firms’ respective capabilities and client bases. Within two years the new stock had lost some 44% of its value (compared to no value-loss for Citigroup over the same period), many important J.P. Morgan bankers had left, and the new firm had run into an unusual number of business setbacks, even as the board awarded top management some $40 million in 2002 for “getting the deal done.” ... - tailieumienphi.vn