Presenting an expected anti-thesis to consolidation in European banking
First of all, let’s get the context infallibly right. The latest ABN Amro deal is a deal that dwarfs any other in the history of the financial services industry. And it is also a deal that everyone is presently rooting for. A whopping $91.2 and $98.5 billion is what Barclays Bank, on one hand, and Royal Bank of Scotland (with Fortis and Santander Central Hispano SA), on the other, have brought to the table for ABN Amro. A fierce battle is being forecasted and if you miss this issue, you just might have missed evolution in the making...or as close to it as possible.
No doubt, European banking has seen many big ticket cross-border M&A deals taking place recently (refer table). But the compelling critique now is that perhaps most of these M&A deals are being attempted based on peer pressure (of competitors doing the same) rather than clear logic! Sadly, in European banking today, fallaciously and perniciously, consolidation is being considered more sacred than banking itself. But why is it that banks are fighting it tooth and nail? Citing one of the reasons, John Hitchins, UK Banking Leader, Price Water house Coopers, analysed to B&E, “A matured domestic market is one of the factors leading banks in Europe to merge in order to get entry into new markets.” But haven’t consecutive reports from KPMG, BCG, McKinsey, and various international universities confirmed that between 50% to 80% M&As ‘will’ fail?
In fact, INSEAD Professor Jean Dermine’s classic paper on European banking has proved how there are huge risks involved with consolidation in European banking; in one eye-popping example, he shows how, say in Switzerland, the cost of bailing out even one ‘consolidated’ banking failure would cost the Swiss government almost 24% of the Swiss GDP! But are the European banking behemoths listening? Given the increasing size of buyouts, one doesn’t even have to suspect the answer; it’s a clear ‘No’! Unless the EU wakes up to this clarion call, global publications perhaps wouldn’t have to wait too long for the cover story of the decade!
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Source : IIPM Editorial, 2007
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative