During the early 1990s, an unprecedented wave of consolidation moved through the banking industry which was accomplished through internal restructuring (rationalization of facilities, downsizing of personnel and other cost-reduction measures) and through mergers and acquisitions. That process continued during 1994 and 1995. This research examines three transactions which occurred during this time, and considers the effect of the mergers on the financial institutions involved.
More than 50 mergers involving publicly traded banks took place in 1993 totaling more than $22.5 billion. Bank mergers continued strong in 1994, jumping to a value of $7.94 billion in the third quarter. Bank mergers have been common since the late 1800s, but the recent bank merger mania can be attributed to several current factors, including competition, stagnant stock prices and government policies.
Banks now face a number of large competitors both in their domestic and international markets. These competitors include banks, securities and investment banking firms, insurance companies, and large financial service firms. The banking industry has, in fact, been in a consolidation mode for the past several years, driven by the need to reduce costs and eliminate overcapacity.
During late 1994 and early 1995, bank stock prices were static due, in part, to concern over the impact of the Mexican economic situation and higher interest rates. This makes the stock of target companies attractive by comparison to the overheated market for bank stocks that characterized the market during 1993 and much of 1994.
Government policies favor continued deregulation of the thrift industry; federal and state regulatory authorities support mergers and are willing to overlook possible antitrust concerns. Regional bank mergers in particular have been facilitated by the removal in 1994 of almost all barriers to the expansion of interstate branch banking. An even la...