Oxford Press- Mergers and acquisitions in banking and finance_ what works, what fails, and why (2004) P.pdf

MERGERS AND ACQUISITIONS

IN BANKING AND FINANCE

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MERGERS AND ACQUISITIONS

IN BANKING AND FINANCE

What Works, What Fails, and Why

Ingo Walter

2004

Oxford New York

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2004 by Oxford University Press, Inc.

Published by Oxford University Press, Inc.

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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

987654321

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” created the world’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.”

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