Bank Mergers Essay Research Paper Often times — страница 2

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level five days before the merger became public.”4 We have come to recognize that in the long run these vast companies are not making any money for the shareholder. “Some of those giants–Citigroup, to name one– have watched their stock soar, but bank stocks overall have risen only 1% since January 1998, something many analysts blame on misbegotten mergers.”5 Many major bank mergers that seemed to have so much potential in the stock market failed their shareholders. Big really isn’t so beautiful, these companies where transformed into powerhouses through these mergers and acquisitions. The shareholders where the farthest things from their minds, they where too preoccupied on what big deal they where going to make next. Banks began acquiring companies at over half their

book value. After spending these obscure amounts of money to acquire these companies they couldn’t afford to be wrong. Then they proceeded to pump up Wall Street with what turned out to be empty promises that new deals would generate spectacular earnings and growth. “In August 1997, NationsBank slammed through the biggest U.S. deal ever. It bought Florida’s Barnett Banks for four times book value; the price ran up to $15.5 billion.”6 “When Banc One bought First USA back in 1997, it projected that combined earnings would rise at a lovely 16,6% clip through 2000–comfortably higher that its traditional projected growth rate. To make that happen, First USA would simply have to grow by 23%– virtually forever. In order to justify the premium they paid”7 The necessity

for bank mergers is clear, there are just too many banks in the industry many whom are not strong enough to compete with the vast companies that the past mergers have created. Although I do feel these bank mergers have reach a point where they have become out of hand but, I do see the need to continue to have them. I also feel banks should start spending there finances wisely for sooner or later the banking industry is bound to dis disappear. There are way to many non bank competitors in the business, that can do the job more efficiently and at a lower rate. The Internet is a major threat to the industry if these banking companies do not invest in new technology they are going to even more customers to PC banking, software companies and Internet investing and loan companies, that

provide an inexpensive ways of doing banking for them, taking out loans and mortgages for them. Terence P. Pare, “Clueless Bankers”, Fortune Magazine, Page 150 American Express Publishing Corp. NY, NY 1995 Geoffrey Colvin Data Complied by Ann Harrington and Mary Danehy, “The Year of the Mega Merger”, Fortune Magazine, Page 62, American Express Publishing Corp. NY, NY 1999 Amy Kover, “Big Banks Debunked”, Fortune Magazine, Page 187 American Express Publishing Corp. NY, NY 2000