why is my bank merging??

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

I have a question for some of you banking experts out there...I work for a major bank in the midwest,just recently there are rumors of a possible merger with another bank..I have already gone through a couple of mergers ,but I do not understand...why now????With millions of dollars spent on y2k from our bank and the uncertanity of the end of this year, why would this make sense??Looks like business as usual to me....

-- just wondering (just asking@anyone know.net), May 16, 1999


One reason would be to merge yourself into a bank that is too big for Washington to allow it to fail (e.g., for reasons such as y2k). With all the concerns of the financial institutions to make sure banks really are y2k ready, I see the rash of recent bank mergers as a sign that this is NOT business as usual.

-- Brooks (brooksbie@hotmail.com), May 16, 1999.

Besides, BOTH Nat City and Key are hungry. This is one I'm going to watch. It wil be interesting to see who the surviving corp will be. We may see another Key-Society merger where the surviving corp adopts the name of the loser.


-- chuck, a Night Driver (rienzoo@en.com), May 16, 1999.

just wondering; My thinking is probably way off course,but I am seeing the merger of banks similar to the European Countries going into the Euro dollar.

All the banks will be mergering into only several banks say 2 or 3 ,because of the recent discussions of dollarization ???

And what's really interesting is the TV ads for banks, they talk mergers and acqusitions and tell just how much they are worth,along with how many customers they service. (ie)FIRST UNION BANK 8th largest bank with 18 billion dollars in holdings.

No wonder they don't want bank runs.


-- Furie (furieart@dnet.net), May 16, 1999.

A Y2K reason for a merger might be to transfer all banking operations off a flawed system and into a competitors compliant one by merging or taking over. Then you just have to scale up the system and transfer the accounts.

Merger mania is a symptom of an overheated stockmarket. If organisation A's stock is 5x overvalued and organisation B's stock only 3x overvalued, A can very easily bid for B offering stock. Of course it's equally true if the factors are 1x and 0.6x, but such disparities are more common when investors turn into gamblers, and fundamental analysis is regarded as obsolete fuddy-duddy stuff by people who think that "hubris" is probably a French fashion-house.

-- Nigel Arnot (nra@maxwell.ph.kcl.ac.uk), May 17, 1999.

A major reason could be far less sexy: the business of banking has become stunningly competitive, with margins declining to the barest thread. The most effective way to increase profitability (the perception goes) is to combine two large asset bases together and to eliminate redundancy (e.g., you don't need two H.R. departments anymore).

As for the impact of Y2k, you're probably right in that it is business as usual. The target bank (the one being bought) will need to make certain representations regarding its Y2k status. These representations will be particularly strong and the target's Board of Directors will go to great lengths to make sure that they are accurate. (How can I be so sure? Because the target will need to indemnify the buyer if they're wrong! Due to the potential for personal liability [also found in all publicly held businesses], the target's Board of Directors will make absolutely certain that its representations are accurate...) As for the money spent on Y2k, it hasn't gone to waste: Buyer will acquire Target's assets through the merger, including a presumptively Y2k-ready IT system.

If anything, the fact that this merger is occuring is a strong indication that neither of these banks views their own Y2k readiness as still a problem.

-- Jeff Donohue (Jeff_Donohue@hotmail.com), May 17, 1999.

Much in the way BP's recent merger with Amoco solved BP's Y2K problem. (they hadn't even STARTED in the summer of 1998, they were too busy trying to decide if they needed to upgrade the mainframe, per an employee at the time, who has since found other pastures). C

-- chuck, a Night Driver (rienzoo@en.com), May 19, 1999.

Moderation questions? read the FAQ