Professional Documents
Culture Documents
st
Year PhD
Annual Review
Research Title:
The global financial crisis and its impact on
banking M&As in the European Union
PhD Candidate: Mykhailo Iasinskyi
Supervisors: Dr Beat Reber
Dr Dev Vencappa
Student ID: 4213471
Presentation Plan:
1. Research background
2. Literature review
Theoretical studies
Empirical studies
3. Contribution
4. Data and methodology
5. Timeline to completion
The Background of the Research
Factors influencing changes in banking M&A
market over last 2 decades:
1. Technological progress;
2. Globalisation of financial markets;
3. Improved supervision and regulatory environment;
4. Introduction of the Euro;
5. Establishment of the European Single Market.
The Background of the Research
Figure 1. Number of M&As in the European banking
sector
Source: ECB Report, Nov. 2013
The Background of the Research
Explanations in the academic literature:
Procyclical behaviour (over-lending during upward
phase and over-cautious lending during downward
phase (Goddard et al.,2007 );
Informational asymmetries;
Herd behaviour;
Institutional memory (Altman et al., 2005), Berg et al.,
2005), Bikker and Metzemakers, 2005)
The Background of the Research
Merger waves in history:
Period Name Special attributes
1897 - 1904 First wave
Horizontal mergers
1916 - 1929 Second wave
Vertical mergers
1965 - 1969 Third wave
Conglomerate mergers
1981 - 1989 Fourth wave
Hostile takeovers, junk
bonds-driven LBOs
1992 - 2000 Fifth wave
Global and cross-border
mergers
2003 - 2008 Sixth wave
High volumes, cross-
border mergers,
shareholders activism
The Background of the Research
Recent merger waves in the EU banking:
Fifth merger wave
characteristics
- growth in cross-border deals;
- large number of strategic
bidders;
- extreme losses suffered by
acquirers;
- ended after dot.com crash (2000)
Sixth merger wave
characteristics
- motivated and driven by
excessive liquidity;
- therefore large stake of cash-
financed mergers;
- high volumes of merger deals;
- ended after subprime mortgage
market crashed (2008)
The Background of the Research
Figure 2. Number of financial institutions in the EU:
Source: ECB Press release, 21 Jan. 2014
The Background of the Research
General characteristics of banking M&As in
the EU:
Almost 30% of deals number and 40% of total deals
value in all European mergers;
Prevalence of low-volume domestic deals in the 1990s;
Countries with the most intensive merger activities:
Germany, France, Italy, Austria;
Relatively low number of cross-border deals (<20%)
since banking M&A market reached its peak in 1999.
The Background of the Research
Figure 3. Cross-border penetration in the EU financial
sector
Source: ECB Monthly Reports
The Background of the Research
General characteristics of banking M&As in
the EU:
Almost 30% of deals number and 40% of total deals
value in all European mergers;
Prevalence of low-volume domestic deals in the 1990s;
Countries with the most intensive merger activities:
Germany, France, Italy, Austria;
Relatively low number of cross-border deals (<20%)
since banking M&A market reached its peak in 1999.
The Background of the Research
Explanation of low level of cross-border
activities:
Ineffective merger control;
Misuse of political and regulatory powers;
Disharmonised taxation systems in EU members;
Differences in language and culture.
The Background of the Research
Mechanism of external shock caused by global
financial crisis:
Credit boom and easy access to liquidity undermined long-term risk
assessment by banks;
Subprime mortgage market crashed in late 2007, leading to downturn in
American markets
Collapse of Lehman Brothers triggered liquidity shortages in the US and the
EU banking systems;
Banks restricted operations and crisis began to influence the real economy
sector.
The Background of the Research
Theoretic consequences of financial crisis for
the EU banking M&As:
Banks suffered from a liquidity
shortage due to frozen interbank
lending facilities and could pursue
asset consolidation to maintain
stable level of funds
Banking market remained
fragmented and institutions found
themselves in higher competition
conditions in terms of
deteriorating markets, thus
pursuing asset consolidation
The Background of the Research
Broad research question:
What is the impact of crisis on the European banking M&As?
General research questions:
How do the European banking mergers perform during crisis?
What are the most important factors that determine banking
M&As after the sixth merger wave?
What are the possible consequences of new post-crisis regulatory
initiatives for the EU banking M&As (e.g. seventh merger wave?)
Literature Review
Motives of banking M&As:
1) Value-maximizing motives
synergy
economies of scape and scope
increased market power
risk diversification
capital strength
2) Non-value maximizing motives
agency motives
hubris
Literature Review
Value-maximizing motives of banking M&As:
I. Synergy
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), therefore:
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where:
- market return;
- company return; , -
coefficients;
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((1 +
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=1
where: T is number of months after trigger event;
- buy-
and-hold return;