Treasury Today Country Profiles in association with Citi
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September 2004

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Do bank mergers matter?

Over in the United States, a couple of major banking mergers are working their way through. Bank of America is now consolidating its merger with FleetBoston Financial, giving the new BoA a presence in the North East of the US. JPMorgan Chase completed its takeover of Chicago-based Bank One on 1st July 2004.

Meanwhile, in Europe, Banco Santander Central Hispano’s interest in the UK bank Abbey has started the banking merger rumour mill. Whether Santander’s bid is ultimately successful is, to some extent, immaterial. The real question is whether the bid leads to a sustained period of European cross-border merger activity.

The Bank of America/Fleet merger is an interesting parallel. There is no doubt that the new BoA is a huge bank. For a multinational, BoA is one of only a few banks which can offer a global reach. What is more interesting, though, is its lack of local presence in parts of the US. Even though it can now claim to have a national presence, with a new footprint in New England, the new BoA is still only represented in 29 states.

A similar story will emerge in Europe. There have been some cross-border mergers already, but only on a very minor scale. If the interest in Abbey does spark cross-border merger activity between other banks, it is likely that the resultant footprint of any of the newly merged entities will be patchy at best. Analysts believe the most successful mergers are not cross-border ones, but those between banks with similar footprints. These allow the new entity to benefit from economies of scale as duplicated facilities are removed.

It is easy to suggest that banking mergers are long overdue and that they will offer real benefits to corporate clients. In practice, a big cross-border merger in Europe will make little difference to the typical company. There are many mergers to go before there will be a bank which can offer full banking services to a company in every country in Europe. It may never happen.