“Leaders can let you fail and yet not let you be a failure.” —Stanley McChrystal
Dear Readers, our newspapers and media has continued to highlight issues facing the financial services sector over the past few months. Just when we thought the dust was settling on the GCB Bank, UT Bank and Capital Bank issue, another massive disruption has reared its ugly head – leading to all sorts of accusations and counter-accusations, legal suits, numerous directives and regulations from the Bank of Ghana, and so on. The trauma of losing one’s job, disruption of families and emotional issues continue to linger on. Sometimes I wonder when the final dust will settle. Well, it is a long road to recovery.
Kudos to the Executive of the Chartered Institute of Bankers, Ghana
On 27th September 2018, the Chartered Institute of Bankers, Ghana held its first CPD programme (Continuous Professional Development) The topic was ‘Managing Change: A Catalyst for Competitive Advantage in the Dynamic Banking Environment’. The speaker was Rev. (Mrs.) Patricia Sappor, President of the CIB. The lecture was very apt and timely in view of current happenings in the banking sector. Many of us shared experiences and agreed on mechanisms for adoption to ensure professionalism on the job while coping with the change management systems going on in the banking industry. Now that the dust is settling on the consolidation of banks and all other issues around it, it is time to get out of our emotional state and move on to make the sector attractive for investors once again.
This week, I will start a series on the topic of mergers and acquisitions (M&A) and how they impact banks and financial institutions. The impact of M&As on the internal processes of a bank is very significant. Regardless of whether you are the one being acquired or doing the acquiring, there is a likelihood that there will be stress, anxiety and fear of the unknown among the staff. In this series, we will explore the various benefits and challenges of mergers and acquisitions for banks and financial institutions. We will also examine the ‘sometimes overlooked’ soft issues which can increase either staff or customer attrition. The road is very bumpy but you have to forge ahead.
Benefits of Bank Mergers and Acquisitions
There is a general saying that when one door closes, another door opens; or rather, a double-door opens. I vividly remember the anxiety exhibited by a branch manager whose bank was going to be acquired by a bigger bank some years ago. The sleepless nights! Let me enumerate some of the apprehensions of staff whose banks either get merged, acquired or consolidated:
- “How can I, a head of department, work under that ‘small boy” in the other bank? Look at all the years of experience I have!”
- “Is that my end? I wonder what the future holds for me in that bank. I am not very tech-savvy!”
- “As for me, I am used to customers coming to me, not the other way around. It will be difficult for me to do this relationship banking business. I am too old to learn new things.”
- “Now that it is my turn to enjoy my post small, I have to be shifted around. I don’t even like the other bank’s management style. I am not a boot-licker, so I may have to resign although I am not financially prepared!”
On the other hand, let us listen to what another group thinks:
- “Great times ahead. It’s now my time to enjoy the fruits of my labour. My Godfather is in town. After all he is a political figure and can help me rise up quickly.”
- “My party is in power, so let me lobby for a good position.”
- “My God is opening bigger doors for me. I will look for opportunities in the new bank to put my talents to good use. After all, I was underutilized.”
- “It’s good to work with a new management. The previous one never listened. They felt too big.”
Whichever angle you are coming from, please know that there are some opportunities in the new bank waiting for you. Let us look at some of the advantages or benefits:
One obvious benefit is the way the bank grows instantly. A bank merger helps your institution scale-up quickly and gain a large number of new customers instantly. The added branch network and customer base will also help it expand reach and enable the lender to rationalise resources across the board. Not only does an acquisition give your bank more capital to work with when it comes to lending and investments, but it also provides a broader geographic spread in which to operate. This can be beneficial in achieving the new institution’s growth goals quicker.
Filling the Business Gaps
Bank mergers and acquisitions empower your business to fill product or technology gaps. Acquiring a smaller bank that offers a unique revenue model or financial product is sometimes easier than building that business unit from scratch. And, from a technology perspective, being acquired by a larger bank might allow your institution to upgrade its technology platform significantly.
Acquisitions also scale your bank more efficiently, not just in terms of your efficiency ratio but also in terms of your banking operations. Every bank has an infrastructure in place for compliance, risk-management, accounting, operations and IT – and now that two banks have become one, you’re able to more efficiently consolidate and administer those operational infrastructures. Financially, a larger bank has a lower aggregated risk profile, since a larger number of similar-risk complementary loans decrease overall institutional risk.
The increased balance sheet size will enable the bank to obtain better pricing on both internationally sourced funds and domestic deposits, thus helping it lower lending rates and improve its profitability.
There are various estimates of the potential cost savings, with one projection stating the possible reduction in cost-to-income ratio. The lender’s increased size, in terms of assets, will also give it the requisite muscle to take on new competition from larger banking entities that are likely to be created by consolidation in the banking industry.
Making the Best of New Talent
Every bank can benefit from a merger or acquisition because of the increase and wider variety of talent and strengths which the new management can make use of. An acquisition presents the possibility of bolstering your sales team or strengthening your team of top managers, and this human element should not be ignored or downplayed
Post-merger, the new bank as a unified entity goes higher up the rankings ladder on the national and global banking stage. This has various benefits to the bank as well as the economy.
Exceptional cases from Bloomberg News
The standard practice after bank acquisitions is for senior managers at the sellers end to receive lump-sum change-in-control payouts — and then move on. Sometimes they retire – and often they resurface at other institutions.
There are certainly exceptions, when leaders of acquired banks stay and contribute meaningfully to the new employer’s success. Those roles can range from a strategic post overseeing certain business lines and markets to actually becoming the buyer’s CEO.
Here are examples of bankers who took on key roles at the companies that bought their banks. Some from past years proved to be big difference makers, and the keepers in more recent deals hope to do the same.
A famous case in point is Jamie Dimon, who engineered Bank One’s US$58billion sale to JPMorgan Chase in 2004. Initially, he took the No. 2 role as president and chief operating officer of the merged company. He became CEO in December 2005 and chairman a year later – leading JPMorgan through the financial crisis and the massive regulatory change that followed.
JPMorgan is now the largest U.S. bank by assets — and that’s due, in part, to Dimon’s decision at the height of the crisis in 2008 to acquire Bear Stearns and Washington Mutual, as the once-marquee companies were on the brink of collapsing. A decade later, JPMorgan has embarked on a new period of growth – announcing earlier this year plans for the addition of 400 branches in new markets across the Mid-Atlantic and East Coast.
Archie Brown Jr.
Described by one analyst as an executive who “punches above his weight”, Archie Brown Jr. became president and CEO of First Financial in Cincinnati after it bought MainSource Financial in April for US$1billion. Brown had the same title at MainSource, guiding the Greensburg Ind. Company through the crisis and more than doubling its assets over the ensuing decade to nearly US$5billion.
At the US$14billion-asset First Financial, Brown succeeded Claude Davis – who remains Executive Chairman. While Brown focuses on day-to-day operations, Davis will spend more time on strategic planning and future acquisitions.”
These two are really exceptional cases in mergers and acquisitions, but with objectivity they should not even be exceptions. Leaving all emotions and egos aside, they should be ‘all hands on deck’ activities and definitely result in a win-win situation.
Next week, we’ll look at some challenges involved in mergers and acquisitions as well as recommendations to ensure a successful merger or acquisition – especially keeping customers on board.
TO BE CONTINUED…
ABOUT THE AUTHOR
Alberta Quarcoopome is a Fellow of the Institute of Bankers and CEO of ALKAN Business Consult Ltd. She is the Author of two books: “The 21st Century Bank Teller: A Strategic Partner” and “My Front Desk Experience: A Young Banker’s Story”. She uses her experience and practical case-studies for training young bankers in operational risk management, sales, customer service, banking operations and fraud.