Advantages of Mergers and Acquisition for Banks
Mergers and acquisitions (M&A) help the banks to obtain a higher number of customers within a short time. Besides, the merged firm can operate in larger geographic areas and leads to the expansion and growth of the firm. Further, M&A helps the banks to operate more efficiently. The banks have many operations, including risk management, Information Technology (IT), compliance, and accounting operations. The merged bank efficiently manages those operations and reduces risk profile. Finally, M&A prevents unprofitable banks from collapsing. The bank that has more resources will acquire unprofitable banks and will result in the overall profitability of the merged firm.
Disadvantages of Merger and Acquisition for Banks
M&A in banks may fail due to differences in culture. The merged firm may fail to account for the diverse culture of employees and various stakeholders; consequently, the M&A will be a failure. Also, customers may perceive the merger process negatively, especially for smaller banks. The customers should be provided information about the intended merger to avoid any negative perceptions towards the acquired bank. Lastly, banks are required to comply with various regulations. If the two banks are from different countries, it will be difficult for the merged bank to comply with several regulations and operate efficiently.
Role of Investment Banks in M&A
The role of investment banks in M&A depends on whether they are representing the buyer or the seller. Generally, investment bank roles entail; firstly, determining the valuation of the target firm and suggesting the appropriate time for the merger to take place. Secondly, banks determine the potential synergy that will arise out of the merger and its importance to the strategy of the buyer. Besides, banks help to negotiate the final consideration of a merger or an acquisition.
Answer 4:
Monopolistic market structure has some features of both a monopoly and a perfect competition. In a monopoly, the features include negatively sloped demand curve and differentiated products, while for perfect competition features are free entry and exit and many buyers and sellers. The report will critically evaluate the monopolistic as it applies to the bank.
The banks aim to increase the number of customers. They should offer quality services and products to satisfy and attract more customers. If the banks fail to provide quality services, the customers will shift to the competitor, and consequently, the bank will reduce revenue and profitability.
Product differentiation is characteristic of a monopolistic market. The bank should differentiate their product and services from those of its competitors. The managers may achieve product differentiation through pricing. For example, banks may lower their interest rates to attract more customers.
Free entry and exit is a feature of a monopolistic market. The firms that make losses can leave the industry, and others are permitted to join. In the banking sector, if the firm fails to make a profit, it will exit the industry, and other banks may enter if the industry is profitable. However, the banks may not freely exit the industry without compensating the depositors. The central banks have put regulations to ensure banks have adequate resources to pay account holders in case of bankruptcy.
The banks can increase or decrease interest rates to maximize profit or service revenue, respectively. If the banks act like the monopoly, it can raise interest rates to the disadvantage of customers; the loans will attract higher finance costs. In contrast, lowering interest rates reduces profitability and attracts more customers.