Mergers & Acquisitions to improve the efficiency of banks

The motive behind this article are the scenarios that want Deutsche Bank to negotiate with Commerzbank, with a view to a possible merger of the two.

One might wonder whether a bank like Deutsche Bank is interested in absorbing another bank. The question becomes even more interesting if we take into account that Commerzbank is considered the second largest bank in Germany after Deutsche Bank.

The truth is that the downgrading of the credit rating of the first, the three consecutive loss-making years, the stress test failure and the huge scandals have devalued its image. It is therefore very reasonable for Deutsche Bank's management to look for ways to improve its position in the global banking system.

But what is the impact of Mergers and Acquisitions (M&A) on the efficiency of banks? Taking a historical look, similar to previous decades, there is an international trend for M&A in the banking sector. This trend was created by the need of banks to improve their operation and efficiency, as well as to broaden the range of their services. M&A can lead to greater efficiency in the operation of banks by reducing the number of employees and restraining other costs while improving their revenue, which also favors their shareholders, thus increasing the value of their shares.

It is well known that banks can maximize the value of their shares in two major ways: a) by increasing their effectiveness and b) by increasing the degree of their monopoly power on the market. With M&A, both of the above can be achieved.

Everything seems to suggest that the rumors for the merger of Germany's two banking giants are reasonable. The above, in conjunction with the upcoming Basel IV, which will focus on issues such as credit and operational risk, market hikes, and the extent to which credit institutions can use internal models to drive their capital requirements, show that once again the German banks, despite the adverse economic circumstances, are 1 step ahead of the developments.

At the same time in Greece we are talking again about bank recapitalization.

This article intends to inform the reader and in no way substitutes the specialized consulting services. For more information, please contact MDC Stiakakis SA (Monis Kardiotisis 49, Heraklion | +30 2810 280985)