BUSINESS INSIGHTS

Mergers and Acquisitions in

European Financial Services
Best practice, future forecasts and strategies for success

Financial Services Management Report

FTSE100 and NASDAQ index

versus M&A Activity
4500
4000
3500 FTSE 100
Index numbers

3000
2500
2000
1500 NASDAQ
1000
500
0
1997 1998 1999 2000 2001 2002 2003

180
Number of bank M&A deals

160
140
120
100
80
60
40
20
0
1997 1998 1999 2000 2001 2002 2003

Source: Mergers and Acquisitions in European Financial Services

“The decision-making process leading up to M&A is

directly related to stock market performance and during
the time of negative stock market performance investors
are increasingly cautious and only safe strategies and cost
cutting measures are implemented while strategic moves
such as M&A are avoided...”

Avoid the pitfalls of mergers and acquisitions and ensure successful growth
using this new report’s comprehensive analysis of European M&A activity uniquely based upon key
European Central bank market data and interviews with industry experts...
Business Intelligence for the Financial Services Industry

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Examining the Key Issues

• Legislation. New Basel II requirements for capital held to better

"Consolidation does reflect institutions level of risk is likely to cause some companies to
not automatically restructure which may lead to increased M&A activity.

equal success, larger • Banco Santander and Abbey. This merger was motivated by
banks, more product, access to new distribution channels and the opportunity to
undercut local competition,and the chairman of Banco Santander is
higher profits or
not alone in thinking profits are too high in the UK market.
efficiency. It can also
• Overcapacity in the Germany banking industry. This is keeping
mean losses and
profits low in the German market. Private banks are supporting the
redundancies and privatization of the Sparkassen (savings banks) to avoid costly and
statistics show that risky expansion abroad.
more then half of • Bancassurance. The drive for access to new distribution channels is
financial services M&A an important part of the M&A process in Europe. Many banks and
do not succeed..." insurers now think it is safer to form joint ventures or partnerships
particularly after the recent experiences of Allianz-Dresdner.
Mergers and Acquisitions in European Financial Services
Best practice, future forecasts and strategies for success

Mergers and acquisition activity suffered a slowdown after the global

Top 10 Italian banks by total assets
downturn in 2001. In spite of a slight recovery in 2003 it was only last year
that activity finally began to accelerate again.
Rank Bank Euros (m)
1 Banca Intesa SpA 259,198
2 Banca Intesa + Banca Commerciale Italian 265,846 Mergers and Acquisitions in European Financial Services: Best
3 UniCredito Italiano SpA 238,057
4 Cassa Depositi e prestiti 264,709 practice, future forecasts and strategies for success is a management
5 San Paolo IMI 199,433
6 Capitalia SpA 126,621 report that analyses the motivations, risks and opportunities for merger
7 Banca Monte dei Paschi di Siena SpA-Gru 122,797
8 UniCredit Banca 128,737 and acquisition in the European financial services market. This report will
9 IFI - Instituto Finanziario Industriale SpA 99,879
10 Banca Nazionale del Lavoro SpA - BNL 80,253
provide you with:
Total 1,785,530

• Comprehensive case studies of the most important mergers

Source: Mergers and Acquisitions in European Financial Services

• Analysis of the most important US M&A and US influence in Europe

“The extensive privatisation program carried out by
Italy's government during the 1990s has substantially • Recommendations and implications for those considering M&A
contributed to the remarkable growth recorded by the
Italian stock market. About two thirds of the overall Use this report to ensure successful mergers and acquisitions by
increase in market capitalisation, which grew from 18%
to 65% of the GDP between 1989 and 1999, was due
identifying the motivations which lead to success and avoiding the
to new listings of privatized companies....” pitfalls.
Source: Mergers and Acquisitions in European
Financial Services: Best practice, future forecasts
and strategies for success

The Answers to Your Questions

• What drives the higher M & A activity seen in particular European

M&A Evolving Financial Services
countries and during individual years?
Size/
Titanic
Maturity

• Which are the key factors leading companies to grow through merger
Transregional

or acquisition?
Classic
• What causes mergers and acquisitions to fail and how can such failures
Time
be avoided?
Type of
bank merger
US regional
EU national
US Super regional
Large European (cross-border)
Large US
Large European/
Global impact
• What are the managerial requirements for CRM implementation?
Rationale
Merger of equals
Economies of scale/scope
Expansion from banking to all
other areas of financial services
• How will legislative changes impact on European merger and
Growing capital advantage

Source: Mergers and Acquisitions in European Financial Services

acquisition activity?

“Many European, Asian, and U.S. businesses are now • What are the the most popular M & A strategies, and why?
considering geographical expansion as part of their
business development strategy, and therefore more • What are the future prospects for M & A in Europe, and who will be
M&A will take place, which in turn means the creation
of large financial groups. This subsequently means that
the leading players
smaller companies will be forced to look out for M&A
deals, in order to be able to compete with the growing
number of global groups...”

Source: Mergers and Acquisitions in European

Financial Services: Best practice, future forecasts
and strategies for success
Key findings from this report

• Estimating the costs and benefits of merging with or acquiring a

"According to M&A financial institution is a major problem particularly as combining
different systems and corporate cultures can be difficult and costly.
experts, about 60% of
M&A deals are • Stock-market performance directly affects M&A activity, higher
prices encourage more acquisitions based on stock value hence when
unsuccessful because
increasing stock prices lead to increased merger activity.
they approached the
• The key to a successful merger to take account of stakeholder
deal with
interests. Employees need to know they will benefit as individuals
overconfidence and whilst shareholders need to understand the rationale of the deal.
instead of taking into
• A new era of global banking giants is on the horizon according to
account all the facts, many industry experts with JP Morgan Chase-Bank One and Bank
they chose to pursue of America-Fleet Boston expected to join the ranks of HSBC and
their goal of global Citigroup on the world stage.
expansion..." • Many European, Asian and US businesses are now considering
cross-border expansion as domestic consolidation leads to
saturation with local markets

The Value Proposition

Benefit from 105 pages of expert insight and analysis, enabling you to:
"Global M&A • Learn from your competitors experiences and understand the key
transaction volumes factors driving both success and failure in M&A.
for 2004 can be • Undertake successful M&A based on the expert opinions and best
expected to be around practice case studies contained in this report.
29% higher than the • Identify the best type of M&A approach for your company and
figures recorded for learn which are the most popular with your competitors.
2003, with domestic • Understand the key motivations behind M&A and how these
M&A continuing to be impact on their success.
the major type of • Predict future acceleration in M&A activity using the explanation
deal..." of market drivers detailed in this report.
Sample information from the report

Chapter 4: M&A Best Practice Case Studies

Credit Lyonnais and Credit Agricole, 2003

In 2003 Credit Agricole, one of the major French retail banks, acquired
Credit Lyonnais and Credit Agricole
another French bank, Credit Lyonnais, and in June of that year, France' Major financial ratios
highest administrative court maintained the approval for the deal to go
Credit Lyonnais 1999 2000 2001 2002 2003
ahead. This acquisition has strengthened Credit Agricole's position not only Net Interest Margin 1.4 1.4 1.3 1.2 1
Cost To Income Ratio 74 72 71 70 68
in France, but also in Europe. After this deal, Credit Agricole, which was ROAE 9 10 10 10 6

Credit Lyonnais' top shareholder for more than three years before the deal, Credit Agricole 1999 2000 2001 2002 2003

has achieved a market share of 25% in French retail banking market. The Net Interest Margin
Cost To Income Ratio
0.8
64
0.3
64
0.3
66
0.4
74
0.6
74

deal faced criticism from the French labour unions because of the fears of ROAE 7 9 8 6 5

job losses; another problem was the potential counterbid from BNP
Paribas. However, BNP decided to sell its stake in Credit Lyonnais,
indicating that it was not interested in participating.
Source: Mergers and Acquisitions in European Financial Services

The offer by Credit Agricole, worth 19 billion, for about 56 per share in
cash and stock (with a cut of 500 million after the original offer because of
the drop in share price of both banks after the announcement of the deal) meant that the new company would have 20
million retail customers and 9,200 branches, however the two banking networks would be maintained independent.

So far, the integration of Agricole with Credit Lyonnais after the transaction has delivered its promises, after continued cost-
cutting programmes, which included a reduction of the Credit Lyonnais workforce by about 10%, totalling 2,432 employees.

The net interest margin for Credit Lyonnais was higher before the takeover, and decreased in 2003, indicating that its
profitability has declined. Net interest margin for Credit Agricole has been lower than the French average for some time. The
profitability of French banks is lower than UK and Spanish banks - the average net interest margin in France was 0.69 in
2003, 2.0 in the UK and in Spain the same margin was more than 2.5. This reinforces that French banks suffer from low
profitability, which is one of the reasons for the expansion in order to boost Credit Agricole's performance.
The cost to income ratio has been relatively similar for both banks since the acquisition; higher than the UK and Spanish
average of 55, but still in line with the French average of 67 in 2003.

Return on equity tells a similar story, however for Credit Lyonnais this ratio declined by half between 2002 and 2003.
The results of this deal are still yet to be seen, once the cost cutting at Credit Lyonnais is complete. It seems that Credit
Agricole decided to expand in its domestic market and use the existing network created by Credit Lyonnais in order to
strengthen its position as a retail bank in France.

Order this report today to find out more...

Table of Contents

EXECUTIVE SUMMARY CHAPTER 3: STATISTICAL OVERVIEW OF M&A

• Analysis of M&A in Europe • Summary
• Statistical overview of M&A • Introduction
• M&A best-practice case studies • European statistical overview
• Conclusions and recommendations - Number of M&A in Europe
- An overview of 2003 to 2004 - recent developments
CHAPTER 1: INTRODUCTION • Market overview: Germany
• Introduction - The controversial German Sparkassen debate
• Report structure • Market overview: Spain
- Analysis of M&A in Europe - Top 10 Spanish banks by total assets
- Statistical overview of M&A • Market overview: United Kingdom
- M&A case studies - Top 10 UK by total assets
- Conclusions and future outlook • Market overview: France
- Definitions - Top 10 French banks by total assets
• Market overview: Italy
CHAPTER 2: ANALYSIS OF M&A IN EUROPE - Top 10 Italian banks by total assets
• Summary • Conclusions
• Introduction
• Mergers and acquisitions in the financial sector CHAPTER 4: M&A BEST PRACTICE CASE STUDIES
- Stock market performance • Summary
- An important element of the M&A activity • Introduction
- Lessons from 2002 and the struggling financial sector • M&A within banking industry and domestic
• Characteristics of European M&A in financial services - Credit Lyonnais and Credit Agricole
- Primary motives and rationale for M&A - SWOT analysis
- Improve efficiency and profitability - Halifax and Bank of Scotland
- Expand product offering and client base - Strategies behind HBOS' success
- Expand into other geographical locations - SWOT analysis
- Maximise shareholder value - RBS and National Westminster Bank
- Motives and rationalisations for the 4 M&A types - Why did RBS maintain the NatWest brand?
- Reasons for M&A failure - Main financial ratios for RBS and NatWest
- Over-confidence and lack of expertise - SWOT analysis
- Achieving successful M&A - Other interesting M&A deals
- Get to know your business - Banco Santander and BCH
- The risk involved in M&A - BNP and Paribas
- Strategies, opportunities and threats in today's M&A
- The role of the United States
- The main issues surrounding M&A
- Finding new customers in overcrowded markets
Table of Contents
CHAPTER 4: M&A BEST PRACTICE CASE STUDIES
(CONTD.)
• Banking industry and cross-border M&A
- Banco Santander and Abbey
- Benefits of the merger
- Primary financial ratios: Abbey/Banco Santander
- SWOT analysis
- Egg and Zebank
- Other deals
- Hypovereinsbank and Bank Austria
- SWOT analysis
- Nordea Group
- SWOT analysis
- Deutsche Bank and Bankers Trust
• Cross-industry domestic M&A
- Allianz and Dresdner Bank
- Financial ratios for Dresdner Bank and Allianz
- SWOT analysis
- Other deals
- Citibank and Travellers Group
- Credit Suisse and Winterthur
• Cross-industry and cross-border M&A
- Fortis - a complex merger and acquisition history
- Dresdner Bank and Kleinwort Benson
CHAPTER 5: CONCLUSIONS, FUTURE OUTLOOK AND
ACTIONABLE RECOMMENDATIONS
• Summary
• Introduction
• Conclusions and implications
- Knowing the industry the company is operating in
- Consolidation does not always lead to success and
profitability
- Will there be new wave of domestic and cross-
border M&A ?
- Who wants M&A?
- Who will merge and acquire in the near future?
- Room for potential M&A in Europe
- Potential strategic alliances in Europe
• Recommendations
- Get to know the target market and the industry -
local knowledge is the key
- Estimate acquisition costs and strategic risks as
accurately as possible
- Exploit the potential of the business
- Brand awareness
- Define the strategic goals
CHAPTER 6: APPENDIX
• Index
TABLES
• Leading U.S. bank M &A deals
• Financial sector M & A’s 1990-2001
• Number of domestic and international bank M&A’s
• Number of credit institutions
• Top 5 credit institutions by share of total assets
• Top 10 German banks by total assets
• Top 10 Spanish banks by total assets
• Top 10 UK by total assets
• Top 10 French banks by total assets
• Top 10 Italian banks by total assets
• Major financial ratios: Credit Lyonnais/Credit Agricole
• Financial ratios:r HBOS/Halifax/Bank of Scotland
• Main financial ratios: RBS/NatWest
• Primary financial ratios: Abbey/Banco Santander
• Financial ratios for Dresdner Bank/Allianz
FIGURES
• FTSE100/NASDAQ Vs M&A activity (1997-2003)
• Major European stock-market indices (2000-2004)
• Equity performance in selected world markets
• World stock-markets relative sizes
• Motives and rationalisations for the 4 M&A types
• M&A: evolving financial services
• Potential strategic alliances in Europe
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