Merger of Banking Institutions | Workcapital

What are the consequences?

From time to time, mergers between banks take center stage in our news reports.

Especially during times of economic hardship, these types of transactions become more common, leading to the creation of large banking groups.

But what are the consequences of these types of mergers?

What Is a Bank Merger and Why Does It Happen?

For legal purposes, a bank merger involves the integration of two or more banks into a single entity, combining all the assets and liabilities of both banks into the new one.

What types of mergers are there?

Total merger:

The merging banks are dissolved and transfer all their assets and liabilities to the newly created bank.

Cold merger:

The institutions share a board of directors and a common central structure, but each retains its autonomy. This is a partial merger and is usually a preliminary step toward a full merger.

Merger by transfer of assets:

In this type of merger, the institutions continue to operate as before; they do not lose their legal status or their operations, but they transfer part of their assets to a new entity to operate through it. This type of merger is widely used to remove unwanted assets from the balance sheet.

What is driving these new bank mergers?

What are the usual causes?

Banks are seeking higher returns amid rising interest rates. However, interest rates remain very low, so they need to find other sources of revenue.

To that end, they raise their fees, sell insurance, offer specialized auto loans, and so on.

But this is often not enough. The new bank mergers respond to the need to adopt strategies to reduce costs. Only in this way can they become more profitable.

You can see this reality in all examples of Spanish bank mergers. In fact, banks benefit in different ways:

• – They optimize their networks of physical branches and offices, gaining a stronger presence in certain regions and cities.
• – They increase both their number of customers and their market share. By combining their customer bases, they achieve greater critical mass.
• – They improve and diversify their products. New bank mergers allow them to offer broader and more specialized service portfolios.
• – They optimize the efficiency of central services. Merging strategic departments leads to significant cost savings.
• – They boost their capital adequacy ratios. Thanks to the merger, the parties involved improve their results in the ECB’s stress tests.
• – They increase their technological potential. Access to technological and digital resources increases as the organization grows. Additionally, synergies in innovation and cost savings are achieved.
• – They bring together like-minded institutions. Joining forces and consolidating affiliated organizations enhance the new company’s strength.

Common Consequences of Bank Mergers

In general, among the advantages of bank mergers globally, we highlight the following:

• – It becomes easier to raise capital.
• – There is greater capacity to secure financing through the interbank system.
• – Services improve.

Although the existence of megabanks may seem, at first glance, to benefit the market, studies show that these consolidation processes facilitate abusive practices and the formation of oligopolies—markets dominated by a few companies.

Fortunately, alternative financing is emerging to offset these consequences of bank mergers and facilitate financing for small and medium-sized enterprises (SMEs) and the self-employed.

How New Bank Mergers Affect Customers

Among the main consequences of these mergers, we can highlight the following:

• – There is a change in the IBAN for the institution that has been acquired by the other.
• – Generally, credit cards, accounts, and mortgages remain unchanged. However, new business policies are sometimes implemented.
• – In fixed-term contracts (such as a loan or a fixed-term deposit), the agreed-upon terms cannot be changed unilaterally. Therefore, the bank will need to reach an agreement with you to make any changes (unless the changes are provided for in the signed contract).
• – In open-ended contracts (checking account, credit card, savings account, etc.), changes may occur, although they must notify you of them with two months’ advance notice.

Additionally, there are other changes that could affect you.

For example, you might be assigned a different account manager than the one who served you before, or new products might be introduced.

That’s why you should take the initiative and find out as soon as possible.

The key, in any case, is to be fully aware of the circumstances that affect you. Read the information you receive thoroughly and carefully.

Meet with the new managers of your client account and don’t hesitate to ask any questions you may have.

If you have any doubts, consult professionals.

And remember, in any case, that alternative financing has nothing to do with these institutions.

Therefore, it is never affected by bank mergers.

If you’re negatively impacted by these mergers, don’t hesitate to contact WORKCAPITAL—

we’ll be happy to help you—whether it’s discounting promissory notes, invoice advances, or any other financial matter you may need assistance with!

Call us and we’ll provide you with information with no obligation!

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