Finance El Rancho

Archive for the ‘Santander Bank’ Category

power and resources to compete on a global basis” (Virani). However

than not a merger is where two enterprises of roughly equal size and strength come together to form a single entity. Both companies’ stocks are merged into one. An acquisition is usually a larger firm purchasing a smaller one. This takes the form of a takeover or a buyout, and could be either a friendly union or the result of a hostile bid where the smaller firm has very little say in the matter. The smaller, target company, ceases to exist while the acquiring company continues to trade its stock. An example is where a number of smaller British companies ceased to exist once they were taken over by the Spanish bank Santander. The exception to this is when both parties agree, irrespective of the relative strength and size, to present themselves as a merger rather than an acquisition. An example of a true merger would be the joining of Glaxo Wellcome with SmithKline Beecham in 1999 when both firms together became GlaxoSmithKline. An example of an acquisition posing as a merger for appearances sake was the takeover of Chrysler by Daimler-Benz in the same year. As already seen, since mergers and acquisitions are not easily categorised, it is no easy matter to analyse and explain the many variables underlying success or failure of M&As.

Historically, a distinction has been made between congeneric and conglomerate mergers. Roughly speaking, congeneric firms are those in the same industry and at a similar level of economic activity, while conglomerates are mergers from unrelated industries or businesses. Congeneric could also be seen as (a) horizontal mergers and (b) vertical mergers depending on whether the products and services are of the same type or of a mutually supportive nature. Horizontal mergers may come under the scrutiny of anti-trust legislation if the result is seen as turning into a monopoly. An example is the British Competition Commission preventing the country’s largest supermarket chains buying up the retailer Safeway. Vertical mergers occur when a customer of a company and that company merges, or when a supplier to a company and that company merges. The classic example given is that of an ice cream cone supplier merging with an ice cream manufacturer.

The ‘first wave’ of horizontal mergers took place in the United States between 1899 and 1904 during a period referred to as the Great Merger Movement. Between 1916 and 1929, the ‘second wave’ was more of vertical mergers. After the great depression and World War II the ‘third wave’ of conglomerate mergers took place between 1965 and 1989. The ‘fourth wave’ between 1992 and 1998 saw congeneric mergers and even more hostile takeovers. Since the year 2000 globalisation encouraging cross-border mergers has resulted in a ‘fifth wave’. The total worldwide value of mergers and acquisitions in 1998 alone was $2.4 trillion, up by 50% from the previous year (andrewgray.com). The entry of developing countries in Asia into the M&A scene has resulted in what is described as the ‘sixth wave’. The number of mergers and acquisitions in the US alone numbered 376 in 2004 at a cost of $22.64 billion, while the previous year (2003) the cost was a mere $12.92 billion. The growth of M&As worldwide appears to be unstoppable.

Visible Spectrophotometer supplier

Program control muffle supplier

color difference meter supplier

What is the raison d’etre for the proliferation of mergers and acquisitions? In a nutshell, the intention is to increase the shareholder value over and above that of the sum of two companies. The main objective of any firm is to grow profitably. The term used to denote the process by which this is accomplished is ‘synergy’. Most analysts come up with a list of synergies like, economies of scale, eliminating duplicate functions, in this case often resulting in staff reductions, acquiring new technology, extending market reach, greater industry visibility, and an enhanced capacity to raise capital. Others have stressed, even more ambitiously, the importance of M&As as being “indispensable…for expanding product portfolios, entering new markets, acquiring new technologies and building a new generation organization with power and resources to compete on a global basis” (Virani). However

US Congressional leaders and the Bush administration have reached a tentative deal on a bailout of imperiled financial markets that could cost taxpayers hundreds of billions of US dollars.

The House could vote on it later today and the Senate on Tuesday.

US House of Representatives Speaker Nancy Pelosi announced the accord just after midnight Saturday and said it still has to be put on paper.

Treasury Secretary Henry Paulson talked of finalising the deal but added: “I think we’re there.”

The plan would spend up to $US700 billion, most of it on buying deeply devalued mortgages from the housing market’s collapse and other bad loans held by tottering banks and other investors.

The aim is to prevent credit from drying up and causing a meltdown of the US economy, which is still on the cards.

Media reports indicated the $US700 billion request could end up being cut by as much as half, with the rest subject to congressional approval at a later date.

The proposed bailout, first rushed to Capitol Hill by Paulson as a three-page proposal, has now ballooned into a document of more than 100 pages, CNN reported.

A Democratic Senator said $US250 billion would be immediately available and another $US100 billion could be used when requested by the president for debt purchases.

The Congress could bar the expenditure of the remaining $US350 billion only by passing a resolution to block it from being spent.

Several other provisions in the proposed bill include more oversight and a way for the Government to reclaim losses from companies on mortgage related assets that lose money.

In Europe Belgium’s Fortis looks like becoming the first large European continental bank to fall victim to the credit crunch, as the global chaos continues with Britain’s Bradford & Bingley mortgage lender and American regional bank, Wachovia also teetering on the brink.

The Belgian central bank and the country’s regulator are paving the way for a bailout of the huge banking and insurance group, which has a balance sheet of well over $A1.1 trillion and a market value at last Friday of just over $A25 billion.

The Belgian regulator is thought to be considering the creation of a “bad bank” for assets similar to the controversial scheme proposed in America as a means of ensuring a deal.

There were reports this morning that french bank, BNP, might mount a bid for Fortis.

Any uncertainty around the future of Fortis is likely to hit Royal Bank of Scotland, its partner with Santander of Spain in the consortium that bought ABN Amro last year for 102 billion euros just as the credit crunch was breaking.

They refused to withdraw the bid, and were allowed to continue by the UK, Belgium and Spanish central banks and regulators.

The Dutch banking assets that Fortis bought as part of the deal are yet to be transferred out of the special company used to execute the deal, which is legally a subsidiary of RBS, which raised over $A24 million and has sold more than $A10 billion in assets in the past four months.

Fortis, which has 2,500 branches across Europe, replaced its chief executive last week which worried markets.

The Belgian government, regulators, and the Dutch central bank are all involved in the talks and a deal is expected to be announced over the next day to prevent a crisis of confidence that could spark public panic and a run on deposits across parts of Europe;something that would be a replay in Britain where Fortis is Britain’s third-largest private car insurer and the fourth-largest travel insurer.

There’s talk the Luxemborg Government might take a stake in Fortis to support it.

In Britain Bradford & Bingley looks like being nationalised and then sold off.

The Bank of England, the Financial Services Authority (like APRA in Australia) and the government appear to have agreed to nationalise B&B and then sell it off, much in the way the US regulators closed and seized Washington Mutual last Friday morning and then sold the loans, deposits and branches to JPMorgan Chase.

Santander, the Spanish bank, is in negotiations to buy B&B, but it is insisting on conditions.

It would be the second British bank to be nationalized this year after Britain was forced to take Northern Rock into public ownership in February.

The FSA has been trying to find a single white-knight to take over B&B’s loans in their entirety, but Britain’s big banks refused to get involved.

B&B shares tumbled to a record low on Friday.

The UK government forced the merger between the country’s biggest mortgage lender, HBOS and Lloyds TSB.

Britain’s top five banks — HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS — and Santander already own about 30% of B&B between them after they stepped in to help save a rights issue that flopped in June. RBS, HBOS, Lloyds and Barclays (which bought the remnants of Lehman Bros. in the US) are in no position to extend a helping balance sheet, leaving HSBC and Santander which owns Abbey and Alliance and Leicester.

In the US, Wachovia may struggle to find a ‘friend’ until the bailout bill is law, or there’s some move by authorities to take it under control.

Some US commentators reckon possible suitors, one of whom is Citigroup (Which has gone from feather duster to potential white knight) might use the ploy JPMorgan ploy used with Washington Mutual: wait to see whether regulators will seize the bank, then buy the best assets and let the government sort out the rest of the mess.

Besides Citi, Well Fargo (which might be a target for Goldman Sachs) and Banco Santander are said to be in talks to buy Wachovia.

They were part of the same group that passed up a chance to buy Washington Mutual which JPMorgan bought $US1.9 billion.

Media reports say the possible buyers will wait to see what’s in the bill, but have been demanding Government aid. That’s something the Government refused in the case of Lehman Brothers and Merrill Lynch.

Wachovia shares fell 27% in New York on Friday.

The buyer may get help from regulators, who said the US benefited from seizing and selling WaMu because the Federal Deposit Insurance Corp didn’t have to use its $US45 billion deposit insurance fund.

JPMorgan plans to write down WaMu’s loan portfolio by about $US31 billion ($A37.2 billion) – a figure that could change if the government goes through with its bail-out plan and JPMorgan takes advantage of it.

JPMorgan said there will be another $US1.5 billion in merger costs.

And further failures will further elevate the month of September to peak of the list of miserable months, surpassing October, when the great crash of 1929 and the plunge of 1987 happened.

The financial landscape has been ripped up by the bankruptcy of Lehman Brothers the investment bank; the government’s takeover of American International Group which was once the world’s largest insurer, based on market value; the shotgun marriage of Merrill Lynch to Bank of America; the conversion of Goldman Sachs and Morgan Stanley to regulated bank holding companies from investment banks, and the collapse of the nation’s biggest thrift, Washington Mutual, which ranks now as the biggest bank failure in U.S. history.

Goldman saw Warren Buffett snap up a $US5 billion shareholding to make his group the largest shareholder, and Mitsubishi of Japan grabbed a 20% stake in Morgan Stanley after they both abandonment the investment banking model to become old fashioned banks.

IMPORTANT: AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or adviso
r before making any investment decisions.

Small companies that hold business bank accounts with Royal Bank of Scotland (RBS) have been waiting to find out whether they will have their accounts moved elsewhere.

The government has now confirmed plans to break up the lender, which was recently rescued by tax-payers. The proposal was triggered after the 70% nationalised bank responded to demands from the European Commission (EC) to sacrifice up to 10% of its small business banking customers.

Lloyds has also been affected by the shake-up, after it was revealed that a further £30 billion of taxpayers’ money will be injected into the pair. In return, the banks have agreed to follow strict guidelines on staff pay, bonuses and lending.

The Treasury said: “To promote greater competition in UK banking, and meet EU state aid rules, the banks will be required to make divestments of significant parts of their businesses over the next four years.”

Sir Richard Branson has shown an interest in the bank assets up for sale, which could allow him to expand his banking business. However, Spanish banking giant Santander – owner of Abbey, Alliance & Leicester and Bradford & Bingley – has been rumoured as a possible bidder for RBS bank business banking counterpart.

RBS has announced that it will be selling its branches in England and Wales, its Scottish NatWest branches, parts of its investment banking operations and its Churchill and Direct Line insurance arm.

RBS is currently the UK’s largest lender to small to medium-sized businesses, with 1.2 million small business banking customers, and many suggest it offered the best business bank accounts in the industry.