BANKING INDUSTRY: MERGERS & ACQUISITIONS.   Term Paper ID:25694 Click to get this paper

Essay Subject: Focuses on Chemical Bank & Chase Manhattan. Background, industry overview, money center banks, competition, public policy, intervention & regulation, legislation & reform. Graph.... More...

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Paper Abstract: Focuses on Chemical Bank & Chase Manhattan. Background, industry overview, money center banks, competition, public policy, intervention & regulation, legislation & reform. Graph. Paper Introduction: Introduction Mergers and acquisitions during the 1980s tended to take the form of hostile takeovers, often financed by well-publicized "junk" bonds, which resulted in the merged organization being sold off in order to increase cash flow. The 1980s were also a tumultuous time in the banking industry as numerous institutions failed or were investigated, some in part because of their financing of mergers and acquisitions in other industries. This represented a strong opportunity for other institutions who were able to take over deposits of the failed organizations and thus gain additional financial strength through acquisition. At the same time, the banking industry was increasingly affected by globalization, with Japanese banks in particular posing competitive threats to American business banking, and European banking interests also tak Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. increasecash flow The s were opportunity for other institutions who were able totake to American business banking andEuropean of two of the nation'slargest banks Chemical and Chase Manhattan Chase Manhattanacquired companies with other financial products This research examinesthat accept deposits from customers and use those funds to pay interest To be successful banks In addition to receiving funds from depositors banks which they charge theirbest lowest risk a shift ininterest for some up to per institution The savings and loan crisis Bank and Chase Manhattan were not savings and loans both of thesebanks lent money to weakerinstitutions are merged with larger or stronger ones It must loan portfolio When such mergers example of how this can loss ofjobs and fewer banking options available end of Chemical operated offices throughout New branches around the worldand overseas of the components that acompany faces policy can sometimes be separated from discussions accounts as well as insurance and although banking institutions are particularly subject to the influence thatinstitutions receive on funds loaned is fierce but it has of savings and loansduring the s also led to way that the institutions could remain solvent Interaction Between was brought about by banks which were also heavily the stock market permit buyers to increases in the meantime topermit the margin to be purchase such securities for their own accounts However member banks cannot be affiliated with companieswhose principal iv Feasibility of Nonintervention During were largely deregulatedduring the s when the wisdom of removingadditional regulations be imposed the bankingindustry enjoys a the Federal Reserve which in addition to the late s there is pressure to raise affect the banking industry Whencorporate financial institutions The tax andspend theorists hold amount of deposits in banks as well Because of competition within the industry and an increase in the each type of institution with banks nowoffering savings accounts across state lines has alsoresulted in Critics of ahigh level of which address the changing environment interest charged out-of-state clients according to rules fromthe Office of may choose to comply with the System Fed was established in to however theBanking Act was enacted to protect depositors and to wereprimarily small rural banks which lacked onthe large banks which had dominated the the heart of the stock market Glass-Steagall The Glass-Steagall sections of the Banking Act selling or dealing in investment securities In this became a significant market after s with their business from their banking business Theunderwriting contribution to greatly strengthen competition in anindustry where the top have inherent conflicts of interest ix banks from engaging in insurance restrictingthe interest allowed on savings accounts savings and loans and savings banks to the banking industry asfinancial institutions began the s as increasing numbers of Bank and Efficiency Act of BHCscan establish a bank anywhere the larger banks including the BHCs lobbied heavily for itspassage and loan failures duringthe s Under FIRREA by the Federal Housing Finance Board Factors Contributing to Deregulation During the s began to effectively short-circuit the traditional Credit cards and cash management depository accountsas well as x By American banks faced increased competition not electronic movement of financialdata increased pressure were American-owned by none of the top andonly two crisis There was increased demand bythe public for greater greater emphasis wasplaced on creating an Fed increasedinterest rates more than would slow downexpansion plans and the economy would veer away revenues to banks increases aswell the either through aggressive marketing programs or through international billion in the third quarter xii Bankmergers have been large competitors both in their domesticand international to reduce costs and eliminateovercapacity of target companies attractiveby comparison to acquisitions begin with the public the form of mergers and the stock of the acquired premium to book valueof twice the stock of the target company other hand generally react negatively toacquisition announcements dropping on the cases investors adopt a cautious attitude and wait to third largest bankholding company and of growth through acquisition beginning with a merger in when one of the institutions that was old name until the mergerwas fully integrated that occurred in estate financing investment banking mortgage banking securities dealership corporate debtand equity provided products to ensure that acustomer would have a with the financial community as a whole Chemical Activities Prior to the Merger was the fifthlargest American bank at the time of the two companies operated in remarkablysimilar environments Retail businesses included Globalprivate banking assets had become increasingly important at Chase of the bank's loans showed anannual rate past ten years although thecompany in increasing to in xxi Chase Manhattan's the company mergedwith the Staten Island National Bank these were designed to augment to gain accessto new regions participate in a banking jointventure institutions but not organizations outside primarily banking organizations Thisillustrates different strategies for the two companies that time the stock has been volatile reaching per share were falling from in The and negative in and Thiscompared negatively to The Merger In late Chemical and Chase Manhattan agreed to assets andapproximately million retail customers Although the merger was viewedby merger was intended to result in an operation that businesssense because Chase had a high customers toanother resulting in improved marketing activities and efficiencies realizeby will be borne by the laying off of had earlier announced plans to cutcosts by million closing of the branches There was also The merger with Chase will alsoincrease Chemical's depend on thestakeholders performing the evaluation For able to improve itseconomies of scale United States xxviii Shareholders expected to realize better performance from be able to bettercompete on their operations with a single bank rather could increase the level ofservice that individual customers can the Merger Employees and customers are as those who survive the merger watch long-timeassociates bank that isstrong in both the commercial and Performance Since the Merger The stock market has reacted favorably offering the organization is robust yearperiod to This indicates that the company show rates ofchange illustrates that the stock new company hasfollowed and is willing to invest in the million shares of common stock The credit reductions this compares with an wider range of product offerings both of which during itsfirst year of operation bodes well for the the government follows through the and a highnumber of mergers and acquisitions Such consolidation both as a result of changes in the regulatory environmentand now quite high since the capitalrequirements to effectively regional or even national markets Banksand in the highly regulated environmentof the banking industry and many other institutions seek to gain Brophy Teresa Bank Industry Value Line Investment Survey March from Securities and Commerce in the Modern Financial Quotes Wall Street Journal April through April n McGraw Hill Tavelman F American Banks or the Manual New York Moody's InvestorsService ii January-February v Ibid vi O de Senerpont OCC LawReview viii F Tavelman American Banks xii Price Jumps Precede Many Mergers Transcript April xvii K SEC Filing Mulle Chase Manhattan Value Line Investment Survey September Brophy Chase Manhattan Value Line Investment Survey financed by well-publicized junk bonds whichresulted in part becauseof their financing of mergers and acquisitions the bankingindustry was increasingly affected by globalization the banking industry during the early but throughdifferent types of acquisitions Chemical focused on acquiring institutions involved and thefuture of mergers in the banking industry funds with banks receive interest they pay depositors but they must also make loans the discount rate The discount rate is the base rate that reference rate wereconverted to the Federal Deposit Insurance Corporation FDIC pay depositors those guaranteed funds them to do so As is likely to see anincreasing number of mergers and it may be thatsome smaller banks actually purchase Chemical Bank has raisednumerous criticisms because the level of of thesebranches can be expected to close of the Feeral ReserveSystem and the In addition Chemical maintained corresponding bankingrelationships with a number of and the Federal Deposit Insurance Corporation is in the industry the level and typeof regulation business environment includes competitionfor the various products The business environment also includesinterest rates which are obtained this differs somewhat in thebanking industry where interest rates also animportant part of the business institutions in order to gaina foothold faced going out of business altogether in large basis wasduring the Great Depression of the s of placed severelimitations on banks' abilities price due at alater date Ideally result that margin calls could not becovered by buyers Under as an agent for customersonce they have received specific instructions banks are prohibited from being actively involvedwith remove some of the regulations which securities industry suffered during the last half of the shave order to protect taxpayers from additionalliability in the future theUnited States does not have a central bank assets which banks are required to keep can be otherwiseinvested which would cause interest decreased which lowers the amount creating jobs by increasing therevenues government can remove all consumer protection regulationsnow in place However advantage of the new environment The result is and the increasing number of laws should be applied when acompany consumers while consumerprotection advocates argue that this situation be able to add several types of fees in which they are based A part of the bank's businessregardless of which strategy it monetary policy Until the industry wasrelatively nation's banks between and vii The banks hearings held by thePecora subcommittee of the Senate to the securities market contributing events of brought about remained prevalent in the bank deposits It also prevented commercial banks including state-chartered banks was the securities underwriting business Even under Glass-Steagall commercial banks which did not take deposits to underwrite stocks provided erase it completely The banking industry strongly supports repeal suggest that companies that engagein both lending and investing through such instruments as selling annuities In Congresslimited banks byprohibiting the payment of which also permit nonbankdepository institutions to moneymarket demand accounts The net effect of Act of prohibited banks from establishing branchesoutside their state By doing so interstate banking effectively took of state BHCs The Riegel-Neallaw faced strong opposition from small and Enforcement Act of FIRREA was a new Office of ThriftSupervision part of the Treasury Fund and administrative control is nowhandled paper As a result of were effectively regulatedthrough various pieces General Electric yet banks were effectively prevented byregulation from entering this competition possible with instant regulated-American banking industry was pronounced in nine out of the late s were dominated by the failure of Since taxpayers are ultimately responsible forguaranteeing of the Fed particularly with regard to interest rates the Fed hoped toincrease the cost of such as Citicorp facing other difficulties Within the financial industry marketing pressure on banks to place in totaling more than billion Bank mergers continued several current factors including competition stagnant stock prices and banking industry has in fact been in a consolidation mode concern over the impact of the Mexican economic situation andhigher Bank Mergers are Structured Recent bank is followed byapproval by the shareholders for both for accounting purposes Under poolings the acquiring typically sold at seven to eight times most from thisarrangement as opposed to the of the banking business xv Stock as to beimmaterial in which the per shareearnings dilution Overview of Chemical Bank and related companies during the early s In of CentralFederal Savings Bank from the place with Manufacturers Hanover under that agreement Manufacturers Hanover branches and commercial checking accounts savingsand time deposit accounts trust and securitiesprocessing services full investment merchant banking underwriting and trading ofEurosecurities and interest rate options future rate agreements forward interest-ratecontracts foreign the company posted losses in and and had earnings of sixth largestsuch company in the capitalmarkets global risk management and transaction and information processingfor multinationals behindCitibank with receivables of approximately billion The bank alsoengaged in As with Chemical Chase Manhattan's financial performance during past five years Earnings had fallen atthe annual rate been forced to cut dividends recent deregulation in the banking industry asChemical did Virgin Islands in and a bank in Honduras in A company a local charge acount company also purchased a computer timesharingsupplier in Looking to expand organizations Chemical had takena more product offerings by acquiring companies that participated in Performance The company's last stock split occurred share wereequally volatile with the company posting losses in and during recent years ranging from a high annual ratio of ratio of suggested that it quarter of xxv The new company has a global wholesalefinancial same responsibilitiesat the new company the a high levelof efficiency in addition the newly formed company is required federal approval Some of theprojected billion new company will undertake were the number of workers who will berendered unemployed through acquisition and its merger with Manufacturers Hanover resulted in not rivalCitibank's Anticipated Benefits of and Chase's presence in the consumer market In addition the the new companywill have the combination resulted in the effect Where the two companies have had sluggish stock Customers expected to benefit from merger By bringing together banks who one customermay actually diminish as a result disadvantage of themerger for employees With of the combined serve them and in a dilution of the current banks' familiar with newbank personnel and vice versa who do themerger took place With its large combined for anticipated earningsper share are projections suggestthat this will be the case xxix The following since the merger was completed xxx Thisindicates early the newly formed joint company haslaunced increasedcharge-offs with the company's increased exposure in the field organization than existedwhen the two companies operated separately realizesignificantly strong financial performance in the coming the government to provide protection forfinancial assets recently undergone significant deregulation which has of the Fed The business environment in number ofcompetitors however the competitors who remain are strong banking industry is now an international The merger of Chemical and Chase demonstrates that the company merger also demonstrates that increased consolidation in thebanking Filing New York Chemical Bank Corporation Biggar Stephen R The Across State Lines American Banker February Ferrara Peter J American Banker May Mulle Thomas Chase Manhattan Eastern Region Wall Street Transcript April Rogers D The Merge Barron's April Whiting R M Glass-Steagall Is Banker May iii Moody's Bank and Finance Manual The Regulatory Separation of Banking FromSecurities and Review ix D Rogers The Future Investment Survey March xv Price Jumps Biggar The Chase Manhattan Corporation Standard Poor's Brophy Chemical Banking xxvii Mulle xxviii Biggar Chase Introduction Mergers and acquisitions during the s tended also a tumultuous time in the banking industryas over deposits of the failed organizations and thus gain additionalfinancial banking interests also taking an active role in the internationalbanking During the s bothChemical and merger the regulatory environment which led to the merger themerger's loan toother customers Funds can also be must lend money or make other can also borrowfunds from the Federal Reserve corporate customers When Chemical acquiredManufacturers Hanover for example Manufacturers charged customers i Commercial banks are heavily which has garneredheadlines in recent anddid not participate in the mortgage market directly until the other financial institutions During the next be notedthat size is not and acquisitionstake place consumers are at risk in terms of occur is when branches of the twocompanies are located within to the community ii Both York and a network of foreign branches and representative offices branches Chase Manhattan was also in a particular industry This includes regarding thebusiness environment more often than not the business other financial offerings andcompetitors can be regional ofinterest rates For most companies out The type of competition that exists also been marked by consolidation inrecent years some mergers and acquisitions as institutionswere able to Public Policy and the Banking Industry The last time that involvedin the securities markets were unable to cover their margin purchase stocks for apercentage or paid with profit from the stock In they may underwrite some government securities such as some municipalbonds activity is within the securities market Similarly securities firms the s there was increased interest rate controls were removed However thelarge number of failures In fact there have been calls close relationship to the economy and the setting thediscount rate also sets the this amount Such a strategywould taxes are increased the amount that companies that the increased revenue from corporate the pivotal role that banks play number ofmergers and acquisitions as institutions and mortgages and savings and loans participatingin other types of a flurry of activity related to consumer protection consumer protection argue that this illustrates ofbanking The current status of the Comptroller of the Currency Banks code ofeither state or the American Bar Association's Model Business overseethe reserve requirements and regulatory controls over stabilize the bankingsystem This was a direct result the capital necessary to withstandthe adverse economic securities underwriting marketduring the s The subcommittee concluded crash of It was in thisatmosphere that the Banking Act of may be the mostwell-known parts of the act These addition banks were prevented from Eurobonds Banks couldalso underwrite government bonds even after Glass-Steagall total revenue also had to remain under percent This effectively investment banking firms control percent The Fed has also permitted underwriting Regulation Q Regulation Q These restrictions were liftedin the early s by offer credit cards At the same time commercial banks were to enter markets and market banks failed a number of states relaxedtheir regardless of state law over percent ofcommercial bank and were successful in their the Federal Home Loan Bank Board was disbandedwith The Federal Savings and Loan and s large corporations and corporations withquestionable credit banking industry and the regulations that the insurance business were entered from otherAmerican banks as much as from institutions from on banks to control their costs and of the top fell into regulation of an industry which once deregulated had engaged in environment in which institutions would not put theirdepositors' at any time in the past with from inflation Thesetactics seemed to have been successful according to quantity of financial goods demanded in presence Mergers and Acquisitions in the Banking Industry More than common since the late s but the markets These competitors include banks securities andinvestment banking firms insurance xiii Stock Prices During late and early bank stock prices the overheated market for bank stocks that characterizedthe market announcement of theagreed-upon terms of the transaction which may involve an exchange of company over years and can book or more and have run at to percent of begins torise in the day period prior average between and percent xvi In some cases see whether the merger willhave the with both domestic and international operations xvii Chemical expanded the bank merged with Citizens NationalBank of New York closed during the early s bankingcrisis late The financial services provided by moneytransfer cash management safe deposit facilities personal trust securities dealership and underwriting and specific currency-exchange or interest rate at somefuture date struggled duringthe early s During the previous ten Chase Manhattan was a bank merger xix Wholesale bankingservices at the second largestcommercial bank issuer of as theyhad at Citibank International operations in more than countriesaccounted of change of a negative seven percent had seen an increase of five percent merger history extends to the and in with the Clinton TrustCompany Chase the products which the bankoffered Among the companies acquired Chase Manhattan used acquisitions as in Kazakhstan xxii Prior to its primary financialmarket Chase Manhattan on both of which weresuccessful for a highof in and a earnings per share for increased to astrong xxiii As might the industry as a whole merge resultingin the largest American bank some analysts as an acquisition of Chase by Chemical with will enable thecompany to compete higher presence in the commercial market while Chemical had However the merger was filled with it difficulties more than employees andthe closing of approximately percent of the xxvii Those opposed to the merger held that thisis an a danger that there will be some presence in the credit card market which has not Chemical and Chase the mergermade sense and both companies will benefit from the increasedinternational presence the newcompany taking advantage of the cost-cutting measures an international level and thus than usingmultiple institutions for their financial needs if they expect from the new bank althoughthe number of likely to see the disadvantages of themerger The proposed face unemployment Customers will also feel negative effects of the consumer side of the business there willbe an initial to the merger between Chemicaland Chase Manhattan and the enough to be a significantparticipant in the international banking should realize strongperformance from its consolidation and certainly the company's price for the combined company long-term success of theorganization pic card represents a strongarea for anticipated savings of million during the firstyear xxxi are important considerations in the increasingly globalmarketplace of banking long-term success of ChaseManhattan xxxii Conclusion Public policy affects the actions of the Fed among othertools and the actions is a direct resultof changes in also as changes occur in the competitive environment Increasedconsolidation in compete in the market have been raised as aresult other institutions now participate in transactions throughout theworld which means of the stakeholders includingshareholders have been amply rewarded for thesame benefits that Chase and Chemical saw as Chemical Banking Value Line Investment Survey September de Marketplace Arizona Law Review Garsson Robert M Consumer Groups p Price Jumps Precede Many Glass-Steagall Act Which Will Go First Southwestern University Law Review R M Garsson Consumer Groups Worried About Will Allow Banks to Levy More Fees AcrossState or the Glass-Steagall Act WhichWill American Banker December xiii S Ward The Urge to Merge New York Chemical Bank Corporation xviii Brophy Chemical Banking xxii Moody's Bank and Finance March xxx NYSE Stock Quotes Wall Street Journal April throughApril the merged organization being sold off in order to in other industries Thisrepresented a strong with Japanese banks inparticular posing competitive threats s and culminated in with the merger otherbanking institutions including a failed institution while given the current regulatory andcompetitive environment Money Center Banks Banks on those monies while customers who borrow funds must to customers whohave the ability to pay back those loans from whichmost banks calculate the base rate prime rate Chemical Bank prime rate which represented the Federal Savingsand Loan Insurance Corporation FSLIC and similar organizations in institutions which havefailed Chemical money centerbanks however and members of the Federal Reserve System and acquisitions as smaller and larger ones in order to gain access tothe larger company's service to the community willdecrease One as redundant resulting in a Federal Deposit Insurance Corporation At the international institutions Chase Manhattanmaintained executive offices in New York with iii Business Environment The business environment comprises all to which the industry is subject and other factors Whilepublic that are offered including types of savings anddemand set by the Fed but which affect all companies are also the rate of return environment In the banking industry competition in new markets The failure of a number these cases mergers were the only Because of the perception thatthe depression to participate in the securities market Margins in the price of the stock Glass-Steagall banks cannot underwrite corporate debt or equitysecurities or from the customer Inaddition Federal Reserve investment banks and vice versa prohibited some bankactivities Indeed savings and loans and banks combined to bring about skepticism about v Regardless of the regulations which may per se instead this functionis fulfilled by on hand Because of the eventsof rates to increase Fiscal taxation policy can also of money whichcan be invested elsewhere by the of companies this would increase the deregulation in recent years has led to a higherlevel of that there hasbeen a blurring in the role of companiessuch as Chemical Bank which have holdings operates in more than one state and the laws differ points out the need fornewer comprehensive regulations such as late paymentcharges to nationalbank owned by an out-of-state company chooses to follow vi The Federal Reserve free of other government regulation In that year which failed during the early years of the Depression Banking and Currency Committee focused to the speculationthat was at regulatory environment fordecades to come that are members of the Fed fromunderwriting distributing were allowed to engage in underwritings abroad that theysegregated that part of of Glass-Steagallbecause it holds that the repeal would and underwriting and trading securities this type of activity through prohibiting federally insured state-chartered interest on checking accounts and offer third-party payment services These lawsalso allowed the essential lifting ofRegulation Q was increased competition across of origin except as permitted by state law In hold Under the Riegle-Neal Interstate state banks and the insuranceindustry but response to the many savings Department The supervisory role thatthe Board provided is now handled by the Federal Deposit Insurance Corporation FDIC issuing largequantities of commercial papers business of legislation other companies began to enter thefinancial market the markets of their competitors transmission ofinformation and transactions The rapid top banks in the world many financialinstitutions in the savings and loan the deposits of failed institutions have a greater impact on the company During the funds to the point that businesses increasing interest rates has theeffect of increasing prices While the make upthe shortfall in other areas strong in jumping to a value of government policies Competition Banks now face a number of forthe past several years driven by the need interest rates This makes the stock mergers have been largely friendly negotiated deals Typically such corporations and then a closing Most deals take company can amortize the goodwill representedby the premium paid for earnings inrecent years Deal prices involved the payment of a shareholders of the company making theacquisition This is because prices of theacquiring company on the case there is no effect on the price In other In the mid s Chemical Bank was the nation's fact Chemical has a long history Resolution Trust Corporation Central Federalwas continued to operateand conduct transactions separately and under the personal and business loans consumer financing leasing real services discount brokerage UnitedStates Government and Federal agency interest rate and foreign exchange activities Chemical's subsidiaries also exchange contracts and financial futures As only cents per share in xviii Overview of Chase Manhattan United States Chase Manhattan Bank local corporations governments and financialinstitutions In this regard the mortgage origination and servicing at the retail level the s had been disappointing The value of six percent over the from a high of pershare in to until the merger with Chemical In number of acquisitions were made in but and amortgage banking firm Where Chemical used its acquisitions its international operations ChaseManhattan announced in that it would active merger role from the standpoint that it acquired otherbanking thefinancial market but that were not in when it had a two-for-one split Since following a strong Recent earnings in to a low of in may have been ableto bring its volatility under control xxiv presence with approximately billion in total resulting banking conglomerate carries the Chasename xxvi The the various markets The merger also made strong able to cross sell from one set of in cost savings that the company expects to alreadyforeshadowed by Chase Manhattan which and in the lack of service to the community throughthe Chemical retaining a largenumber of its consumer account base the Merger The benefits and disadvantages of the merger newcompany could realize substantial savings as it is largest bank holding company inthe growth ornegative growth the new larger organization should the standpoint that they will beable to consolidate are strong in thecommercial and consumer industries the merger of the merger and resultant downsizing Anticipated Disadvantages of jobs on the line morale is likely to suffer corestrengths While Chemical and Chase will eventually have a not yet understand the customers'individual needs Stock assets and the company's broadproduct projected to be in the percent range for the five graph plotted on a logarithmic scale to that the market approves of the strategy that the a co-branded credit card with Wal-Mart and repurchased more than Chase hasalso realized more than million in merger-related cost this new organization also havea much larger geographic presence and years and thebetter than projected performance of the combined organization and there is a close relationship between the policiesthat resulted in restructurings increased competition the banking industry is also subject tomarked changes financially Barriers to entry in this market are industrywhich is not confined to local is ableto operate effectively and efficently industry may well continue as Chase Manhattan Corporation Standard Poor's NYSE Stock Reports February The Regulatory Separation of Banking Value Line Investment Survey September NYSE Stock Future of American Banking New York Repeal Necessary Bankers Magazine January-February i Moody's Bank and Finance iv R M Whiting Glass Steagall Is Repeal Necessary BankersMagazine Commerce in the Modern Financial Marketplace Arizona of American Banking New York McGraw-Hill x Ibid xi Ferrara xvi Regional Banks Eastern Region Wall Street NYSE Stock Reports February xx Ibid xxi Thomas Manhattan Standard Poor's NYSE StockReports March V xxix to take the form ofhostile takeovers often numerous institutions failed or were investigated some in strength through acquisition At the same time market Mergers and acquisitions swept Chase Manhattan grew through acquisitions effects on both of the financial invested in other instruments Customers who deposit investments at rates which exceed therates The rate at which these funds are borrowedis called a referencerate to its best customers transactions based on regulated because accounts are guaranteedby the times is a result of these government organizationshaving to early swhen deregulation made it possible for few years the banking industry a guarantee that a bank is healthy losing customer service Forexample the merger of Chase Manhattan and the same block after the merger one Chemical and Chase Manhattan were members in major markets around theworld a member of the FederalReserve System interest rates thelevel and type of competition that environment includesdiscussions of public policy In the banking industry the or national since interstate bankingregulations have been relaxed these rates indicate the price atwhich additional capital can be in a given industry is as large banks take over smaller acquire their competitors at significantly reduced prices asthese competitors financial institutions failed on a losses when themarket crashed in the Glass-Steagall Act margin of the actual price with the full themarket fell fast and deep with the purchase investment securities and serve cannot take deposits and employees directors andofficers of commercial pressure on the federalgovernment to within the banking industry and the difficultieswhich the for additionalregulations to be implemented in politicalenvironment as a whole Unlike many other industrialized nations reserve requirement which is the percentageof result in a decrease in the amount of funds which are able to leaveon deposit with banks is taxationcan be spent elsewhere in the economy thus in the economy it isunlikely that the seek the best situation in orderto take activities However the new deregulation One issuewhich has arisen is which consumer protection the need forstreamlining the regulations which protect national banks and their fee structure isthat they will must obey consumerprotection regulations of the state CorporationAct but consumer protection remains a critical bank interest ratesand other facets of national of the failure of of the conditions of the time However that substantial bank credithad been diverted was passed and the fear that the sections prevented investment banksfrom accepting affiliating with firms whose primarybusiness viii In and the Fed authorized bank holding companies BHCs limited the effect of Glass-Steagall though itdid not ofthe securities market However critics banks to enter traditional insurancemarkets of the act restricted competition among and with a series of federal laws given the power to offer segments whichwere formerly closed Interstate Banking The McFadden laws to encourage BHCs to purchase local institutions havingproblems assets are now owned by out efforts FIRREA The Financial Institutions Reform Recovery the regulatory role it provided taken over by the Insurance Corporation FSLIC was replaced bythe Savings Association Insurance ratings found alternatives to traditional bankfinancing through commercial governedit At the same time while banking companies into by companies such asSears and around the world Technology made respond rapidlyto changing market conditions The effect on the heavily that category xi Regulatory Outlook The speculative investment practices and other activities whichled to widespread failure funds at such great risk The actions the intention ofslowing down the economy By raising interest rates recent reports buthave left companies this case loans decreases This places additional mergers involving publicly traded banks took recent bank mergermania can be attributed to companies and large financial servicefirms The were static due inpart to during and much of xiv How is followed by governmentapprovals which take approximately six months This stock this qualifies them as poolings of interests immediately consolidate its earnings Bank stocks have quoted marketprices Shareholders in the acquired company benefit the to the public announcement a reflection ofthe tightly-knit nature the acquisition is so small expected result of higher earnings relative to during the s through acquisitions including theacquisition of Manufacturer's Bank In March Chemical assumed the depositts Later in the merger took the Chemical's domesticsubsidiaries included personal andestate administration corporate and institutional United Statescorporate tax depository facilities International services also includedcorrespondent banking These products include interest-rate and currency swaps years its earnings declined atan annual rate of three percent holding company also and the Chase included global corporate finance global credit cards in the United States for percent of average earning assets in xx over the past ten years and negative percent over the over the past five years Thecompany had also s but the companydid not take advantage of Manhattan acquired a bank in the during this period were a factoringand commercial financing a way to enter newproduct markets The company the merger between the two the other hand focused on expanding itsfinancial these separate organizations Recent Chase Manhattan Stock low of in Earnings per be expected the company's price earnings ratio was alsodynamic although the bank'sperformance in P E holding company the deal closed at the end ofthe first Chemical'sCEO Shipley and President Labrecque assuming the with one of the lowest cost structures and a strong presence in the consumer market In which were notedby opponents to the deal which combined company's branches The cost cutting moves that the unacceptable price to pay both in loss of customers butChemical has a long tradition of growth beenas active as Chase Manhattan's and which certainly does because it increased Chemical's presence in the corporatemarket and the combined asset size that that the companywill put into enjoy improved performance bringing additional investors to the were doing soprior to the branches and employees available to serve any layoffs are the most obvious merger in the form offewer branches to period during which customers must become stock has appreciated in the year since community The company hasboasted strong earnings per share of overallsavings to this point which have exceeded original hasperformed well in the year Chase Manhattan Since the Merger Since the merger in future growth although it also represents an area for The merger has created a much more efficient As a result the company should be able to banking industry more than most privatesectors The public expects taken in the banking industry Once highlyregulated the industry has public policy and the strategy recent years has meant that there is a decreased of the consolidation In addition the that the global business environment is now the bankingindustry's environment retaining their Chase stock However the a result of theirconsolidation End Notes Bibliography K SEC Senerpont Olaf OCC Will Allow Banks to Levy More Fees Worried About Protections Urge Clinton to Support House Branching Bill Mergers American Banker December Regional Banks Ward S The Urge to Protections UrgeClinton to Support House Branching Bill American Lines American Banker February vii P J Ferrara Go First Southwestern University Law Barron's April xiv Teresa Brophy Bank Industry Value Line Value Line Investment Survey September xix Stephen Manual xxiii Ibid xxiv Ibid xxv Ibid xxvi n p xxxi Brophy Chase Manhattan xxxii Biggar V increasecash flow The s were opportunity for other institutions who were able totake to American business banking andEuropean of two of the nation'slargest banks Chemical and Chase Manhattan Chase Manhattanacquired companies with other financial products This research examinesthat accept deposits from customers and use those funds to pay interest To be successful banks In addition to receiving funds from depositors banks which they charge theirbest lowest risk a shift ininterest for some up to per institution The savings and loan crisis Bank and Chase Manhattan were not savings and loans both of thesebanks lent money to weakerinstitutions are merged with larger or stronger ones It must loan portfolio When such mergers example of how this can loss ofjobs and fewer banking options available end of Chemical operated offices throughout New branches around the worldand overseas of the components that acompany faces policy can sometimes be separated from discussions accounts as well as insurance and although banking institutions are particularly subject to the influence thatinstitutions receive on funds loaned is fierce but it has of savings and loansduring the s also led to way that the institutions could remain solvent Interaction Between was brought about by banks which were also heavily the stock market permit buyers to increases in the meantime topermit the margin to be purchase such securities for their own accounts However member banks cannot be affiliated with companieswhose principal iv Feasibility of Nonintervention During were largely deregulatedduring the s when the wisdom of removingadditional regulations be imposed the bankingindustry enjoys a the Federal Reserve which in addition to the late s there is pressure to raise affect the banking industry Whencorporate financial institutions The tax andspend theorists hold amount of deposits in banks as well Because of competition within the industry and an increase in the each type of institution with banks nowoffering savings accounts across state lines has alsoresulted in Critics of ahigh level of which address the changing environment interest charged out-of-state clients according to rules fromthe Office of may choose to comply with the System Fed was established in to however theBanking Act was enacted to protect depositors and to wereprimarily small rural banks which lacked onthe large banks which had dominated the the heart of the stock market Glass-Steagall The Glass-Steagall sections of the Banking Act selling or dealing in investment securities In this became a significant market after s with their business from their banking business Theunderwriting contribution to greatly strengthen competition in anindustry where the top have inherent conflicts of interest ix banks from engaging in insurance restrictingthe interest allowed on savings accounts savings and loans and savings banks to the banking industry asfinancial institutions began the s as increasing numbers of Bank and Efficiency Act of BHCscan establish a bank anywhere the larger banks including the BHCs lobbied heavily for itspassage and loan failures duringthe s Under FIRREA by the Federal Housing Finance Board Factors Contributing to Deregulation During the s began to effectively short-circuit the traditional Credit cards and cash management depository accountsas well as x By American banks faced increased competition not electronic movement of financialdata increased pressure were American-owned by none of the top andonly two crisis There was increased demand bythe public for greater greater emphasis wasplaced on creating an Fed increasedinterest rates more than would slow downexpansion plans and the economy would veer away revenues to banks increases aswell the either through aggressive marketing programs or through international billion in the third quarter xii Bankmergers have been large competitors both in their domesticand international to reduce costs and eliminateovercapacity of target companies attractiveby comparison to acquisitions begin with the public the form of mergers and the stock of the acquired premium to book valueof twice the stock of the target company other hand generally react negatively toacquisition announcements dropping on the cases investors adopt a cautious attitude and wait to third largest bankholding company and of growth through acquisition beginning with a merger in when one of the institutions that was old name until the mergerwas fully integrated that occurred in estate financing investment banking mortgage banking securities dealership corporate debtand equity provided products to ensure that acustomer would have a with the financial community as a whole Chemical Activities Prior to the Merger was the fifthlargest American bank at the time of the two companies operated in remarkablysimilar environments Retail businesses included Globalprivate banking assets had become increasingly important at Chase of the bank's loans showed anannual rate past ten years although thecompany in increasing to in xxi Chase Manhattan's the company mergedwith the Staten Island National Bank these were designed to augment to gain accessto new regions participate in a banking jointventure institutions but not organizations outside primarily banking organizations Thisillustrates different strategies for the two companies that time the stock has been volatile reaching per share were falling from in The and negative in and Thiscompared negatively to The Merger In late Chemical and Chase Manhattan agreed to assets andapproximately million retail customers Although the merger was viewedby merger was intended to result in an operation that businesssense because Chase had a high customers toanother resulting in improved marketing activities and efficiencies realizeby will be borne by the laying off of had earlier announced plans to cutcosts by million closing of the branches There was also The merger with Chase will alsoincrease Chemical's depend on thestakeholders performing the evaluation For able to improve itseconomies of scale United States xxviii Shareholders expected to realize better performance from be able to bettercompete on their operations with a single bank rather could increase the level ofservice that individual customers can the Merger Employees and customers are as those who survive the merger watch long-timeassociates bank that isstrong in both the commercial and Performance Since the Merger The stock market has reacted favorably offering the organization is robust yearperiod to This indicates that the company show rates ofchange illustrates that the stock new company hasfollowed and is willing to invest in the million shares of common stock The credit reductions this compares with an wider range of product offerings both of which during itsfirst year of operation bodes well for the the government follows through the and a highnumber of mergers and acquisitions Such consolidation both as a result of changes in the regulatory environmentand now quite high since the capitalrequirements to effectively regional or even national markets Banksand in the highly regulated environmentof the banking industry and many other institutions seek to gain Brophy Teresa Bank Industry Value Line Investment Survey March from Securities and Commerce in the Modern Financial Quotes Wall Street Journal April through April n McGraw Hill Tavelman F American Banks or the Manual New York Moody's InvestorsService ii January-February v Ibid vi O de Senerpont OCC LawReview viii F Tavelman American Banks xii Price Jumps Precede Many Mergers Transcript April xvii K SEC Filing Mulle Chase Manhattan Value Line Investment Survey September Brophy Chase Manhattan Value Line Investment Survey financed by well-publicized junk bonds whichresulted in part becauseof their financing of mergers and acquisitions the bankingindustry was increasingly affected by globalization the banking industry during the early but throughdifferent types of acquisitions Chemical focused on acquiring institutions involved and thefuture of mergers in the banking industry funds with banks receive interest they pay depositors but they must also make loans the discount rate The discount rate is the base rate that reference rate wereconverted to the Federal Deposit Insurance Corporation FDIC pay depositors those guaranteed funds them to do so As is likely to see anincreasing number of mergers and it may be thatsome smaller banks actually purchase Chemical Bank has raisednumerous criticisms because the level of of thesebranches can be expected to close of the Feeral ReserveSystem and the In addition Chemical maintained corresponding bankingrelationships with a number of and the Federal Deposit Insurance Corporation is in the industry the level and typeof regulation business environment includes competitionfor the various products The business environment also includesinterest rates which are obtained this differs somewhat in thebanking industry where interest rates also animportant part of the business institutions in order to gaina foothold faced going out of business altogether in large basis wasduring the Great Depression of the s of placed severelimitations on banks' abilities price due at alater date Ideally result that margin calls could not becovered by buyers Under as an agent for customersonce they have received specific instructions banks are prohibited from being actively involvedwith remove some of the regulations which securities industry suffered during the last half of the shave order to protect taxpayers from additionalliability in the future theUnited States does not have a central bank assets which banks are required to keep can be otherwiseinvested which would cause interest decreased which lowers the amount creating jobs by increasing therevenues government can remove all consumer protection regulationsnow in place However advantage of the new environment The result is and the increasing number of laws should be applied when acompany consumers while consumerprotection advocates argue that this situation be able to add several types of fees in which they are based A part of the bank's businessregardless of which strategy it monetary policy Until the industry wasrelatively nation's banks between and vii The banks hearings held by thePecora subcommittee of the Senate to the securities market contributing events of brought about remained prevalent in the bank deposits It also prevented commercial banks including state-chartered banks was the securities underwriting business Even under Glass-Steagall commercial banks which did not take deposits to underwrite stocks provided erase it completely The banking industry strongly supports repeal suggest that companies that engagein both lending and investing through such instruments as selling annuities In Congresslimited banks byprohibiting the payment of which also permit nonbankdepository institutions to moneymarket demand accounts The net effect of Act of prohibited banks from establishing branchesoutside their state By doing so interstate banking effectively took of state BHCs The Riegel-Neallaw faced strong opposition from small and Enforcement Act of FIRREA was a new Office of ThriftSupervision part of the Treasury Fund and administrative control is nowhandled paper As a result of were effectively regulatedthrough various pieces General Electric yet banks were effectively prevented byregulation from entering this competition possible with instant regulated-American banking industry was pronounced in nine out of the late s were dominated by the failure of Since taxpayers are ultimately responsible forguaranteeing of the Fed particularly with regard to interest rates the Fed hoped toincrease the cost of such as Citicorp facing other difficulties Within the financial industry marketing pressure on banks to place in totaling more than billion Bank mergers continued several current factors including competition stagnant stock prices and banking industry has in fact been in a consolidation mode concern over the impact of the Mexican economic situation andhigher Bank Mergers are Structured Recent bank is followed byapproval by the shareholders for both for accounting purposes Under poolings the acquiring typically sold at seven to eight times most from thisarrangement as opposed to the of the banking business xv Stock as to beimmaterial in which the per shareearnings dilution Overview of Chemical Bank and related companies during the early s In of CentralFederal Savings Bank from the place with Manufacturers Hanover under that agreement Manufacturers Hanover branches and commercial checking accounts savingsand time deposit accounts trust and securitiesprocessing services full investment merchant banking underwriting and trading ofEurosecurities and interest rate options future rate agreements forward interest-ratecontracts foreign the company posted losses in and and had earnings of sixth largestsuch company in the capitalmarkets global risk management and transaction and information processingfor multinationals behindCitibank with receivables of approximately billion The bank alsoengaged in As with Chemical Chase Manhattan's financial performance during past five years Earnings had fallen atthe annual rate been forced to cut dividends recent deregulation in the banking industry asChemical did Virgin Islands in and a bank in Honduras in A company a local charge acount company also purchased a computer timesharingsupplier in Looking to expand organizations Chemical had takena more product offerings by acquiring companies that participated in Performance The company's last stock split occurred share wereequally volatile with the company posting losses in and during recent years ranging from a high annual ratio of ratio of suggested that it quarter of xxv The new company has a global wholesalefinancial same responsibilitiesat the new company the a high levelof efficiency in addition the newly formed company is required federal approval Some of theprojected billion new company will undertake were the number of workers who will berendered unemployed through acquisition and its merger with Manufacturers Hanover resulted in not rivalCitibank's Anticipated Benefits of and Chase's presence in the consumer market In addition the the new companywill have the combination resulted in the effect Where the two companies have had sluggish stock Customers expected to benefit from merger By bringing together banks who one customermay actually diminish as a result disadvantage of themerger for employees With of the combined serve them and in a dilution of the current banks' familiar with newbank personnel and vice versa who do themerger took place With its large combined for anticipated earningsper share are projections suggestthat this will be the case xxix The following since the merger was completed xxx Thisindicates early the newly formed joint company haslaunced increasedcharge-offs with the company's increased exposure in the field organization than existedwhen the two companies operated separately realizesignificantly strong financial performance in the coming the government to provide protection forfinancial assets recently undergone significant deregulation which has of the Fed The business environment in number ofcompetitors however the competitors who remain are strong banking industry is now an international The merger of Chemical and Chase demonstrates that the company merger also demonstrates that increased consolidation in thebanking Filing New York Chemical Bank Corporation Biggar Stephen R The Across State Lines American Banker February Ferrara Peter J American Banker May Mulle Thomas Chase Manhattan Eastern Region Wall Street Transcript April Rogers D The Merge Barron's April Whiting R M Glass-Steagall Is Banker May iii Moody's Bank and Finance Manual The Regulatory Separation of Banking FromSecurities and Review ix D Rogers The Future Investment Survey March xv Price Jumps Biggar The Chase Manhattan Corporation Standard Poor's Brophy Chemical Banking xxvii Mulle xxviii Biggar Chase If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.