I n t h e r e c e nt n t t i me m e s , t h er e r e h a ve v e b e en e n n u me m e ro r o u s r ep e p o r ts ts i n t h e m e d ia i a o n t h e I n di d i a n B a n ki k i n g I n du d u s t r y R e p or o r t s h a ve ve b e e n o n a variety of topics. The topics have been ranging from issues such as user friendliness of Indian banks, preparedness of banks to m e et e t t h e f a s t a p p ro r o a c h i ng n g B a s e l I I d e a d li l i n e , i n c r e a s in i n g f o r ay ay o f Indian banks in the overseas markets targeting inorganic growth. R e p o r t s f r o m t h e w e s t e r n m a r k et et s o f i n c r e a s e d M & A a c t i v i t y h a v e also aroused a deep sense of keenness in the authors to compare the various aspects of M&A in the Banking sector in India and the international arena. i s d e f in i n ed e d a s t h e c om o m b in i n at a t io io n comparable organizations into one.
of
two
r el e l at a t iv i v e llyy
TYPES OF MERGER
‘ ’ : b et e t we w e en e n e nt n t er e r pr p r is i s es e s i n t he h e s a me m e p ro r o du du ct market and at the same level of the production or distribution cycle.
‘ ’ : b et e t w ee e e n e n te t e rp r p r is i s e s t h at a t o p er e r a te t e a t d if i f f e re re n t levels of the production or distribution cycle.
‘ ’: between enterprises operating in different markets. – Merger of target into the acquirer – Merger of acquirer into the target T r ia i a n g u l ar a r – U s e o f a n S P V f or o r u n d er e r ta t a k in i n g F or o r wa wa rd o r Reverse merger r – H iv i v ee - of o f f o f a n u n d er e r ta t a k i ng n g i nt n t o a s ep e p ar a r at at e company
is the take-over of a smaller company by a larger one. Whilst in both cases the two companies merge voluntarily on t h e b a s i s o f a c o n t r a c t , t h e r e a r e a l s o c a s e s o f s o - c a ll l l e d h o s t i le le t a ke k e ov o v er e r , i n w h ic i c h t h e m e r ge g e r t a ke k e s p l ac a c e s o t h at a t t h e l a rg rg e r c o mp m p a ny n y a c qu q u i re r e s a c o nt n t r ol o l l in i n g i n te t e r es e s t i n a w ea e a k er e r b a nk nk o r otherwise wins over the bank’s majority shareholders against the w il i l l o f t he h e m an a n a g em e m en e n t. t . W hi h i le l e t he h e l eg e g al a l p er e r s on o n al a l it i t y o f t he he o ri g i n a l en t it i es u s u a l ly end s in a mer g er, i t is u su a l ly maintained in the case of an acquisition.
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M u l ti t i pl p l e r ea e a s on o n s f or o r ce c e u s t o b el e l ie i e ve v e t ha h a t M &A & A i n t he h e I n d ia ia n Banking Sector is an imperative. We list them down below:
F ra r a g m en e n ta t a ti t i on o n p os o s es e s i nc n c r e as a s in i n g r is i s k i n t he h e I n d ia i a n B a n k i ng ng Sector. During the financial period 2001-2005, only four banks h a v e b ee e e n a b l e t o c ro r o ss s s t he h e m ar a r ke k e t c ap a p it i t al a l iz i z a t io i o n o f R s. s. 5 0 b il i l li l i on o n i nc n c lu l u d e d B a n k o f B a r od o d a , H DF D F C B a n k , I CI C I CI C I B a n k , a nd nd S t at a t e B a nk n k o f I n di d i a . C o ns n s i de d e ra r a b le l e f r ag a g m en e n t at a t i on o n e x is is t s i n t h e Banking sector for banks with market capitalization of less than Rs. 50 billion. Moreover the created value is moving away from t he he t o op p 5 b an a n ks k s t hu h u s i nd n d ic i c a t in i n g f ra r a gm g m en e n ta t a ti ti o on n i nd n d ee e e d h as as increased over the period of last five years. Shown below are the deposit shares of the Banks operating in India over the period 2 00 0 0 00 - 20 2 0 0 4. 4 . D at a t a w a s d ra r a w n f ro r o m a ro r o u nd n d 4 5 b an a n ks k s w hi hi c h i n cl c l u de d e d s t at at e e-- c on o n t ro r o l le l e d p u bl b l i c s e ct ct o orr b a nk n k s , p r iv i v a te t e s e ct ct o orr banks and even foreign banks operating in India. It is observed t ha ha t t h e s h ha a re r e o f t he h e t o p 5 p la l a y e r s h as a s e r o d ed ed a n d b e e n c o n s u me m e d b y t h e n e x t f i f t e en e n p l a ye y e r s . C o n s i d e r in in g t h a t t h e b a s e o f t o ta t a l d e p os o s i t s h a s b e e n c o n s i s t en e n t l y i n c r ea e a s i n g, g , c o n s eq e q u e n t ly ly t he h e v al a l ue u e i n d ep e p os o s it i t s g ai a i ne n e d b y t he h e n ex e x t 1 5 b a n ks k s h as a s b ee ee n tremendous (see table below).
Similar trends are observed in profit after tax, borrowings and interest and non interest incomes of the banks, thereby hinting at increased levels of fragmentation in the top 20 banks. Though this could be the sign of a competitive bank market with healthy b a n k s r e m a i n in i n g i n t h e m a r k et e t t h e g o a l o f g l o b al a l l y c o m p e te te n t b a n k s w ou o u ld l d b e m is i s s ed e d . I n o th t h er e r w or o r ds d s , w hi h i le l e a f ra r a gm g m en e n te te d I n d ia i a n b a n k i ng n g s tr t r uc u c tu t u r e m ay a y v er e r y w el e l l b e b en e n ef e f ic i c ia i a l t o t he he c u s to t o me m e r s ( g iv i v en e n i n cr c r e as a s e d c o mp m p e ti t i t io i o n d u e t o l ow ow e r m a arr k et et power of existing players), at the same time this also creates the problem of no player having the critical mass to play the game at t he h e g lo l o ba b a l b an a n ki k i ng n g i nd n d us u s ttrr y l ev e v e l. l . T hi h i s h as as t o b e l o oo o ke ke d a t s i gn g n i fi f i c an a n t ly l y f r om o m t h e s t at at e e’’ s l o ng n g - te t e r m s t ra r a te t e g ic i c p er e r s p ec e c t iv i v e. e.
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F ur u r t h er e r m or o r e , i t i s o b s er e r v ed e d t h at a t i n a n i n cr c r ea e a s in i n g c o mp m p e ti t i t iv iv e arena the smaller fragmented banks with no economies of scale, low capabilities to manage risks and poor market power at times end up taking excessive risks resulting in irreparable loss to their d ep e p os o s iitt o rs r s . T hi h i s a ls l s o r e su s u lt l t s i n a ff f f ec e c ti t i ng n g t he h e s tta a te t e a nd n d i ts ts r e g u l a t o r ’ s i . e . , c e n t r a l b a n k n e g a t i v e l y . T a ke ke t h e f o l l o w i n g c a s e s of trouble in the recent past: a. Global Trust Bank: Significant exposure to high risk mid size c or o r p or o r a te t e s a nd n d a n e x c es e s si s i ve v e e x po p o su s u r e t o c ap a p it i t al a l m a rk rk e t operations. b. Madhavpura Mercantile Co-operative Bank: Nineteen customers had unsecured loans of more than Rs. 10 billion . c . S o u t h I n d i a n C o - o p e r a t i v e B a n k : N o n P e r f o r m i n g A s s e t s ( N P As As ) from excessive lending to small group of clients d. Nedungadi Bank: This bank based in Southern part of India had significant exposure to p la l a nt n t at a t io i o n i nd n d us u s ttrr y a nd n d h ad a d w e ak a k c re r e di d i t r is i s k m a na n a ge g e me m e nt nt systems and processes. Further recent cases (in 2005-06) of two banks in India namely United Western Bank and Sangli Bank became attractive targets f o r a c qu q u i si s i t io i o n b y p r iv i v at a t e s e ct ct o orr b a nk n k s b e ca c a u se s e o f t h ei e i r r iiss k p ro r o ffii le l e . T he h e m e rg r g er e r w it i t h t he h e se s e l ar a r ge g e r b an a n ks k s i s e xxp p ec e c te te d t o i m pr p r ov o v e t h e a s se s e t p r of o f i le l e , N PA PA m a an n a ge g e me m e n t a n d p ro r o te te c t t h e depositors at the same time offer the acquiring private sector banks further reach in terms of branches and customer base.
How Would Consolidation Consolidation Help Indian Banks? A bigger player can afford to invest in requisite technology and play globally to take advantage of global opportunities Because for going global a bank needs to upgrade its technology, MIS, “systems & processes” and strategies,. to compete effectively and “M & A” could facilitate this. The confidence of international investors in Indian banks has increased manifold in recent times and this offers our banking sector a good opportunity to restructure itself
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A s ma m a ll l l a n a ly l y s is i s o f p er e r f or o r ma m a n c e o f t he h e b an a n k s ec e c to t o r a n d t he he e q ui u i t y m a r ke k e t b en e n c h ma m a r k i n d e x i n I n di d i a a n d U S A s h o w ed ed t h e following results:
The above table clearly indicates that the banking portfolio in US is as risky as the composite portfolio which is not the case in India. Though the returns are more in India the risk is also higher a s s h o wn w n b y t h e s t a n da d a r d d e v i a ti t i o n . A r e p or o r t a s e a r l y a s A u g us us t 1991 recognized the trend in shareholder returns in the US and hence was one of the reasons for the bank M&A wave in the USA Benefits to the customers: Benefits to customers can be seen in a number of ways. One such w a y b e i n g l o w e r in i n g i n t h e i n t e r me m e d i at at i o n c o s t s . A 1 0 y e a r t r e n d in the intermediation costs as a percentage of Total assets in Indian Banks shows that the Indian private sector banks have the least intermediation costs as a percentage of total assets (see g r a p h b e l o w ). ) . D u r in i n g t h i s t i m e f r a me m e , a s i g n if i f i c a nt n t d e c re re a s i n g trend can also be observed in the Private Sector banks of India in t he h e d ec e c a de d e . B e i ng n g n on o n f r a gm g m en e n te t e d t he h e y c o u ld l d c la l a im i m g re r e at a t er er e f f i c i e n c y a n d h e n c e l o w e r i n t e r me me d i a t i o n c o s t s .
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S u pp p p o rt r t i ng n g i n st s t i tu t u t io i o n al a l a n d r e gu g u l at at o orr y f r am a m ew e w o rk r k i n I n di di a i s v it i t al a l f or o r d o m es e s ti t i c b a n k s a sp s p ir i r in i n g f or o r g lo l o ba b a l o pe p e ra r a ti t i on o n s. s . T he he Central Bank i.e., the Reserve Bank of India (RBI) has suitably c h a n g e d t h e c o u n t r y ’ s r e g u l a t o r y f r a m e w o rk rk f r o m t i m e t o t i m e t o support Indian financial institutions to withstand the competitive p r es e s s ur u r e s p l ac a c e d o n t h em e m b y i n cr c r e as a s i ng n g g l ob o b a li l i z at a t i on on . P r o op per steps have been taken to guide the banking sector to see that the b a n k s p a s s t h r o u g h t h i s t r a n s it it i o n p h a s e b y a n d l a r g e s uc u c ce c e ss s s fu f u ll l l y. y . W it i t h t he h e R BI B I r eg e g ul u l at a t in i n g t he h e C ap a p it i t al a l t o R iiss kkWeighted Asset Ratio (CRAR) at 9%, a percent above the Basel II CRAR, going forward many banks would not be able to meet these r e q u ir i r e m en e n t s a n d m a y h a v e t o g o t h r ou o u g h r e s t r u c t ur u r i n g i n o r d er er t o m ee e e t t h e r e gu g u l at at o orr y r e qu q u i re r e me m e n ts t s . F ur u r t he h e r mo m o r e t h er er e a r e a n u m be b e r o f b a n ks k s i n I nd n d ia i a w ho h o se s e g ro r o wt w t h i s r es e s t ri r i ct c t ed e d d ue ue t o u na n a v a il i l a bi b i l it i t y o f c ap a p i ta t a l. l . T he h e s e b an a n k s h av a v e a s iig g ni n i fi f i c an an t d e p o si s i t or o r b a s e b u t t h e m a r k et e t p e rc r c e p t io i o n d o e s n o t e n a b le le t h e m to raise further funds. Hence such banks also become potential targets of acquisition.
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The reforms initiated in the banking sector have now reached a crucial stage. Government’s stake in many Public Sector Banks ( P S B s ) h a s g o n e d o w n a n d a s a c o n s e q u e n ce c e o t h e r s h a r e h o ld ld e r s e qu q u it it y o w wn n er e r sh s h ip i p i n t he h e se s e P SB S B s h as a s g on o n e u p. p . T hi h i s l ea e a ds ds t o g r e a te t e r r e s po p o n s i bi b i l i t y o n t h e b a n k m a n a ge g e m e nt n t s s i n c e t h e l e ve ve l o f a c c o u nt n t a b il i l i t y h a s i n c r ea e a s e d . P r e s s u r es e s o f p e r f or o r m a nc nc e a n d p r o f it i t a b i li l i t y w i l l k e e p t h e P S B s o n t h e ir ir t o e s a l l t h e t i m e a s t h e p u bl b l i c s h ar a r e ho h o l de d e r s e xxp p e ct ct g o o od d f i na n a n ci c i a l p e rf r f or o r m an a n c e a l on on g w it i t h g oo o o d r et e t ur u r ns n s o n t he h e ir i r e qu q u it i t y. y . M an a n y P SB S B s h av a v e a lr l r ea e a dy dy started the exercise of cleaning up of their balance sheets by shedding the excess baggage. The Voluntary Retirement Scheme (VRS) in the recent past in s ome of the banks was aimed not only a t d o w n s i z in i n g t h e m a n po p o w e r b u t a l s o a t c u t t in in g d o w n t h e f u t u r e s t a f f c o s t s a n d i n c r e a si s i n g t h e p e r f or o r m a nc nc e l e v e l s o f t h e s t a f f i n the long run. Some of these PSB banks are able to run the show to a certain extent by low cost funds that are available thanks to the branch network spread over the length and breadth of the c o un u n t r y. y . M & A a c ti t i v it i t y w i ll l l f u r th t h e r b o os o s t t h is i s p r oc o c e ss s s f o r m a ny ny o t h e r b a n k s t h a t c a n n o t g o t h r o u g h t h i s e x e r c i s e i n d i v id id u a l l y a n d need larger partners to exe ec c u t e t h e m i n t e rm r m s o f p r oc oc e s s e s a n d resources.
R e c e nt n t s t u d ie i e s h a ve v e e s t a bl b l i s h ed ed t h a t i f m e r g ge e r a n d a c q u i s i t i on on s in banks if allowed in a controlled manner would significantly r ed e d u c e t he h e b an a n k r up u p tc t c y r is i s k o f t he h e m er e r ge g e d e nt n t it i t y. y . O bv b v io i o us u s ly ly, m er e r ge g e r s w ou o u ld l d a ls l s o p ro r o vi v i de d e t he h e se s e b en e n e f it i t s t o b a n ks k s i n I n d ia ia reducing their bankruptcy concerns.
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Mergers and Acquisitions or Restructuring may also help banks improve in three other areas as listed below: 1. An acquirer would c a pa p a bi b i li l i ti t i es e s t o i mp m p ro r o ve v e t he h e c o l le l e ct c t io i o ns n s , s er e r v ic ic e distribution, infrastructure and IT of the target bank
have the p ro r o ce c e ss s s es es ,
2. A n a bi b i li l i ty t y t o g ro r o w p ro r o du d u ct c t s a nd nd s eg e g me m e nt n t s a nd n d a n o pp p p or o r tu t u ni n i ty t y t o c ro r o ss s s s el el l w o ou u ld l d e nh n h an a n ce ce r e ve v e n u e. e . T h i s c o u l d a l s o r e s u lt l t i n m o r e g e o g ra r a p h ic ic g r o ow wth could also be obtained. 3. Treasury performance would be improved a s t h e c o s t o f f u n d s w o u ld l d r e d uc u c e ( h e n c e , i m p r ov o v e s p r e a d) d) a s i t would have a better credit rating. A bank would also be able to leverage scale and improve its trading income.
Two prime reasons force us to believe that M&A in the Indian Banking Sector is an opportunity.
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A recent trend is to promote the concept of a financial super m a r ke k e t c h a i n , m a k in i n g a v ai a i l a b le l e a l l t y p e s o f c r e d it it a n d n o n - f u n d f a c il i l i ti t i e s u n de d e r o n e r o of o f u n de d e r o n e u m br b r e ll l l a o r ga g a n iz i z a ti ti o n ( o r through specialized subsidiaries). An example of such a financial supermarket would be the reverse m er e r ge g e r o f I CI C I CI C I a n d I C I CI C I B an a n k . I CI C I CI C I B an a n k t od o d ay a y s ta t a nd nd s a s India’s second largest bank offering its clients both in India and overseas a product range as varied us retail banking products to exotic investment banking and treasury solutions. Similarly, IDBI a n d I D B I B a n k t r e ad a d e d t h e s a m e r o u te t e . T h o u g h o n e h a s t o s t a te te t h a t c o n s o li l i d a te t e d a c c o u nt n t i n g a n d s u p e r vi v i s o r y t e c hn h n i q u es e s w o u ld ld h a ve v e t o e vo v o l ve v e a n d a p pr p r op o p r ia i a t e f i re r e w a ll l l s b u il i l t t o a d dr d r es es s t h e r i s ks ks underlying s uc uc h large organizations and banking conglomerates.
New entrants in the banking sector are armed with technological expertise while older players are well equipped with experience i n p ra r a ct c t ic i c es e s . M er e r ge g e rs rs w o ou u ld l d t hu h u s h el e l p b ot o t h p ar a r ti t i es e s g ai ai n a n expertise in areas in which they lack. In India, the retail banking m ar a r ke k e t b ia i a se se d t o ow w ar a r ds d s t he h e u rb r b an a n m a rk r k et e t s i s g ro ro w wii ng ng a t a Compounded Annual Growth Rate (CAGR) of almost 18-20% while the rural market is yet to be fully tapped. Keeping in focus the p o p u l at a t io i o n p ro r o fi f i le l e , t ec e c h no n o lo l o gy g y w ou o u ld l d b e a m aj a j or o r e na n a b l er e r f or or banking in the future. A number of state owned banks in India are adopting sophisticated core banking solutions and these are j us u s t t he h e l ar a r ge g e r o ne n e s. s . F or o r s ma m a ll l l er e r b a n ks k s t o a d o pt p t t ec e c h no n o lo l o gy gy platforms the expenditure may not be sustainable and hence this m a y b e o ne n e m o re r e r e a sso on fo r M & &A A . G ro r o w in i n g i nt n t e g ra r a t io io n o f economies and the markets around the world is making global b a n k i ng n g a r e a li l i t y. y . T h e s u r g e i n g l o ba b a l i z a ti t i o n o f f i n an an c e h a s a l s o g a i n ed e d m o me m e n t u m w i t h t h e t e c h no n o l o g ic i c a l a d va v a n c e me me n t s w h i c h have effectively overcome the national borders in the financial s e r v i ce c e s b u s i n es e s s . W i d es e s p r e ad a d u s e o f i n te t e r n et e t b a n k in i n g , m o b il il e b a nk n k i ng n g , a n d o t he h e r m o de d e rn rn t e ec c h n ol o l o gi g i e s ( s uc u c h a s S WI W I F T) T) h a s w i de d e n ed e d f r on o n t ie i e r s o f g l ob o b a l b a nk n k i ng n g , a n d i t i s n o w p o s s ib ib l e t o market financial products and services on a global basis. I n t he h e c om o m i ng ng y e ea a rs r s g lo l o ba b a li l i za z a ti ti o on n wo ou u ld l d s pr p r ea e a d f ur u r th t h er er o n account of the likely opening up of financial services under W TO. India is one of the signatories of Financial Services Agreement (FSA) of1997. This gives India’s financial sector including banks an opportunity to expand their business on a quid pro quo basis. An eas y way for this is thus to go through adequate reconstruction to acquire the necessary technology and get an early mover advantage in globalizing the Indian Banks.
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One more reason for M&A which has sprung up in the recent years is Indian Banks seeking international presence. In the last t wo w o d ec e c a d es e s , t he h e re r e h as a s b ee e e n a j um u m p i n t he h e I nd n d ia i a n d ia i a sp sp or a working abroad. A new recent trend is the increase in the interest o f f o re r e i g n e x p a t s t o w o r k i n I n d i a. a . B o t h t h e s e c o m m un u n i t i es es s e e k b a nk n k i ng n g p ro r o d uc u c t s i n r e mi m i tt t t a nc n c e s a n d o th t h e r c r os o s s b o rd r d e r r et e t a il il products. Further firms are looking for funds overseas for various p u rp r p o se s e s r a ng n g i ng n g f r om o m c a pi p i t al a l e xxp p e nd n d i tu t u r e t o l ev e v er e r a ge ge d M & A f in i n a n c i n g. g . H en e n c e, e , I nd n d ia i a n b an a n k s a re r e s et e t ti t i ng n g u p b ra r a n c h es e s a nd nd s u bs b s i di d i a ri r i es e s o ve v e r s ea e a s a n d f o re r e i gn g n b a nk n k s a r e e xxp p a nd n d i ng n g t h ei ei r operations in India. These bank branches (set up abroad) further t a rg r g et e t t h e l o ca c a l p o pu p u l at a t i on o n t o b e p ro r o f it i t a bl b l e a n d h e nc n c e t a rg rg e t local acquisitions. Evidently, this results in an M&A opportunity f or o r F or o r ei e i gn g n B a n k s t o a c qu q u ir i r e a n I nd n d ia i a n B a n k a nd n d a ls l s o I nd n d ia ia n B a nk n k s t o a c qu q u i re r e f o re r e i gn g n b a nk nk s . F o orr e xxa am mp p l e, e , I C IC I C I B a nk nk h a s made an acquisition of a bank in Europe in 2006 to establish itself in a geographical area.
T he h e I n d ia i a n M &A & A e nv n v ir i r on o n me m e nt n t i s a s tr t r on o n g l y r eg e g ul u l at a t ed ed following major pieces of legislation/bodies:
− − −
The The The Act,
b y t he he
Companies Act, 1956 Takeovers Code, 1997 Monopolies and Restrictive Trade Practices 1969 -9-
− The − The − The − The •
Foreign Exchange Management Act, 1999 Foreign Investment Promotion Board (FIPB) Reserve Bank of India Income Tax Act, 1961
M e r g er e r s , a m a lg l g a m a ti t i o n s , d e - me m e r g e rs r s , a c q u is i s i t i on on s o f b u si s i n es e s s u n it i t s o r d i vi v i s io i o n s, s , a r e a l l g o ve v e r ne ne d b y T h e C o m p a n i e s A c t f o r a l l r e g i s t e r ed ed c o m p a n i e s
• •
A c qu q u i si s i t io i o n o f s h ar a r e s i n l i st st e ed d I n di d i a n c o mp m p a ni ni e s i s g o v e r n e d b y T h e T a k e o v e r C o d e , 1 9 9 7. 7.
SBS is the smallest of the seven associates. The other associates a r e S t a t e B a n k o f T ra r a v an a n c o r e, e , S t a te t e B a n k o f M y s o r e, e , S t a te te B a n k of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore and State Bank of Patiala. S BS B S h as a s 4 60 6 0 b ra r a n c h es e s a n d t he h e m er e r ge g e r w ou o u ld l d h el e l p e li l i mi m i na n a te te duplication of branches in the same area. Its net profit rose 45 per cent to Rs 87.4 crore in 2006-07. The bank has paid-up equity
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capital of Rs 314 crore. The total deposits stood at Rs 15,804 c ro r o r e w h i l e t o t a l a d v a n c es e s w e r e a t R s 1 1 ,0 ,081 c ror e. T he h e m er e r ge ge r w o ou u ld l d h el e l p S BI B I c on o n so s o llii da d a te t e i ts t s p os o s iitt io i o n a s t he he country's biggest bank and widen the gap with nearest rival ICICI B a n k . W i t h 9 , 5 7 9 b r a n c h e s , S B I h a s t o ta ta l a s s e t s o f R s 5 , 6 6 , 5 6 5 c r o r e a n d p o s t ed e d a n e t p r o f it it o f R s 4 , 5 4 1 c r o r e a s o n M a r c h 3 1 , 2007. ICICI Bank had assets of Rs 3,44,658 crore and posted a net profit of Rs 3,110 crore in 2 0 0 6 - 0 7. The merger comes at time when the bank has decided to go in for big expansion. The bank is also looking at freeing up capital by s e tt t t i ng n g u p a h o ld l d i ng n g c o mp m p a ny n y f o r i t s l i fe f e i n su s u r an an c e a n d a s s e t m a na n a g em e m en e n t b u si s i n es e s s es e s . S B I’ I ’ s m ov o v e t o m er e r g e i t s a r ms m s c o ul ul d p a ve v e t h e w ay a y f o r f u r t h er e r c o ns n s o li l i d at a t i on o n i n t h e i n du d u s tr t r y, y , w h ic ic h faces imminent competition from foreign banks from 2009.
Merger of State Bank of Saurashtra with SBI would enable it to up-scale in terms of footprint, manpower and other resources. It would also enable it to face c ompetition arising from globalization of the economy, apart from augmenting efficiency a nd n d e n ab a b li l i ng n g b e t te t e r m a na n a ge ge m e n ntt o f r iis s k . S t at a t e B an an k o f Saurashtra is the smallest of its associate banks and operates in regions where SBI does not have a large pres enc e.
W el e l l s F a r go g o & C o mp m p a ny n y i s a f i na n a n ci c i a l h o l d in i n g c o mp m p a ny ny a n d a b a n k h ol o l di d i ng n g c o m pa p a ny n y . I t i s a d iv i v er e r s if i f ie i e d f in i n a n c i al a l s er e r v ic ic e s c o m p an a n y. y . I t p r ov o v i d es e s r e t a il il , c o m m me e r c ia i a l a n d c o r p or o r a te t e b a n k in in g s e r vvii c es e s t h ro r o u gh g h b a nk n k i ng n g s tto ore ess l o ca c a te t e d i n 2 3 s t at at e ess : A la l a s ka ka , Arizona, California, Colorado, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, N or o r tth h D a ko ko t a , O h hii o, o , O re r e go g o n, n , S ou o u th t h D ak a k o t a, a , T e x a s , U t ah ah , Washington, Wisconsin and Wyoming. It provides other financial s e r v i ce c e s t h ro r o u g h s ub u b s i d i ar a r i es e s e n g a g ed e d i n va v a r i o us us b u s i ne ne s s e s , p r i nc n c ip i p a l ly l y w ho h o le l e sa s a le l e b a n k i ng n g , m or o r t ga g a ge g e b an a n k i ng n g , c o n su s u me me r f i na n a n ce c e , e q ui u i p me m e n t l e as a s i ng n g , a g ri r i c ul u l t ur u r a l f i na n a n ce c e , c o mm m m e rc r c i al al
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finance, securities brokerage and investment banking, insurance a g e n c y a n d b r o ke k e r a g e s e r v i c e s, s , c o m pu p u t er e r a n d d a t a p r o c e s s in in g services, trust services, investment advisory services and venture c a p it i t a l i n ve v e s tm t m en e n t . I t o p er e r a te t e s i n t h re r e e s e gm g m en e n t s: s : C o mm m m u ni ni t y Banking, Wholesale Banking and Wells Fargo Financial.
Wachovia Corporation (Wachovia) is a financial holding company and a bank holding company. It provides commercial and retail banking, and trust services through fullservice banking offices in A l a b am a m a , A r i z on o n a , C a l i fo f o r n ia i a , C o l or o r a d o , C o n n ec e c t i c u t, t , D e l aw a w a r e, e, Florida, Georgia, Illinois, Kansas, Maryland, Mississippi, Nevada, N ew e w J er e r s e y, y , N ew e w Y o rk r k , N or o r t h C a r ol o l in i n a , P en e n n s y lv l v an a n ia i a , S ou o u th th Carolina, Tennessee, Texas, Virginia and Washington, D.C. It also p r ov o v i de d e s v ar a r i ou o u s o th t h e r f i na n a n ci c i a l s e r vvii c es e s , i n cl c l u di d i n g m or o r t ga ga g e banking, investment banking, investment advisory, home equity l e n d in i n g , a s s e tt - b a s ed e d l e n d in i n g , l e a s in i n g , i n s u ra r a n c e , i n t er e r n a ti ti o n a l a n d s e cu c u r it i t i es e s b r ok o k er e r a ge g e s e r vvii c es e s , t h ro r o u gh g h o t he h e r s u bs b s i di d i a ri r i e s. s. The Company?s retail securities brokerage business is conducted t h r ou o u g h W ac a c h o v ia i a S e c u ri r i t i es e s , L L C , a n d o p e ra r a t es e s i n 4 9 s t a te te s . I n O c to t o be b e r 2 00 0 0 7, 7 , W a c h ov o v ia i a c o m pl p l et e t ed e d t he h e a c q u i si s i ti t i on o n o f A . G. G. Edwards, Inc. In February 2007, the Company acquired a majority interest in European Credit Management Ltd.
W e ll l l s f a r g o & c o t h e b i g g e s t U S b a n k o n t h e w e s t c o a s t, t , a g r ee ee d to buy of Wachovia corp for about $15.1 bn in stock, trumping C i t i g r o u p ’ s o f f e r f o r e m b a t t l e d N o r t h C a r o l i n a l e n d e r. r. This deal would be executed entirely by Wells Fargo without help of US unlike citigroup’s offer which relied on financial backing from the Federal Deposit Insurance Corp. RATE OF RETURN W e ll l l F a rg r g o s ai a i d i t w il i l l a cq c q u i re r e a ll l l o f W a c ho h o vi v i a’ a ’ s b us u s in i n es e s s es es p r ef e f e rr r r ed e d e q ui u i t y a n d b a nk n k i ng n g d e po p o s it i t s . B a nk n k c l ai a i me m e d t h at at t h e acquisition will add to earnings per share by the third year after completion and should produce internal rate of return of at least 15 %.
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Buying Wachovia is a detour from the strategy was outlined by W e ll l l s F a rg r g o . A f t er e r a c q u i ri r i n g W a c ho h o v iia a W e ll l l s F a rg r g o w o u ld ld h a v e $ 1 .4 . 4 2 t ri r i ll l l io i o n i n a ss s s et e t s, s , $ 78 7 8 7 b il i l li l i on o n i n d ep e p os o s it i t s a n d 1 07 07 6 1 branches.
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