The Financial Services Blog

Once again a Canadian Bank, RBC, is buying US companies.  Last week RBC announced that they are purchasing a Washington brokerage firm, Ferris, Baker Watts inc. while they are still in the process of buying Alabama National Bancorp to bolster their retail position in the south eastern United States.

With restrictions on growth in their home market the big Canadian Banks find the best path to growth is south of the border. 

Whenever these acquisitions take place it is essential to merge operations and share customer information quickly to deliver the best service to existing and potential customers.  This could be an unsettling time for a customer and an opportunity for them to shop around but good, clear and timely communication is the best way to retain customers during a merger or acquisition.  It could even lead to a stronger relationship with more selling opportunities.  You can read our ideas here, but what has your experience been?

The latest news suggests that Bank of America may buy Countrywide, at least they are in talks about a possible merger.  In the last 12 months Countrywide has lost over 85% of its value as its share price has fallen from $42 in January 2007 to just over $5 yesterday.  This gave Countrywide a market cap. of about two and a half billion dollars, little more than Bank of America invested back in the summer of 2007.  Countrywide has rebounded on the news of takeover talks but the whole story raises the question, how many more mergers are about to happen?

If they do, and I think it’s very likely, then to merge operations effectively the companies will need to look at the way they manage documents across their two organizations.  I read recently that the average document management costs for the top 10 mortgage lenders in the US was $86 million.  That is a lot of expenditure to control and manage.  Removing some of this document management cost is a great place to start when you want to add value to a newly merged organization.

Most of the leading financial services companies in the world have grown by acquisition.  Buying another institution can immediately increase revenue and profit and shareholder value can be increased further by eliminating duplication where operations from the two companies coincide.

Great savings can also be acieved by optimizing the infrastructure of the combined companies.  One example is consolidating document management services such as copying, printing, storage and distribution.  Xerox has helped many merging financial services companies to maximize these savings. Can you share any examples of how your company has realized savings in document management?

With all the problems in the mortgage and credit markets it has been easy to overlook the M&A activity that has been going on.  After a long struggle the RBS led consortium finally completed the largest ever takeover in the financial services industry, buying ABN Amro for just under $100Billion.  Bank of America had just bought ABN’s US subsidiary, La Salle Bank, and in October, Canada’s TD Bank bought American Commerce Bank for $8.5Billion.

All this activity is happening at a time when mergers were supposed to be declining because of the end of cheap credit.  But for the financial services industry the credit problems of the summer are going to make shares in some over exposed institutions appear very cheap.  Stan O’Neal’s resignation as CEO of Merrill Lynch was partly driven by his unauthorized discussion with Wachovia about a potential merger.  Maybe we will see a wave of takeovers in our industry, what do you think?

Consolidation in the banking industry is a constant theme but I expect to see the pace of mergers and acquisitions increase over the next few months.  Bank of America recently closed on their long planned purchase of La Salle Bank, bought from ABN/AMRO and TD Bank announced their agreement to purchase Commerce Bank just two days ago.

Business Week recently published an article asking the question “Is it Time for a New Corporate Buying Spree?”.  Their conclusion is that to maintain revenue growth many companies will be forced to make acquisitions as organic growth rates decline.  In the banking industry I expect this to be the case as there are many pressures building on them.  Share prices in the financial segment have trailed the market, profits have been hit by the summer’s credit crunch and the relative weakness of the dollar makes US banks vulnerable to takeover by foreign institutions. 

Pressure to reduce costs in order to help boost profits will encourage the banks to look to their IT services providers and partners to help them uncover and eliminate hidden costs.