Download Bank Mergers and Valuation: Understanding the Process and Factors and more Study notes Banking and Finance in PDF only on Docsity!
For busi skills. Ba marketin
In order environm environm
Macro le technolo
Micro en Porter’s
Micro En
Porter’s
ness develop ank marketin ng strategy a
to develop a ment. Banks ment.
evel environ ogical factors
nvironment model to ba
nvironment
s Competitiv
pment in a c ng starts with and identifie
an effective ’ environme
ment compr s, ecological
can be analy anks is given
: Porter’s Fi
e Strategy
Ba
ompetitive e h systematic s its custome
marketing p nt has three
rises of politi factors and
yzed using Po below.
ive Forces of
ank Marketi
environment marketing p ers and mark
lan banks ne dimensions
ical factors, e legal factors
orter’s mode
f Competitio
ng
t banks need plan. Banks’ m kets.
eed to under , macro leve
economic fac s.
el for compet
on
d to sharpen marketing pl
rstand and a el, micro leve
ctors, socio c
titive market
their market lan defines it
nalyze its el and interna
cultural facto
ts. The appli
ting ts
al
ors,
cation of
Analysis informat
The inte
Based o model a
The stra accepta
The mar promoti
Banks ca and bran
Modern net wor before a regulatio
Internal audit an policies
The obje utilizatio
s of internal e tion dissemi
ernal factors
n the analys s applicable
tegy chosen bility and fea
rketing mix f ion, place, pe
an apply bala nd.
banks have k of branche any calamity ons banks ha
audit has fo nd risk assess and checks a
ectives of int on of resourc
environment nation and it
can be addre
is of environ to banks is g
by the bank asibility.
or a service eople, proce
anced score
enormous f es. In view of or fraud tak ave to comp
our phases of sment audit. and balances
ternal audit a ces, evaluate
t of banks in ts customers
essed throug
nment banks given below.
k for its mark
industry like ess and visibi
card method
inancial reso f this there is kes place. To ulsorily unde
f developme Internal aud s initiated fo
are to facilita e internal con
cludes its em s.
gh the SWOT
can identify
keting plan is
banks includ lity.
d to assess it
Bank Audit
ources and h s a need to lo assure that ertake intern
nt namely tr dit mainly loo or effective fu
ate the achie ntrol system
mployees, fin
T analysis for
y appropriate
s to be justifi
des product
ts performan
ave greater c ook into the the operatio nal audit of t
raditional au oks at intern unctioning.
evement of b ms and proced
nancial streng
rmat.
e marketing s
ied for its su
/ service, pr
nce in marke
coverage of internal pro ons are carrie heir activitie
dit, convent nal arrangem
bank objectiv dures, safegu
gths, system
strategies. A
itability,
rice / cost,
ting of its se
business thr cesses and r ed out as per es.
ional audit, m ments, proced
ves, optimum uarding of as
ms,
Ansoff’s
rvices
rough its isks r
modern dures,
m ssets,
The obje achievin increase
Stewart’ financia
Stewart
Stewart’ increase
Evaluati
There ar model. T
Ba E (N E P E
S
12
1
1
1
For P
P
EPS
P
S
ER
ectives of ba ng scales of e ed market sh
’s model on l performanc
t’s Motivatin
’s marketing e in net oper
ion of merge
re three met The following
ank 1 acquire R = Exchange Number of sh PS = E / S E = (S x P) / PS (Earnings P = Price pe E = Earnings S = Number
12 1 12 1 12 1 12 1 1 2
2 1
12
P P
PE EPS
E
S
S S
PE E
S S E
S ER
PE
nk mergers a economy, eli hare.
mergers poi ce as well as
ng Forces
g forces ident ating profits
ers
thods of mer g illustration
es Bank 2 e ratio hares of Ban
/ E or P / EPS s per Share); r Share s r of Shares
12 1 2 2 1 2 1 12 1
1 2
S P
E
S ER
E
ER
PE
P
E E
B
are to expan minating com
nt out the m increased b
tify merger m for the bank
rger evaluati ns explain va
Mergers –
nk 1 given pe
S PE (Price Ea
1 2
1
E E
S
Bank Merger
nd operation mpetition, in
motivating fo orrowing ca
motivator wi ks after the m
on namely p luation proc
- Price Earni
er share of B
rnings Multi
rs
s, taking adv ncreased asse
rces for mer pacity and ta
thin the ban merger.
price earning ess under th
ing Model
ank 2)
ple)
vantage of ne et base, lend
gers in term ax benefits.
nking industr
s model, cas hese method
ew technolo ding capacity
s of increase
ry so that it r
sh model and s.
gy, y and
ed
esults in
d share
Docsity.com
For Bank 2 equating new value as equal to old value
S.No E S EPS PE P
Bank 1 400 200 2 10 20
Bank 2 400 100 2 20 80
S.No E S EPS PE P
Bank 1 400 200 2 10 20
Bank 2 400 100 2 20 80
1 12
1 12
ER PE
ER PE
^ ^
^ ^ ^
^ ^
2 12 2 2 12 2 2 12 12 2 (^12 1 2 ) 1 2 2 2 2 12 1 2 2 1 2 2 2 12 1 2 2 1 2 2 2 2 12 1 2 2 2 2 2 1
2 12 1 2 2 2 2 1 2 1 2 12 1 2 2 2
ER P P
P
P
ER
P
PE EPS
ER
PE E E P
S S ER ER
ER PE E E P S S ER
ER PE E E P S P S ER
ER PE E E P S ER P S
ER PE E E P S P S
P S
ER
PE E E P S
Merger ‐ Cash Model
12 1 2
2 12 12 1 2 2 12 12 1 12 1 2
Bank 1 Buys Bank 2
Gain of Merger
Cost of Merger or Purchase Premium
: Value of Merged Bank; : Value of Bank 1; : Value of Bank 2
: Benefit; : C
B V V V
C P V
NPV B C V V V P V
NPV V V P
V V V
B C
ost; P : Purchase Premium; NPV 12 : Net Present Value of Merged Bank
Merger ‐ Cash Model (Example)
1 2 12 12 1 2 2
12
Assumptions: 100; 50; 200; 60
Benefit from Merger 40; Benefit for Bank 1 30; Benefit for Bank 2 10
V V V P
B V V V C P V
B C
NPV B C
Merger – Share Model
12
1 12 2 12
1 2
1
1 12
IF 6; 20
Bank 1 does not benefit from the merger Bank 2 benefits from the merg
ER PE
ER PE ER
PE
ER ER
ER
ER
PE
er
1 2 12 1 2 1 2
1 2 2 1 1 2
Assumptions: 100; 50; 200; 60; 5; 10
: Shares held by Bank 1; : Shares held by Bank 2
: Price per Share of Bank 1; : Price per Share of Bank 2
V V V P N N
N N
P
S S ER S
S
S S
12 1 2 2
12
Benefit from Merger 40; Benefit for Bank 1 30; Benefit for Bank 2 10
B V V V C P V
B C
NPV B C
Acquiring bank’s choice of settlement of merger consideration could be on a cash basis wherein the merged entity assumes no risk as there is a complete change in the ownership in the bank. In case of settlement through shares, based on the terms of issue of new shares to the merged bank, the acquiring bank’s risk profile would vary.
International Banking
Increased global trade, increased international financial flows and cross country investments necessitates need for international banking operations. International banking operations may be carried through foreign correspondent arrangement, foreign agency, foreign subsidiary and foreign branch.
The choice of structure depends on types of business, volume of business, resource requirements, local legal formalities and regulatory requirements. A bank may expand its operations into overseas markets by acquiring anther bank or expanding its operations to a foreign country by setting up a branch. Setting up a foreign branch leads to greater capital flexibility, reduces cost of operations, provides access to world financial markets, gives operational flexibility and lowers transaction costs for the banks.
Growth of global banking will strengthen financial markets, increase efficiency through competitiveness, lead to deregulation of national financial markets, increase participation of balance sheet transactions, better risk management practices and improve service^ quality.
Questions
- Explain how marketing concepts can be applied in banking industry.
- Describe an effective marketing plan for a commercial bank.
- What are the factors to be considered for marketing innovative products and services of banks?
- Explain the importance of bank audit.
- What are the salient features of internal audit of a bank?
- Distinguish between traditional approach and modern approach of an internal audit of a bank.
- How does internal audit help in improving risk management in banks?
- What are the causes and benefits of bank mergers?
