Mergers and Acquisitions in the Bank Sector

B Mergers and Acquisitions

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Gerald Musger

Mergers and Acquisitions in the Bank Sector

• A flashlight on the European situation• Developments in a small country like Austria• Three Austrian examples: How to manage merger

problems• The EUROCADRES symposium of Brussels 2000:

The challenges for P&MS

• Discussion groups on the Cypriote situation: questions


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Gerald Musger

Accelerating mergers and acquisitions from 1995 to 2000

• Total bank M&A raises from 300 to more than 500• The majority of M&A were in domestic markets

(market clearence)• Up to 2000 less than 10% crossborder M&A in the

European Economy Area• Stagnation of domestic, increase of transnational

M&A in the last 2 years• Highest growth of M&A between EU and Third-

country banks (EU enlarging process...)


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Gerald Musger

Developments in the Austrian bank sector

• „Österreich ist eine kleine Welt, in der die große ihre Probe hält.“ (Austrian poet Franz Grillparzer)„Austria is a small world mirroring the big one.“

• A long tradition of strong domestic and local markets• A broad diversity of regionally, industry-focussed and

social-politically oriented banks, saving banks and cooperative banks with Austrian private or public ownership till the 90ies

• A 3 step development of mergers, takeovers and acquisitions changed the situation completely


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Gerald Musger

Development of the Austrian bank sector: The three steps

1. Concentration on the domestic finance market and partly withdrawal from industry engagement to avoid involvement into globalisation: banks keep their traditional core business and home markets

2. Accumulation of national bank capital through big mergers an takeovers in the 90ies

3. Takeovers or mergers of big and fusioned Austrian banks by huge German banks, takeover of the privatized postbank in the last few years


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Gerald Musger

Development of the Austrian bank sector: The situation now

• The sector, for a longer time behind global M&A trends, now in an accelerated process

• The most important Austrian banks dominated by big German bank concerns

• They keep the domestic market and play a new role in the strategic expansion into EU candidate countries (regional concept)

• Small and middlesized banks keep their spezialized fields, despite partly taken over

• Accelerated mergers cause severe problems


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Gerald Musger

Severe problems caused by mergers, takeovers and privatization

• Staff redundancies; competition or demotivation• Especially redundancies of managerial staff• Incompatibilities of company cultures • Incompatibilities of electronic or logistic systems• Incompatibilities of collective or company agreements

with the employees• Difficult merger of employees‘ representative bodies• Legal incompatibilities and lack of information

especially in crossborder mergers• Frictional loss instead of expected synergy


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Gerald Musger

Austrian examples: case studies

1. Erstebank – GiroCredit: a merger accompanied by outsourcing of some departments an insourcing of new elements

2. The merger processes leading to Austrians biggest bank Bank Austria and its takeover by the Bavarian Hypovereinsbank

3. A special case: The trade union and semi-Bavarian BAWAG takes over the privatized postbank


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Gerald Musger

1: Downsizing increases problems

• Incompatible data processing systems• Downsizing: golden handshakes for those who leave• But trend to bullying as means of carreer competition• Redundancy of managerial positions, enormous

stress for managerial staff and „white elephants“ walking around

• Big differences between company cultures even stronger than technical incompatibilities

• A new name of the company does not automativally create a new corporate identity


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Gerald Musger

1: Key items to keep in mind

• It is essential to reach one common structure of collective and individual rights; a two-rights system would keep merger problems alive for a long time...

• It is necessary to go the integration process consequently even if conflicts arise

• Beware of any temptation to press down any part of staff that looks weaker at the moment; it could destroy the integration climate

• Clear legal frameworks help to manage the change• Trade unions may play an advisory role• Mind: Not every new problem is caused by the

merger


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Gerald Musger

2: Bank Austria - the merger cascade

• 1980ies: The Viennese Zentralsparkasse buys a dozen saving banks; reconstruction

• 1991: The first big bank merger in Austria between Zentralsparkasse an Länderbank is a political sensation: Bank Austria is born

• 1997: The biggest bank merger ever in Austria: Nr. 1 and Nr. 2 merger

• 2000: The Bavarian Hypovereinsbank takes over the share majority of Bank Austria

• Bank Austria becomes part of the European regional strategy of the Hypovereinsbank


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Gerald Musger

2: Main aims in the actual situation

• To save the monetarian situation in a sensitive phase• To save the participation and influence of the works

council, especially in the Advisory Board• To save the culture of Austrian social partnership in

the relation to the German management• To realize a new alliance of staff, reps and managers

to save a good climate• To realize a new crossborder cooperation between

trade unions and within the European works council• Not to reactivate old fears and problems caused by

the mergers before


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Gerald Musger

3: BAWAG-PSK - a two worlds merger

• The cultures of the long tradition of state owned postbank with a majority staff of civil servants and that of the trade union owned and now semi-Bavarian are extremely different

• Works councils are asked to be responsible for the culture merger: a dangerous trap

• Works councils in both parts have power and influence: a hard temptation to play an active role in internal competition

• Managerial staff has different legal background and is concerned with a difficult integration process


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Gerald Musger

The EUROCADRES symposium of Brussels 2000: challenges for P&MS

The conclusions of EUROCADRES‘ symposium on mergers, takeovers and privatisation identified four key areas of essential importance for professional and managerial staff:

• Access to information• Access to the negotiation process• Establishing and access to a monitoring unit• Establishing an international network for exchange of

experiencein close cooperation with the employees‘ representative bodies / works councils


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Gerald Musger

Challenges for P&MS: Information and analysis essential on

• the employer‘s aims and strategies• the role and responsibilities of external consultants• important economic, technical and social data• the inpact on employment perspectives • the inpact on request or change of qualifications• the expected costs of the change process including

transparency who will pay for it• the responsibility and involvement of the managers

and staff representatives.


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Gerald Musger

Challenges for P&MS: The negotiation process should focus on

• the organisation and management model aimed• employment situation including possibilities for

placement, improving structures and skills• training and further qualification programmes to

match the challenges of the change• professional and geographic mobility as a new

chance to optimize the change, but with fair opportunities of choice

• changes in labour contracts and collective agreements


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Gerald Musger

Challenges for P&MS: Establishing a monitoring unit able to

• analyse the employment situation and seek solutions• examine management models and incompatibilities• provide impacts of collective agreements and labour

contracts• consider working conditions, workload, qualifications,

subcontracting etc.• carry out research on possible alternatives• set up asessment and appeal bodies• encourage transparency and access to information


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Gerald Musger

Challenges for P&MS: European networks and procedures

• Establishing good and early crossborder contacts between concerned P&MS, works councils and trade unions

• Exchange of experience to avoid starting from the very beginning every time again

• Ensuring respect for national cultures, procedures and European legislation on information and consultation

• Enlarging the European Commission‘s approval for mergers from mere competition to macroeconomic and social aspects


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Gerald Musger

Questions to debate the Cypriote situation

• How can the structure of the bank branch in Cyprus be characterized?

• What are the main trends or intentions concerning mergers?

• Which recent experiences with mergers, takeovers or privatisation may be useful in this context?

• Which are the questions and problems mentioned in the case studies that are most relevant for Cyprus?

• Which suggestions of the EUROCADRES symposium do you identify most important for you?

Documents

Mergers and Acquisitions in the Bank Sector