Risk considerations with regard to mergers and acquisitions in banking

Abstract

Only a few of all the bank mergers and acquisitions that have been attempted recently, have realised. The reason for this is that general merger and acquisition principles are used, while restructuring in the banking sector must be treated as a special case. This is because of the regulatory framework that prevails in banks, but more importantly, because of the particular way in which strategic risk management is practised in banks. The general merger and acquisition principles, applicable to corporates, must thus be integrated into this regulatory and strategic risk management framework, to make it possible to consider a bank merger or acquisition decision from a strategic risk management viewpoint. The Asset and Liability Committee (ALCO) process can be seen as the strategic risk management process in banks. It is thus important to determine whether the strategic management process, as conducted through the ALCO processes of the relevant banks, is reconcilable and whether it can be combined into a new strategic management and strategic risk management process, in order for an acquisition to be planned and executed successfully. It is also important to consider cultural issues, because this helps in giving the bank a sense of direction.