The Safety and Soundness Effects of Bank M&A in the EU

39 Pages Posted: 31 Jan 2011 Last revised: 4 Jul 2014

See all articles by Jens Hagendorff

Jens Hagendorff

University of Edinburgh - Business School

Maria Nieto

Banco de España

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department

Date Written: January 24, 2011

Abstract

This paper studies the impact of European bank mergers and acquisitions (M&A) on changes in key safety and soundness measures of both targets and acquirers.Our focus is on the short term impact after completion of the deal. We find a consistent, strong tendency towards post-merger mean reversion for the acquirer’s capital, liquidity and earnings two years after a deal. Further, we find evidence of weaker mean reversion for the target’s capitalization and liquidity over the same time period. We also find that European bank mergers strengthen target capitalizations at the expense of the acquirer’s capitalization. However, supervisory practices have a positive impact on merger-related changes in bank profitability and capitalization for both acquiring and target banks. Our results do not preclude other effects on capitalization, liquidity and profitability in the medium and long term as a result of managerial changes in strategy.

Keywords: banks, mergers, performance, capital, liquidity, Europe

JEL Classification: G21, G34, G28

Suggested Citation

Hagendorff, Jens and Nieto, Maria J. and Wall, Larry D., The Safety and Soundness Effects of Bank M&A in the EU (January 24, 2011). Available at SSRN: https://ssrn.com/abstract=1750082 or http://dx.doi.org/10.2139/ssrn.1750082

Jens Hagendorff (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
UNITED KINGDOM

Maria J. Nieto

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Larry D. Wall

Federal Reserve Bank of Atlanta - Research Department ( email )

1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8937 (Phone)
404-498-8956 (Fax)

HOME PAGE: http://www.frbatlanta.org/econ_rd/bios/wall.htm

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