1. Bank Mergers (1990 – 2006) Determining the Drivers Behind the Mega-merger Wave

2. Overview  Bank mergers have decreased the number of banks from 16,000 to 8,000 starting from the early 1990’s  The top 10 firms’ market share increased from 22% to 46%  Three “super-power” bank holding companies have emerged (CitiGroup, Bank of America, and JP Morgan & Chase

3. Bank Competition …?  Have bank mergers decreased competition? (no, due to geographic expansion instead of local concentration)  BUT… new technology can change this  Now with electronic banking, larger firms can advertise more and attract more customers  What will happen to the small banker?

4. Mergers Playbook (Top 4)

5. Which BHC’s are the largest? Source: http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx

6. Banking Structure and Profitability In the upper banking tier, most banks are less than $100B in assets Three banks are larger than $1100B in assets – “super powers” Would you want to be the $10B bank or the $1100B bank? There is no clear profitability winner Which banking segment would you like to be?

7. Closer Look at Financial Performance Wide scatter among BHC’s less than $100B Few data points >$100B Although trend line slope is positive, it is not statistically significant No statistical conclusion Wide scatter among BHC’s less than $100B Few data points >$100B Although trend line slope is negative, it is not statistically significant No statistical conclusion

8. What about % Overheads? Another way to look at BHC performance is % overheads relative to BHC asset size Due to small number of data points in larger asset classes, trend line slope is not statistically significant BUT… it looks as if the mega- banks are at least equal to the smaller banks What does all of this mean?

9. Conclusions  Visual inspection reveals that ROE and ROA and similar between $100B and $1100B bank holding companies  Executive compensation tied to asset size of BHC  Larger BHC can diversify risk better  Why not merge banks?  Better executive compensation and lower potential risk…  Your opinion?