BRAXXON News - Mergers are back in fashion
Santander Central Hispano looks close to being in a position to acquire Abbey now that the EU has approved the deal and importantly, HBOS has withdrawn from the fray. While SCH has taken a shine to Abbey, who already have retail banking outlets in Spain, Barclays has focussed its attentions on the Republic of South Africa and ABSA Group. Barclays returned to South Africa in the mid-nineties and has since established a presence in many other African countries besides.
Abbey would give SCH a foothold in the UK market and it can reasonably be expected that the merger should prove fruitful. Meanwhile, ABSA Group is the largest retail bank in South Africa with approaching 700 retail branches. It is reported that this merger could increase Barclays' African earnings by as much as 50%. But interestingly, both Abbey and ABSA have thriving wholesale banking operations in London and Johannesburg respectively. Whilst it is unlikely that there would be significant duplication of retail branches in either merger it is definitely the case that wholesale activities, and particularly Operations, could overlap.
On a broader and more general front, where mergers are concerned the need to optimise efficiency is always present and certainly economies of scale are taken into account. Inevitably there is a need to consolidate. This often means significant changes to procedures, processes, systems and controls and introduces large scale risk. So what are the risks? Operational, project and reputation risk come readily to mind. The challenge, of course, is to complete consolidation while increasing the quality of customer services and market share as well as achieving a reduction in operating costs. This is never easy at the best of times and in many instances there are also cultural differences to be taken into account. Change Management of the highest order is essential for success.