The problem with public weight gain and obesity in the US and Europe – much in the news these days – is that calls for legislation are becoming ever louder while the notion of self-control makes no appearance.
Peer pressure
In the same way, the current perception that banks on both continents lack the willpower to resist doing big deals bears thinking about.
Admittedly, there is the peer pressure of the JP Morgan Chase acquisition of Bank One, the general heating up of the M&A market and lots of extra dough in banks’ coffers.
According to a Merrill Lynch report, in 2003 the net profits of the European banking sector will have been equivalent to the GDP of Hungary – about E64bn – and will rise to E89bn by 2005.
But as Fred Goodwin, chief executive of Royal Bank of Scotland, pointed out when announcing record results of Ł6.16bn: “We do not need to make acquisitions. I will not be embarrassed if I see shareholders in a year’s time and we have not made acquisitions.”
This is not to say there is a lack of opportunities. It looks as though there might finally be a shake-out of the German banking scene this year, while there are many options in the dispersed US banking market. But add-on acquisitions are generally value-enhancing while mergers are quite another matter. Banks have learned some lessons over the last years, such as setting the bar reasonably high in terms of what return on capital an acquisition should meet.
No savings
Two recent examples come to mind. Citigroup and Deutsche Bank broke off their talks, one of the reasons being the impossibility of ensuring large enough cost savings to justify a deal. Meanwhile, Barclays Bank broke off its talks with Providian. The UK bank was unwilling to overpay for the $4bn US credit card company.
Self-discipline seems to be alive and well in the banking sector. Self-control is an ongoing matter, one that banks appear to have taken on board. Getting bigger isn’t necessarily the best strategy for banks or people.
