Exam 19: Acquisitions and Mergers in Financial-Services Management

The First National Bank of Edmond wants to acquire the First State Bank of Oklahoma City.The management believes that this merger will enhance their reputation in the labor market because the new firm will be twice as big as what they are managing now.In addition,the First National Bank of Edmond has promised to pay $10,000,000 in compensation to the top managers of the First State Bank of Oklahoma City and help it cover any resulting tax liability.What motive for a merger does this most likely reflect?

Andover Bank is planning to purchase Berkley Bank.The current market value of Andover's stock is $55 per share while that of Berkley's stock is $15 per share.Andover plans to pay Berkley's stockholders a $5 bonus per share.Currently,Andover has 100,000 shares outstanding and earnings per share of $12,while Berkley has 50,000 shares outstanding and earnings per share of $5.Suppose the earnings of the combined bank do not increase over the total earnings of the two banks before the merger.In addition assume that the new bank will have 118,182 shares outstanding.What will be the earnings per share for the new bank?

Bank executives identify the most important factor in choosing a merger target as the ability of the merged bank to better accommodate their corporate customers.

A market served by just two banks,equal to each other in size,would have an HHI of 5,000.

The _________________________________ is a measure of the market concentration in a given market area.The larger this number,the more concentrated the market.

Suppose there are four banks in a local community.Each of these banks has 25 percent of the deposits in this community.According to the Department of Justice guidelines,this market is:

Under the terms of Bank Merger Act,federal regulating agencies must give top priority to the ______________________ of a proposed merger.

The approach in which the merger partners merely sum the volume of their assets,liabilities,and equity in the amounts recorded just before their merger takes place is known as the:

The degree of __________________ in a market is measured by the proportion of assets controlled by the largest institutions serving that market.In the banking industry,this is measured but the Herfindahl-Hirschman Index.

The 2007-2009 credit crunch resulted in numerous banks experiencing financial distress for which mergers and acquisitions were often the only option.

If a bank can show that the merger it proposes results in significant ______________________________,it may be able to overcome anticompetitive problems of the merger.This is the impact the merger has upon the convenience and service needs of the community.

The merger of Bank of America and Security Pacific in 1992 resulted in an expansion of branch offices for both banks.

A merger may increase a bank's expected future earnings or reduce its level of risk exposure by:

To most authorities,the recent upsurge in mergers reflects the expectation of the stockholders that the profit potential will _____________ once the merger is completed.

Suppose there are four banks in a local community.Each of these banks has 25 percent of the deposits in this community.Calculate the change in the Herfindahl-Hirschman Index (HHI)if two of these banks merge.

In order to get regulatory approval for a merger,many a times banks have been required to open up a number of new branch offices.

In the ______________________ method of acquisition,a bank purchases all or a portion of another bank's assets.

The First State Bank of Wyoming wants to acquire the Second National Bank of South Carolina.It wants to do this because the management feels that South Carolina faces very different economic conditions than Wyoming and that this acquisition will reduce variability in earnings in the future.What motive for a merger does this most likely reflect?

Some merger partners anticipate reduced earnings risk as a result of the merger.One reason for this may be that the merger opens up new markets with different economic characteristics.

One reason banks pursue mergers is for _____________________.This allows the bank to enter new markets and find new sources of revenue.