Exam 19: Acquisitions and Mergers in Financial-Services Management

Mergers with anticompetitive effects can only be approved at the federal level if one of the banks involved is failing.

Suppose there are four banks in a local community.Each of these banks has 25 percent of the deposits in this community.What is the Herfindahl-Hirschman Index (HHI)for this community?

A(n)______________________ takeover is a merger which is resisted by the existing management and stockholders.

A proposed merger between two or more banks must be ratified by the board of directors of each bank involved,followed by the management of each of the banks,and then all the shareholders of all the banks.The merger can proceed thereafter once regulators' approval is received.

Under the terms of the Bank Merger Act,each federal agency must give top priority to the competitive effects of a proposed merger.

One of the major reasons behind the rapid growth of mergers in recent years is that stockholders expect the profit potential to increase once the merger is completed.

Under the purchase-of-stock method,the acquired bank ceases to exist as a separate corporation.

According to FASB,goodwill must now be amortized over its useful life.

The Herfindahl-Hirschman Index is a measure of:

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.What is the exchange ratio for this transaction?

Dorchester County has the following five banks in its market area: Bank Total Assets First National Bank, NA \ 1,500 million Dorehester County Bank \ 750 million First State Bank \ 500 million Summerfield Bank \ 250 million Charlestown Bank \ 250 million All Banks \ 3,250 million -What is the Herfindahl-Hirschman Index for this market area?

The European Commission has emerged as a key arbiter for mergers involving European businesses.The commission is principally against the doctrine of _________________.

In the ____________________________ method of acquisition,a bank assumes all of the assets and liabilities of the other bank which ceases to exist.

_________________ is a danger faced by the stockholders of an acquiring firm in a merger if excessive numbers of new shares are issued relative to the value of their old shares.

If a bank with a higher stock price-to-earnings ratio acquires a bank with a lower price-earnings ratio,earnings per share of the combined organization will increase,even if combined earnings fall after the merger.

In the United States,regulations require bank merger premiums to range between 150 to 250 percent.

The federal agency that is the merging banks' principal supervisor must review the banks' record to determine if they have made an affirmative effort to serve all segments of the population in their trade area without any discrimination.This assessment is required under the terms of:

Dorchester County has the following five banks in its market area: Bank Total Assets First National Bank, NA \ 1,500 million Dorehester County Bank \ 750 million First State Bank \ 500 million Summerfield Bank \ 250 million Charlestown Bank \ 250 million All Banks \ 3,250 million -There are 10 banks in a particular market area all with a market share of 10 percent.What is the Herfindahl-Hirschman Index for this market area?

The _____________________ Act requires each merging bank to seek approval from its principal federal regulating agency before a merger can take place.

One of the most common motives for large banks to acquire smaller banks is to gain access to capable new management which is always in short supply at larger institutions.