When one company gains control of another by buying the majority of its shares.
When two companies, often equal in size, combine to form one new company.
b) What word or words fit the other description above?
2. Discuss these questions.
a) What kinds of banks and financial institutions are there in your country?
b) Is there a trend in your country for smaller banks to merge or be taken over by larger ones?
A. Understanding main points
1. Mark these statements T (true) or F (false) according to the information in the text. Find the part of the text that gives the correct information.
a) In investment banking, it is important to be very big in order to be competitive.
b) Middle-sized banks may survive, but small ones have no chance.
c) Barclays, a UK bank, has increased its investment banking activities.
d) It is difficult for middle-sized banks to pay the high salaries demanded by stock traders.
e) Edward Crutchfield's comments were about retail banking.
f) Mergers between retail banks are mostly international.
g) There are more financial institutions in relation to the population in France than in the USA.
h) Irish banks need to become international if they want to expand.
i) In retail banking it is difficult to save costs by increasing size.
j) Credit card processing is cheaper when done on a large scale.
k) One of the biggest costs for banks nowadays is software development.
2. The article can be divided into two sections, each dealing with a different aspect. These are marked I and II in the text. What is each section about?
3. Find three kinds of bank which are mentioned in the article.
Survival of the biggest
A wave of M&A has reshaped the industry, but stuck largely to national deals
How big is big? A wave of mergers and acquisitions has completely reshaped the face of the international finance industry. Across a range of financial sectors, the tables are being cleared for a handful of giants, with room still for niche players but little space for the middle-sized.
(I) The most dramatic changes came in the investment banking area, where a range of specialised or regional investment banks found new commercial banking parents. Many investment bankers now believe the battle for membership of dominant firms is reaching its closing stages.
'In a lot of industries – telecoms, pharmaceuticals, for example – it is not unusual to see five global giants survive. Five seems to be the magic number', says Hans de Gier, head of Warburg Dillon Read investment bank. 'In investment banking, too, you will see a handful of global firms which have the cost base but also have the revenue base to support this vision.'
Some banks have already reached the conclusion that they cannot realistically hope to be part of that select group, and have scaled back their investment banking ambitions. In the UK, both Barclays and National Westminster have sold most of their equity operations and now concentrate solely on debt – more closely linked to their traditional banking business.
Spiralling pay packets for traders and investment bankers have made it difficult for the midsized contenders to stay in the race. They have to pay people just as much or more, but don't get as much revenue out of them as a global firm.
(II) In the retail banking sector, some of the talk sounds familiar. Edward Crutchfield, chairman of First Union, recently warned smaller traditional banks that they were a 'declining, dying business. Merger mania will last until there are 10 or 12 or maybe dominant financial services'.
But with very few exceptions, consolidation in the retail banking sector remains national in character. ING’s takeover of Banque Bruxelles Lambert in Belgium represents one example of a cross-border deal. But most efforts to cross national boundaries have not worked.
In the US, there remains plenty of room for consolidation without stretching overseas. The number of commercial banks has shrunk from 11,462 in 1992 to 9,215 this year, but that still leaves the US with far more financial institutions in proportion to its population than comparable countries.
In countries such as the UK and France there may be room for further consolidation, but banks in the Netherlands and Ireland already have to look abroad for a second home market.
Retail banking has proved resistant to economies of scale. In specific activities such as credit card processing, unit costs fall rapidly with size. In banking more generally, however, the complexity of operations reduces the benefits resulting from size.
That may be changing with increasing IT use in banking. The cost of software development is one of the biggest factors with 14 banks estimated to be spending more than $1 billion a year on IT.
IT = Information Technology
A. Key terms
Match these terms with their definitions.
2. equity operations
3. unit cost
4. cost base
6. parent company
8. investment bank
9. commercial bank
a) division of a bank that deals with share issues and share trading
b) bank that acts as an intermediary between companies and the investing public
c) bringing together of two or more companies, as in a merger
d) provision of basic banking services to individuals and companies
e) place in the market for a specialised product or service
f) company which owns more than 50% of another company
g) total cost divided by the number of items that are handled
h) large size providing the means for costs to be minimised
i) bank involved in international trade and corporate banking
B. Word search
Find a word or phrase in the text that has similar
1. people or companies who compete to win something (para 5) – c…
2. temporary phase when everybody wants to merge (para 6) – m… m…
3. merger or takeover between companies in different countries (para 7) – c…-b… d…
4. principle that the larger a companies is, the lower its average costs are (para 10) – e… of s…
C. Word fields
Write these words or phrases in the appropriate columns.
expand / reduce / scale back / shrink / stretch / spiral / decline / fall
Words meaning to get bigger
Words meaning to get smaller
D. Understanding expressions
Choose the best explanation for each of these words or phrases from the text.
1. wave of mergers
a) large number of mergers taking place all at once b) tendency for a few mergers to take place
2. reshaped the face of the international financial industry
a) changed it completely b) improved it
3. tables are being cleared
a) new game is about to start with different players taking part b) the game is over
4. reaching its closing stages
a) has finished b) nearly at an end
a) five b) small number
a) view of the future b) plan or policy
7. concentrate solely on
a) concentrate mainly on b) concentrate only on
8. comparable countries
a) countries that are similar in size b) countries that have a similar level of economic development
9. has proved resistant to
a) has benefited from b) has been unaffected by
10. unit costs fall rapidly with size
a) unit costs fall rapidly as size increases b) unit costs fall rapidly as size decreases
Over to you
1. Discuss what changes have taken place since 1997 regarding the shape of the financial industry.
2. What do you think the financial industry will look like in ten years’ time? Will there be many more changes? Give your opinion.