A bank merger in East Jutland?

Hove, Rikke Dall Hardt

2. semester

HD 2. del (Finansiel Rådgivning)

2011

2011-04-26

The purpose of this assignment is to give a basis for deciding whether the shareholders in Djurslands Bank and Østjydsk Bank should vote for or against a merger between the banks. To evaluate whether a merger is necessary, an industry analysis and a SWOT analysis is done. The analyses show that the bank market is highly competitive. It is hard for smaller financial institutions to match the pricing in larger banks and to keep up with product development. It is shown that Østjydsk Bank and Djurslands Bank in a merger is able to present operating cost savings on the following areas: personnel, IT, education, streamlined work processes, office rental, and other administrative expenses. Cost savings which add up to 29 mill. DKK. A financial analysis for the banks determines which impact the merger has on the individual bank. The key figures Return on Equity, Return on Asset, Profit Margin, Earnings per DKK of cost, Weighted Average Cost of Capital, and Internal Capital Generation Rate shows that Østjydsk Bank in the analyzed period is badly hit by the financial crisis resulting in a negative growth. Especially large deprecations afflict the bank. The financial analysis can however tell that Djurslands Bank has been able to turn the tide after the financial crisis, as the key figures has improved during the analyzed period. The bank has however not been able to increase their loans. Instead the customers prioritize savings and repayment of loans. Based on a joint income statement and balance sheet new key figures are calculated distinctly showing that concerning Østjydsk Bank, a merger will immediately result in an improvement on key figures. The key figures of Djurslands Bank will however not improve if only considering the operation cost savings. The shareholders should expect that the merger will bring the possibility to increase the business volume and to decrease the deprecations, which will improve the key figures. Provided that the merger is carried out by having Djurslands Bank buy the share capital of Østjydsk Bank three options are presented. Djurslands Bank can take out further loans, issue more shares, or exchange all Østjydsk Bank shares with Djurslands Bank shares. The shareholders will experience that the key figure “earnings per share” will increase for both banks when the operations cost savings are carried out. Finally this assignment points out issues the two banks should have in mind when realizing a merger. This is done by outlining the merger as a project presented through the 5x5 model.

bankfusion ; Østjydsk Bank ; Djurslands Bank ; fusion ; bank ; nøgletal ; sammenlægning

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