A bank merger in East Jutland?

Studenteropgave: Speciale (inkl. HD afgangsprojekt)

  • Rikke Dall Hardt Hove
2. semester, HD 2. del (Finansiel Rådgivning) (Diplomuddannelse)
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.
Udgivelsesdato29 apr. 2011
ID: 51815105