Read the following and on the basis of the reading answer the following questions:
Problem 1. What would be the strategic motivations for a consolidation of large banks in the European Union?
Problem 2. What other issues in addition to strategic concerns are hindering or motivating banks that are considering acquiring other banks in the European Union?
Problem 3. What competitive reactions if any do you expect resulting from Credit Agricole's restructuring of its Greek unit and the acquisition of Intesa's Italian branch? Why or why not?
Problem 4. If you were the CEO of Agricole, would you pursue an acquisition target in the near future? Why or why not?
(700 to 800 words total, not including questions, with references)
Credit Agricole Experienced Ups and Downs in the First Decade of the 21st Century
Agricole started a long-anticipated consolidation of European banks by acquiring Credit Lyonnais SA. Becoming the third-largest bank in the world, it was believed that Credit Agricole’s actions might force a response from large European rivals such as Barclays Bank of the United Kingdom and Deutsche bank. With the expansion of the European Union to include many new Eastern European countries, the scale of banking has become larger.
Because of limited growth opportunities in their mature home markets, many large European banks tried to expand by entering other countries. Furthermore, many of these banks’ largest clients operate across borders in the European Union. Thus, banks follow and continue to serve their clients as they expand to new geographic areas. In 2003, Credit Agricole, with its 16% holding in BancaIntesaS.p.A., Italy’s largest bank, was the only large European bank to own a position in a fairly large European rival.
Consolidation of European banks proceeded much more slowly in Europe than in the United States, where the banking industry continued to consolidate through acquisitions. Each European country’s desire to have its own major bank has influenced decisions about acquisitions. Yet potential consolidation in the European banking sector picked up steam in 2007 and 2008 with the financial crises emanating from the United States. In fact, the largest acquisition in banking history was announced in 2007. A consortium of European banks, Royal Bank of Scotland, Banco Santander Central Hispano (Spain), and Fortis (Belgium-Dutch) acquired ABN Amro (Dutch) for $99.8 billion and agreed to split the ABN assets among themselves.
Alternatively, Agricole announced a fourth-quarter 2007 loss of $1.3 billion and decided in early 2008 not to make further acquisitions at the time. In fact, it sold some assets (e.g., its stake in a utility, Suez) for $1.6 billion to shore up its balance sheet. In 2009, the bank earned a profit but it was lower than expected and its CEO resigned.
In 2010, Credit Agricole experienced problems from the significant problems in its Greek unit accompanying the Greek financial crisis and is planning to restructure the unit. However, its first quarter net profit increased by more than 100% over its 2009 earnings during that period. Its performance was aided by a rebound in its investment banking unit. In June 2010, Agricole acquired 172 branches of the Italian bank Intesa for 740 million Euros. This acquisition provides Agricole with more than 900 branches in Italy making it the seventh-largest bank in Italy.