increased convenience, increased access to information, speed
of
transactions, and enhanced control and management of personal finances.
The new innovations will be an integral part of the financial landscape. A
more logical responsewould be the integration of high
technology
systeminto
brick and mortal facilities that banks already offer. With online technology,
new levels of customer segmentation can be achieved. In this context,
close
coordination between existing channels and the electronic channels is
needed to optimize an integrated multi-channel approach.
Sound Ethical Banking Practices: The transition towards a consolidated banking industry would lead to strong, corporate governance and efficient risk management would become integral part of the success of the institutions.
With larger pools of resources after the merger process, banks are expected
to enhance its capabilities especially the implementation of best credit practices that is consistent with the CBN requirement of the credit management guidelines.
Improved Regulatory Framework: The regulatory authorities, on their part,
would be required to further streamline its regulatory framework as well as
strengthen their supervisory capacity to ensure smooth transition. In this regard, there would be a need to properly monitor the activities and performance of emerging mega banks to prevent distress and failures in the post-consolidation era.
Legal Reforms: Although few legislative initiatives took place during the early
reforms period to address some of the problems affecting the financial sector and the economy at large, such as the review of the Central Bank of Nigeria
Act (1991) and subsequent amendmentAct of 1998 and 1999; Failed banks
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(recovery ofdebts) and financial Malpractices
in Banks Acts of 1994. There is
need for these legal processes to be reinforced in order to
complement the
efforts of the regulatory authorities in realizing a sound and
stable banking
system. There is also the need for both legislative
and the judiciary
cooperation to implement the existing laws on dud cheques inorder
to engender confidence in the newfinancial landscape.With respect to loans recovery the judicially must be at the fore front to
ensure that cases bordering on loans recovery are promptly disposed of, bearing in mind that justice delayed is justice denied. To this end, special
courts that will handle cases of loan defaults and credit fraud with dispatch
need to be considered in the present banking policy reforms.
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CHAPTER THREE:
LITERATURE REVIEW
The relevant research is divided into two parts: the reason for merger,
financial
intermediaries, the effect of corporate governance on the banking industry
and
empirical findingsfrom previous studies.3.1. Mergers and Acquisition
Merger and Acquisitions are methods of corporate growth. This growth can
be
acquired from another firm through expansion externally when internal growth is notefficient or desirable. So the objective of acquisition is to maximize the stockholders wealth, whereas merger are a part of business strategy of a firm to help create
sustainable competitive advantage for the buyer firm through the addition of the positive and desirable attributes of the acquired firm.
A merger is a combination of two or more firms, with the stockholders of both firms jointly owning the new firm (a new entity). An acquisition however occurs when one firm purchases the assets of another firm with the acquired shareholder ceasing
from being owner. A takeover is an acquisition where the buyer firm is substantially larger than the acquired firm. Consolidation however means the mergers or
acquisitions of many smaller companies and/ subsidiaries into much larger ones.
The definational differences are important for accounting and regulatory purposes but have little economic and financial meaning. So the terms Merger, Acquisition,
Takeover and consolidation shall be used interchangeably for the purpose of this study.
Mergers and Acquisitions are part of the market for corporate control with the aim of managing the assets of the target firm. Macy, (1998) identified that successful management leads to an increase in the shareholders wealth. Managers undertake
merger to increase their importance and make other decisions that maximise their
utility instead of that of the stockholder wealth.The decision to merge is optimally
based on expected value created by the merger and the sources of the value creation.
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The actual integration of the firm determines the success
of the
merger.Though the
initial decision is based on the optimal evaluation of the target firm in terms
of its
financial, strategic and organisational strengths. Sudarsanam,
(1995) identified three
sources of integration problems as: determinism, value
destruction and leadership
vacuum. Determinism refers to the conflict between the manager of the two merging
firms. The acquirer does not account for the uniqueness of the target
firm and the
forces, rigid rules and programmes on the new employees.
If the
managersand
employees from the targetfirm believe thatthey are beingoverlooked and ignored
,they act in ways to prohibit or delay the integration, which demostrates
their
determinism. If the two sets of manager are not able to function together, the value
of the new entity will be reduced from its inefficiency. Friction between the two parties can cause communication collapse, which reduces the efficiency of the firm.
A third problem is that a clear leadership hierachy is not known, and the top management may not be involve in the tedious aspect of integration. This lack of leadership further leads to integration problem and a loss in wealth. A successful
merger must therefore accountfor the potential problems, which can delay the gains
from the acquisition, and forthe role employees play in the actual mergeroutcome.
Kothari and Warner (2006) in a recent study provided an overview of event study
methods where short-horizon methods are quite reliable while long-horizon methods despite its improvement still have serious limitations. The challenge is to continue to
refine long-horizon methods. They presented new evidence to illustrate that the property of event study methods varies by calendar time period and can depend on event sample firm characteristics such as volatility. This reinforces the importance of using stratified samples to examine event study statistical properties of the Nigerian banking post consolidation experience.
Agency problems and efficiency gains are two broad categories of merger theory as
espoused by Jansen (1986) and Scheifer and Vishny (1988), but with limitation and ambiguous setbacks. The winner's curse or hubris hypothesis derived from the agency conflict hypothesis by Roll (1986) noted that the winner of a takeover bid is
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