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THE
REVENUE CHASE By
Kenneth Smith Banking
Strategies Magazine, Mar-Apr/1999 While bank
acquirers have done a good job of cost cutting, revenue synergies have lagged.
The solution: Reverse merger planning priorities. Yet, bank mergers
typically reward only the target's shareholders, disserving investors in the
acquiring entity. The issue, we believe, is that acquirers fall short in the
pursuit of revenue synergies. More often than not, revenue growth stalls
following an acquisition. Achieving revenue
synergy, by contrast, requires decisions from powerful external constituents -
the customers. They must be offered an attractive value proposition. Bank
acquirers have massively underestimated the time and effort required to develop
and market a better position. There are number
of steps managers of acquiring banks can take to assure the realization of
promised revenue synergies. The first step has to do with customer segmentation.
Secondly, acquirers should avoid the trap of indiscriminate branch consolidation.
Excessive timidity can also be harmful. Again, segmentation is the key. Step
three is to identify less price-sensitive customer segments and treat them
accordingly, therefore preserving the opportunity to capture more revenue from
the customers. A fourth step is to spend instead on customer development, since
that's what really brings in the revenues. Finally, consolidators need to do
better job nurturing the creative and entrepreneurial aspects of the companies
they acquire, lest they lose revenue growth momentum. That requires leaders who
are capable of inspiring, not just firing. Banking deals in
the U.S. performed much worse. Only 18% of acquirers provided superior returns
to shareholders. Consolidators under-performed the total return index for their
industry by an average of 13% during the three years following their deals. They
tend to bid prices up to a level commensurate with these essentially guaranteed
returns. Then in order to win the prize, they begin to bet on the promise, the
hope, and finally the illusion of revenue synergies. So far, acquiring
shareholders have lost in this race. Fortunately, all
is not lost. We believe managers can enhance revenue synergies with a few
measures: Promotion, Place, Price,
Product and (the forgotten one) People. Promotion
-- Segment first, before spending on customer retention. Merging banks agonize
over customer attrition. Identifying the most valuable customers - wholesale and
retail - is key to unleashing marketing promotions that will really pay off. Place
-- Leverage coverage,
don't slash indiscriminately. Coverage is, in fact, substantially less critical
to customer retention than to customer acquisition. Considerable inertia
therefore disposes them to stay with the bank after a merger, even after ensuing
sales force changes and branch closures. Prospecting is another matter
altogether. The value of market coverage lies mostly in acquiring new customers
through the branch and sales network. Managers who go to extremes with
traditional branch rationalization models may be inadvertently closing off
opportunities for future growth. Price
-- Segment and optimize price/volume tradeoffs. Marketers are reluctant to raise
prices for any customer segment following a merger. They fear customer attrition.
By settling for the lowest price of the two banks, they actually end up creating
negative revenue synergy. By segmenting and applying various forms of bundling
and differential pricing, banks can optimize pricing of credit cards, service
charges, saving rates and financial advisory services. Product
-- Be willing to
temporarily constrict product features in order to integrate systems quickly.
Most banks have been timid about systems integration. By trying to integrate
systems in a "best of both" style, managers spend too much time and
money on software development. And in the end, customers are still effected.
Some banks have learned that spending on customers can produce a better and
earlier impact than spending on systems consultants and contract programmers. Coincidentally,
rapid integration can also support strategic systems goals. Instead of trying up
all their resources for two to three years in the merger process, systems
departments can put mergers behind
them quickly and focus on strategic platform development. People
-- Nurture the acquired
growth culture. Higher growth companies command a higher share price multiple
and a higher acquisition premium. The culture of the larger acquirer tends to
overwhelm the service-focused, entrepreneurial culture of the acquired. Some of
the best people leave, more bureaucracy creeps in, and fear stifles creativity. HSBC
- The Hongkong and Shanghai Banking Corporation Ltd. The HSBC Group is
named after its founding member, The Hongkong and Shanghai Banking Corporation
Ltd. HongkongBank, as its is known for short, was established in 1865 to finance
the growing trade between China and Europe. The inspiration
behind the founding of the bank was Thomas Sutherland, a Scot who was then
working as the Hong Kong Superintendent of the Peninsular and Oriental Steam
Navigation Company. Throughout the
late nineteenth century and the early twentieth century, the bank established a
network of agencies and branches based mainly China and South Asia but also with
representation in the Indian sub-continent, Japan, Europe and North America. In
the Second World War the bank was forced to close many of its branches and the
head office was temporarily moved to London. The post-war
political and economic changes in the world forced HonkongBank to analyse its
strategy for continued growth in 1950s. In 1959 HongkongBank purchased The
British bank of the Middle East (British Bank)
and the Mercantile Bank. In 1965 the bank purchased a controlling
interest in Hang Sen Bank, which had been established in Hong Kong in 1933. HongkongBank of
Canada was established in 1981. And HonkongBank of Australia Ltd. in 1986. In
1987 Marine Midland Bank, based in New York State, became a wholly owned member
of the Group and its principal subsidiary in the United States. HSBC Holdings
plc, the parent company of the HSBC Group, was established in 1991. The acquisition
in July 1992 of Midland Bank in the United Kingdom created one of the largest
banking and financial services organizations in the world. In the United States,
a joint venture, the Wells Fargo HSBC Trade Bank was formed in 1995. Banco HSBC
Bamerindus was established in Brazil, the acquisition of the Roberts Group in
Argentina was completed, 19.9% interest in Mexico's Grupo Financiero Serfin was
purchased. RENMINBI
- The Legal Tender of The People's Republic of China The People's Bank
of China (or PBOC) was established on 1 December 1948 then first issued notes (known
as Renminbi, meaning People's Money) valued at $10, $20, $50. The People's
Republic of China was founded on 1st October, 1949. The Government
Administration Council of the Central People's Government called in currencies
issued by the Northeast Bank and People's Bank of Inner Magnolia in April 1951,
and unified the Sinkiang banknote
in November 1951. But the
denominations of the Old Renminbi
were too big for peoples daily life. The People's Bank of China issued New
Renminbi on 1st March 1955. The New Renminbi valued at 1 Fen, 2 Fen,
5 Fen, 1 Jiao, 2 Jiao, 5 Jiao, 1 Yuan, 2 Yuan, 3 Yuan, 5 Yuan and 10 Yuan. (The
basic unit of the New Renminbi is Yuan. One Yuan is equal to 10 Jiao, and one
Jiao is equal to ten Fen.) SURVEY
- THE MILLENIUM BUG - BARE ESSENTIALS Business need
power, water, communications, transport and finance. All these depend
disproportionately on networks and therefore tend to emphasis reliability and
continuity. These key businesses depend disproportionately on IT. How far they
have got with their millenium preparations varies enormously from country to
country. Unlike the
networks that distribute power and water, the telecommunications network is
global. That means carriers in the rich countries have a business interest in
the readiness of their opposite numbers elsewhere. Financial
institutions realized early on that their own systems might give trouble, most
important of all, their borrowers might get into a mess. That means banks, along
with insurers, have a key role in coaxing other companies into taking action. Banks have
announced the biggest Year 2000 budgets outside the public sector to date. The
rough rule of thumb is that they will spend $1m for every $1 billion of assets.
Once big banks and financial institutions take the issue seriously, they begin
to put pressure on others. Thus SWIFT, the global financial communications
network, is imposing tests on its 6,000-or-so members. Visa is pushing its
22,000 member banks not just to make their own systems compliant but also to
look at the terminals, stocks and suppliers of the merchants they deal with. Undoubtedly
financial institutions will take cover as the millenium approaches. Tanya Beder
of Capital Market Risk Advisers in New York, a specialist in risk management,
expects big fund managers to stop their year-end trading by December 15th
next year, or at least run it down. Others are planning to rearrange their
portfolios, moving cash flows on loans out of the period from mid-December to
the end of the first quarter of 2000. The main economic
threat from the bug will be its effect on financial confidence. A
STORY - TO KNOW SOMETHING'S VALUE Once upon a time,
a man wanted to have his enormous diamond be cut on the edges visiting from one
jeweler to another. Nobody showed any dare to do any job on it, fearing that to
be harmful on it. One day, a friend
of him saw the man in desperate case and asked the reason. After learning the
matter he took the diamond from the man and threw it to a little boy, an
apprentice sitting down in front of a jewelry shop, then he said "Take it
and cut it on the edges !". Apprentice made the job then gave it back to
the man's friend. The owner of the diamond asked to his friend "How did you
understand that this little boy would do it when a lot of craftsmen were fearing
to do anything on it?". His friend said " Because this little boy
didn't know how valuable diamond was in his hand, he did the job properly
without his hands shook. He would
be able to do it only." The
main point in the story is that the ability to find right man in right time,
that's the secret of success. AUTOMATED
TELLER MACHINES Main
problems of ATMs in using: Most important
factor prevents them from productive working is the problem of communication.
There are three different connection types for communicating with the main
system: telephone, data or satellite. Quality of lines and the hardware of the
system enabling to communicate, effects the quality and continuity of
communication. Breakdowns in
hardware of the ATMs and the
problems in ATMs operation systems also effects the proper working of ATMs. There should be
high quality bank notes in ATMs. They can not be able to count worn-out bank
notes. Machines go out of order (off-line) because of squeezing of the worn-out
bank notes. Unfortunately
some people who are using the ATMs deal a blow to them when they couldn't get
money from them. Some people try to insert foreign materials in the slots. Sophisticated
ATMs, which can do broad range of
banking applications, are being used in developed countries. As for in Turkey,
ATMs accepted as a cash resources. Inflation is
effecting ATMs negatively. When they are giving a couple of bank notes for a
certain amount in developed countries, for the same value, for example in Turkey,
they are giving bank notes far too much. This causes to 6 fold of excessive
using of ATMs in Turkey. This means that
performance and life of the machines drop 6 fold according to a.m. countries. Jointly
use of ATMs in Turkey: Banks in our
country started off jointly use of ATMs. At the beginning, banks established
their own ATM networks independently, but only their customers benefited from
them. Up on this situation, two groups were established for joint use: "Altın
Nokta" and "Ortak
Nokta/ATM Paylaşım Grubu". The banks attending to "Altın
Nokta" are; Akbank, Dışbank, Garanti Bankası, Halkbank, Osmanlı Bankası,
Vakıfbank. The banks attending to "Ortak Nokta/ATM Paylaşım Grubu"
are; A Bank, Anadolu Bankası, Bank Kapital, Citibank, Denizbank, Dışbank,
Egebank, EGS Bank, Esbank, Etibank, Finansbank, İktisat Bankası, Interbank,
Kentbank, Koçbank, MNG Bank, Oyakbank, Sümerbank, Şekerbank, TEB, Tekstilbank.
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