Financial Institutions Mergers


Statement of the Assignment

You asked me to write a memorandum to describe the way the bankingregulator (OCC, Federal Reserve Board) is likely to analyze theeffects of the proposed acquisition of the Spanish Bank, BancoSantander on the competition in banking. You have requested an HHIanalysis and narrative recommendations necessary for securing theregulatory clearance. The memorandum is to address any competitiveissue that could arise following the acquisition of the BancoSantander bank.


Banco Santander Bank has decided to exit the banking market of theUnited States (US), it has decided to sell its remaining stock to theexisting banks, and the Citizens Bank, National Association,Providence, RI has the invitation to submit a bid.

Brief Answer

Yes, the sale of the stock of the Banco Santander will havesignificant effects on the situation of the market in the market inthe U.S. The situation will happen because Banco Santander has hadthe largest number of customers at the different levels of theeconomy. The bank that would secure the stocks of Banco Santanderwill have a significant opportunity to advance their performancesince the bank operates in various parts of the world. The use of theHerfindahl-Hirschman Index (HHI) analysis can help show the nature ofthe competitive environment that characterizes the situation in themarket after the possible merger (Bolt &ampHumphrey, 2015).


Banco Santander is a Spanish Bank that commands a good market sharein the U.S. market. The bank has a significant contribution to theU.S. economy and its exit from the market has far-reaching effects onthe nature of the banking industry. It is beyond doubt that the exitfrom the U.S. market by the Banco Santander will affect the bank thatcould acquire it and the ones that will lose the bid. The analysis ofthe HHI will show the competitive advantage that a bank could gain ifit achieves the sale acquisition of Banco Santander Bank inWilmington, DE.


In the organization of the various facts about the situation afterthe exit of Banco Santander will consider the market shares of theBank and the other potential competitors who could win the bid. Theanalysis will indicate the HHI values in each case and determine theimplication of achieving the acquisition of the bank. The banks thatwill be potential winners of the bid will include the Citizens Bank,National Association, Providence RI. The analysis of the bankingmarket in the U.S. has indicated saturation with many banks availableto provide services to the customer. The implication of a mergerbetween the various banks would have the implication on the othercompetitors that could have a stake in the market.

HHI analysis for a merger with Citizen Bank, Providence, RI-Themerger between Banco Santander would be an important boost to CitizenBank that has a market share of about 1.7% of the U.S. market. BancoSantander has a large influence on the market, having acquired manysubsidiary banks in America and other parts of the world. Consideringthe about 1 percent that Banco Santander holds in the Americanmarket, the merger could produce an HHI of (1.7 x 1.7) + (1.0 x 1.0).The sum of the HHI will be 2.89 of the market share in the U.Smarket. The indication is that the increase in the market share ofthe Citizen Bank would be high and could give it an advantage overother banks in the same operational level as it has. If the CitizenBank achieves to acquire Banco Santander, it will rise above otherbanks in the country because it will have a larger market sharebecause of the increased stock investment. The acquisition of thestock of the Banco Santander would help the Citizen Bank to diversifyits market coverage because it will have more benefits from theinvestment that the later has had in the various cities in the U.S.(Bolt &amp Humphrey, 2015).

Citizens Bank has performed well in the past while working asCitizens Financial group. On the other hand, the Banco Santanderworking as Santander Holding U.S. Inc. has performed well in themarket becoming among the largest banks. Santander Bank has been oneof the largest banks in the U.S., and that means that it would be animportant boost to the Citizens Financial Group because it will addits dominance in the market. The acquisition of Banco Santander bythe Citizens Bank will facilitate the performer of the former throughincreasing the economy of scale, and that could increase the grossprofit by a big margin (Chaudhuri, 2014).

Banco Santander should understand that it will introducecompetition in the market- The exit from the market of the BancoSantander will be an advantage for some banks, but to the ones thatwill miss the opportunity for acquisition. The implication is thatthe Citizens Bank will have a great advantage, and it would performfar much better than its nearest competitors. The Federal ReserveBoard will require that the new merger should moderate theperformance of the banking. The administration of the interests andother benefits to customers will be an issue that the Citizens Bankwill need to consider. The mode of standardization of the benefitsand stocks of the company will be another issue that the FederalReserve Bureau will monitor to ensure that Citizens Bank offerssimilar services to all the customers (Akkus,Cookson, &amp Hortaçsu, 2015).


Citizens Bank should evaluate the implications of standardizing theservices that were initially Banco Santander’s. The essence of theconsideration will be to ensure that the company does not lose moneyin the course of implementation of the operation. The services thatthe Banco Santander offers should be in such a way that they will notlead to a decrease in the performance of the Citizens Bank. Forexample, if the interest rates of Banco Santander are lower thanthose in Citizens Bank, the later should consider the implication oflowering the interest rates to match the level of the BancoSantander. The consideration will be important because it riskslosing the customers that were formerly in Banco Santander who cannotput up with an increased interest rate. On the other hand, themanagement of Citizens should consider the implications of loweringthe interest rate of the new entity to ensure it does not lose itsprofitability.

One of the most important considerations that the management of theCitizens Bank ought to consider in the pursuing the merger is theservices it is likely to increase its portfolio. The considerationshould come to avoid duplication of services that might not give thebank any advantage. In the current market, Citizens Bank iscompetitive and engages in marketing that aims at increasing thenumber of customers. If the services that are in Banco Santander aresimilar to the ones the Citizens Bank has, the management shouldreconsider and quit the bid and invest the same money to win thecustomers. The company should consider the opportunity cost ofpursuing the bid and not doing so to ensure it can make the rightdecision on the market. The large customer base is a significantreason for making the decision to buy the stock of Banco Santander,but it could have its negative effects on the performance.


For Citizens Bank buying the stocks of Banco Santander, it is anopportunity that could give much advantage to the former. Theadvantages that Citizens Bank could earn are the important economy ofscale and the possible diversification of the market portfolio. Inthe performance, the Citizens Bank will manage the introduction ofnew strategies for serving the customers. The merger is possiblygoing to pose the threat to competitors, and that could affect theirperformance. If the bank manages to retain all the customers in themarket, it will have the advantage of reduced cost of marketing.However, in the processing the merger, the Federal Reserve Bureauwill take a keen interest in the process of integration of customersfrom the two different banks of the new institution. The FederalReserve Bureau will need to ensure that Citizens Bank does notexploit any of the customers in the process of operation. The becauseof the saturation of the customers in the market, the Citizens Bankwill exert dominance in the economy.


Akkus, O., Cookson, J. A., &amp Hortaçsu, A.(2015). The Determinants of Bank Mergers: A Revealed PreferenceAnalysis. Management Science.

Bolt, W., &amp Humphrey, D. (2015). A frontierMeasure of US Banking Competition. EuropeanJournal of Operational Research,246(2),450-461.

Chaudhuri, S. (2014, September 15). Ranking the Biggest U.S. Banks: ANew Entrant in Top 5. Retrieved March 14, 2016, from