The banking consolidation trend that has been taking place over the past few years is likely to continue in 2022 and beyond. This means that we can expect to see even more mergers and acquisitions within the banking industry. What does this mean for consumers? In this blog post, we will discuss the benefits and drawbacks of banking consolidation and what it could mean for you.
Banking consolidation can be defined as the process of two or more banks coming together to form a single entity. There are several reasons why this trend has been taking place in recent years. One of the primary reasons is because it can help banks save money. By consolidating, banks can eliminate duplicate branches and staff, which can lead to cost savings. In addition, consolidation can also help banks expand their geographic reach and product offerings.
While there are some benefits to banking consolidation, there are also some drawbacks that consumers should be aware of. One of the primary drawbacks is that it can lead to reduced competition within the banking industry. This lack of competition can ultimately lead to higher prices and fewer choices for consumers. Another potential drawback is that consolidation can lead to job losses, as duplicate branches and staff are eliminated.
So, what does all of this mean for you? If you are a consumer, it is important to be aware of the trends taking place within the banking industry. While consolidation can offer some benefits, it can also lead to drawbacks, and you might end up losing a favoured banking partner whilst being forced to move to a rival with which you’d rather not do business. It is important to weigh these factors when considering whether to use a particular bank. In addition, if you are employed in the banking industry, it is important to be aware of the potential for job loss due to consolidation.
For investors in a bank
the idea of consolidation is normally a positive sign as it is likely to trigger a rise in the share price, increased interest from the markets and a drive by the existing management to deliver additional value for shareholders. The problem with consolidation though is that studies have shown that the majority of mergers and acquisitions actually end up destroying shareholder value, rather than adding it and as such, are generally a bad idea. Will that stop consolidation in this sector? It’s unlikely, especially with the existential threat now being posed to banks by the idea of Central Bank Digital Currencies (CBDC’s).
In sum, the banking industry is likely to continue consolidating. This can bring about cost savings and expanded product offerings for consumers but may also lead to reduced competition and job losses. It will be important for consumers to stay informed about what is happening in the banking industry so that they can make wise decisions about where to bank and what products and services to use. Investors, meanwhile, will be circling the stocks looking for likely winners and losers and banks would do well right now to consider their fundamentals, assess this against their market capitalisation and decide whether their strategy is really delivering true shareholder value.