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Atlanta Fed Working Papers


What Do Premiums Paid for Bank M&As Reflect? The Case of the European Union

Jens Hagendorff, Ignacio Hernando, Maria J. Nieto, and Larry D. Wall
Working Paper 2010-5
March 2010

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We analyze the takeover premiums paid for a sample of European bank mergers between 1997 and 2007. We find that acquiring banks value profitable, high-growth, and low-risk targets. We also find that the strength of bank regulation and supervision and of deposit insurance regimes in Europe has measurable effects on takeover pricing. Stricter bank regulatory regimes and stronger deposit insurance schemes lower the takeover premiums paid by acquiring banks. This result, presumably in anticipation of higher compliance costs, is mainly driven by domestic deals. Also, we find no conclusive evidence that bidders seek to extract benefits from regulators either by paying a premium for deals in less regulated regimes or becoming too big to fail.

JEL classification: G21, G34, G28

Key words: banks, mergers, premiums, Europe


The authors thank Tom Berglund, Claudia Girardone, Iftekhar Hasan, Heinrich Liechtenstein, and Marina Martynova as well as the participants at a Bank of Spain seminar, the XVI Foro de Finanzas (Madrid) seminar, the 2009 UKEPAN Finance Conference (Leicester), and the XVIII International Tor Vergata Conference on Money, Banking, and Finance (Rome). The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Jens Hagendorff, University of Leeds, Leeds University Business School, Maurice Keyworth Building, LS2, 9JT, Leeds, United Kingdom, 44 (0)113 343 4483, juh@lubs.leeds.ac.uk; Ignacio Hernando and Maria J. Nieto, Banco de España, Alcalá 48, 28014 Madrid, Spain, 34 91 338 51 86, 34 91 338 56 78 (fax), hernando@bde.es and maria.nieto@bde.es; or Larry D. Wall, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA, 404-498-8937, 404-498-8810 (fax), larry.wall@atl.frb.org.

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