Banking & Finance

Mergers and Acquisitions:  Bad for Customers’ Morale?

When a bank changes its name, it takes a while for the customers to get used to it. Those banking with Intercontinental Bank got the information about the change of status on the banks’ Automated Teller Machines (ATMs) that ‘their’ bank, Intercontinental Bank, is glad to be a subsidiary of Access Bank plc.

They have absolutely no say in the matter, regardless of how much was in their account or how long they have been customers of the bank.

The shareholders may have been informed of the terms and conditions of some of the agreements, but most of their customers were not.

A customer opens an account with Oceanic and Fin Bank and is handed an account with FCMB and Eco Bank without ‘permission’.

Mergers and acquisitions, also known as M&A have been the fate of about three of the eight rescued banks that failed the industry’s audit in 2009. Three others were nationalised and but are now managed by the Asset Management Company of Nigeria.

Merger and Acquisition refers to the aspect of corporate strategy, finance and management that focuses on the buying, selling, dividing and/or combining of different companies and similar entities with the aim of to enable rapid growth without necessarily creating a subsidiary or using a joint venture.

A major challenge over the years however, is that the distinction between a merger and an acquisition has become increasingly unclear in various aspect of the process.

Acquisition usually refers to a purchase of a smaller or ailing firm by a larger or healthier one.

In acquisitions, the buyer could buy the shares and therefore, the control of the target company and could buy off its assets. When one company takes over another and clearly establishes itself as the new owner, which is what has happened with about two of the rescued banks in Nigeria, the purchase is an acquisition. From a legal point of view, the target company ceases to exist, as the buyer; as it were, ‘gulps down’ the business and the buyer’s stock continues to be traded.

A merger, in the real sense of it, happens when two firms agree to go forward as a single new company rather than remain separately owned and operated.  Sometimes referred to as ‘mergers of equals’ in some cases where the firms are about the same size.

What typically happens is that the both firms cease to exist and a new firm emerges, their stocks and shares are laid down and a new stock for the emerged company is issued in its place.

The main concern with acquisition is that being bought over often carries negative undertone, therefore, deal managers and portfolio holders try to make the takeover mild and acceptable to all their stakeholders (customers, shareholders, staff etc) by describing the deal as a ‘merger’.

Omotola Oluwashola, a consultant with banking experience, says Mergers and Acquisitions have to be treated differently for better analysis. “Often times, organisations patronise the merger option to solve a particular problem and financial institutions are not left out” Mr. Oluwashola said.

According to him, the impact mergers and acquisitions would have on people across board depends on the manner it is executed.

He said the problems could vary from technical, improvement in technology, breaking into new market, lack of expertise in a particular field and so on.

“If one company lacks any of these and have strength in another, such a company might look for a company in the industry that is good in the area its having difficulties or challenges and then negotiate to merge for mutual benefit to move the organisation forward” he said.

“In this case, the staff and customers will be aware of the situation on ground and most times, it is a welcome development. In the long run when both companies have solved the problem, customers will be happy about the move, though it might mean that staff would be laid off depending on the nature of the problem solved” he added.

On the other hand, Mr. Oluwashola said acquisition is the total taking over of a company. This usually gives the staff and customers mixed feelings about being ‘bought’. The truth is that in most cases, the members of staff of the ‘buying’ company tend to feel superior to the staff of ‘bought’ company.

“When some of the staff would be laid off, it is usually the staff of the acquired company and those left behind would lose the sense of belonging. Most of the time, they start looking for another job,” he said.

Job security and the loyalty question

Mr. Oluwashola said the problem is heightened in a situation where the initial employment standard of the acquired bank is lower than that of the acquiring bank.

“For instance, before acquisition, the acquired bank may have employed HND holders as professional staff while the acquiring bank only employs university graduates as professional staff.  Obviously, there are differences in standard of employment, which might be a yardstick for the lay off”.  So a line is drawn and “staff that fall within the lower employment standard of the acquired bank may be sacked or asked to resign as the case may be. In the case of sacking of staff, there are no entitlement attached, but a resignation will attract entitlement,” he said.          

Differences in organisational culture which includes the dress code, how members of staff address one another at work place and so on may also affect the morale of the staff as well as the customers of the acquired bank.

Mr. Oluwashola said one major area customers might be having issues with is loyalty. “Customers’ loyalty to a particular brand is vital. The customers of the acquiring bank might have no problems with the development but the morale of the customers of the acquired bank may be affected, especially if they do not like the new owners. Some might even change their bank”.

Putting the brand issue aside for a moment, Mr. Oluwashola also added that “loyalty in the banking industry has a bottom line,” he said customers would ponder on questions major questions like ‘Is my money safe?’ or ‘How safe is my money?’ “If the answers to these questions are positive, an average customer might not really have any morale issue at all” he said.

A banker at Fin Bank, who chose to be unnamed due to the ongoing negotiations in his bank, says the bank has started to experience the seconding of staff from FCMB and vice versa. “It is referred to as seconding of staff and is usually experienced during integration. During this period, the acquiring bank sends some of their staff to some major departments such as the legal, treasury, operations departments among others. An arm of the integration team would also harmonise salaries. ”

“They monitor and act as approving authorities. They report to their own bosses and are still on their payroll. There is a timeframe for the whole acquisition process. As time goes on, customers would be brought into the picture and enlightened on the progress of the bank”.

These ‘supervisors’ intrude into the existing camaraderie of the staff of the acquired bank and give briefings.

“Having them around feels alien, and they feel the same way too” he said, adding that they would be around until the integration process is over. The whole acquisition process usually takes about a year”.  In addition he said: “Some members of staff have left already and more people are leaving.” As for how it has affected the customers he said: “Customers actually have nothing to worry about. There have been panic withdrawals. It is the people that do not really know what is going on that could panic. Shareholders have sold their shares at reduced prices to the acquiring bank” he said.

Sunday Salako, the President, Association of Senior Staff of Banks, Insurance and other Financial Institutions (ASSBIFI), said the assurance that the affected staff get their entitlement is ongoing. “It is our duty to facilitate the process and make sure that those who leave are paid,” he said.

Many factors drive the pursuit for mergers and acquisitions, the dominant being the belief that the merging or the acquired firm would stand a better chance and have an improved financial performance at the end of the day.

Others reasons include geographical or other diversification, cross selling, economy of scope and scale, resource transfer, vertical integration (when an upstream and downstream of a firm merge or one acquires the other), hiring (some companies use acquisitions as an alternative to the normal hiring process) among others.

Reports say the Central Bank has asked merging banks to exercise caution when they lay off workers. Noting that some problems usually trail mergers and acquisitions, the regulatory body last week, said it could only appeal to the banks to adopt moral suasion when it comes to workers retrenchment.

The Central Bank was reacting to the sack of 3000 workers by some of the acquired banks already.

A bank like every organisation is made of people, and the customers interact and bond with the bank through these people. Where a customer has bonded with a certain member of staff and that person is unceremoniously sacked, that bond is broken.

According to media reports the deputy director, banking supervision, Central Bank of Nigeria, Mr. Ibedu Onyebuchi Kevin said the Central Bank cannot tell the banks not to sack their workers. He was quoted thus: “The apex bank can only tell the banks to tread the path of caution to minimise the impact on the financial system. We can only advise the banks by a way of moral suasion so that the system would not be badly affected.”

He said layoffs were unavoidable, arguing that the issue of merger and acquisitions across the world has its own pains and gains.

He said the Central Bank gave the entities involved in the merger and acquisition activities the opportunity to succeed, through its reforms package. He recalled that the banks went through Transaction Implementation Agreement (TIA) through which they consummated their relationship.

Banks in Nigeria have had it tough since 2009, when the Central Bank conducted a special industry audit on the banks, which left some banks with new CEOs and the search for new investors. Sanusi Lamido Sanusi, the Central Bank governor, reportedly said the special audit and removal of the CEOs was due to high level of non-performing loans in some of the banks, which was a result of poor corporate governance practices, lax credit administration processes and the absence or non-adherence to the banks credit risk management practices.

The banking crisis came on the heels of the economic meltdown that led to the global financial crisis about four years ago. This compounded the problems that were already affecting both individuals and corporate organisations.

Despite the industry’s challenges and difficulties, and the sweet and sour stories, in the last three years, it is commendable to note that depositors have not lost their funds and the reforms have left the industry in a better shape.

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