It appears as if the stream of news regarding bank buyouts will never slow down. Indeed, we have currently heard plenty over the course of the past few years about failed banks, and 2014 has not revealed much of a stagnation for the trend. Now, CIT Group prepares to purchase OneWest Bank for an astonishing cost of $3.4 billion. Those who’ve been following news concerning bank buyouts will certainly most likely keep in mind IndyMac, which failed in 2008 and remains one of the most expensive federal bank insurance coverage bailouts ever, at $13 billion. If OneWest Bank does not sound familiar, it’s the organization that was formed after IndyMac’s collapse.
IndyMac is frequently remembered as being a high-risk mortgage loan provider. The company famously developed mortgages based upon extremely loosely put-together financial info from clients, requiring little more than a statement that could quickly be adjusted in whichever direction necessary. It’s for this reason that the bank’s loans were described by many as ‘phony loans.’ After things broke down, a financial investment group led by Dune Capital Management put forth effort to renew the bank under a different name and acquire it from the federal government, which occurred in 2009.
While most people are familiar with hearing about bank buyouts at this point, numerous do not recognize why mergers and acquisitions take place in the very first location. Certainly, there are a number of reasons these things happen, and the truth that they can influence how the average customer sets about financing a house, implies it’s crucial for everyone to know exactly what enters into a buyout. Right here are simply a few of the more usual reasons these things take place, all of which can occur at various times and in various circumstances.
Increased market share
One reason why banks and business in general are gotten out has to do with improved market share. Let us say there are two banks that are in direct competition with one another. In the case that one has the dominance over and capability to acquire the other, doing so would be the very best means to take in the competitors and take care of the issue of increased market share.
A lot of cash stands to be produced all parties involved in such a circumstance, which is why this takes place so typically. In numerous means, this is exactly what’s occurring with OneWest, and the bank’s president Joseph Otting is stating that the deal will certainly broaden financing options for businesses. Whether this ends up holding true is challenging to inform, although there’s reason to believe that it could indeed be beneficial to businesses little and bulk.
When a bank is having a hard time, it can be deemed if it’s almost like a sitting duck. A struggling bank is one that’s just waiting to be scooped up by another, and typically for a song. This indicates that the bank who winds up making the purchase stands to gain a lot, while the one being purchased out can at least rest simple knowing it’ll not go broke. Ever since the housing crisis, American banks have seen financial troubles, and it’s not unusual for these concerns to hinder a bank completely. As far as being a reason for buyouts, it’s also in the direction of the extremely leading.
It must stand to reason that a bank that’s wanting to prosper will do whatever it can to spread out throughout the nation as much as possible. Undoubtedly, there’s a lot to be said for geographical diversification in banking, and it can make all the distinction in the world in terms of generating a new audience.
In numerous ways, this acts as an extra reason OneWest is being scooped up by CIT. OneWest is located in southern California, while CIT is based in New york city. Incorporating the 2, then, will certainly serve both East and West Coastline clients. While geographical diversification is not right for all banks, it’s among the most significant reasons for mergers and acquisitions.
Streamlined scale and operations
No matter what type of company one is running, there’s absolutely nothing more vital than trying to streamline scale and operations as much as possible. Every bank wishes to save money on employee salaries and other expenses, and in some cases, the very best way to do so is to incorporate operations with another bank. When costs are reduced, revenue usually increases in short order. Again, this may have something to do with the CIT acquisition of OneWest, although it’s tough to state exactly what the reasons are for any acquisition.
In completion, it’s necessary for customers to understand that not all bank acquisitions, buyouts and mergers have to do with the rich getting richer. It’s easy for individuals to feel in this manner thinking about the history of buyouts, however businesses and others who require loans commonly do certainly discover themselves benefiting from situations such as exactly what’s accompanying OneWest. Time will certainly inform who gains from this acquisition, and there’s no telling what other huge mergers and acquisitions might occur in the near future, as 2014 has currently been rather the year for bank buyouts.