The Savings and Loan Industry: Current Problems and Possible Solutions

By Walter J. Woerheide | Go to book overview

9
Mergers and Conversions
Along with all of their financial problems in recent years, the SLA industry has been undergoing a rather steady structural change accomplished through mergers and conversions. In 1981, there were 217 mergers involving FHLBB member associations. This is up substantially from the total of 108 mergers in 1980 and the 37 mergers in 1979. 1 Mergers can be classified as voluntary or involuntary. Conversions involve either a change in the charter (federal to state or vice versa) or a change in legal structure (mutual to stock). The economic consequences of these structural changes can be analyzed by examining the empirical evidence as regards voluntary mergers, the issues involved in involuntary mergers, and the issue of why conversions occur and who benefits from them.
VOLUNTARY MERGERS: THE EMPIRICAL EVIDENCE
Ostensibly, a corporation enters into a merger because management believes the owners' wealth will be increased in some way. 2 Owners' wealth can be increased through increases in expected income and decreases in the level of risk of that income. The primary benefit usually attributed to mergers is that of synergy. Synergy occurs whenever the value of the whole is greater than the value of the parts individually. In the case of SLAs, synergy would most likely take the form of either economies of scale which lead to increases in expected income, or an efficient management team taking over a less efficient association.These types of motivation can easily be read into the responses obtained in a survey of acquiring SLAs in mergers. The top four responses were that they absorbed other SLAs in order to:
1. become larger (able to make larger loans and improve service to the area),
2. gain a new branch with trained personnel at low cost,
3. grow or obtain a location for growth in a growing community, and
4. gain additional strength through increased size and additional reserves. 3

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The Savings and Loan Industry: Current Problems and Possible Solutions
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Tables ix
  • Acknowledgments xi
  • Introduction xiii
  • Note xv
  • Abbreviations xvii
  • 1 - History of the Federal Home Loan Bank System 3
  • Notes 23
  • 2 - The Determinants of Profitability for Savings and Loans 28
  • 3 - Measuring the Interest Rate Risk Exposure of Savings and Loans 49
  • Notes 67
  • 4 - Alternative Mortgage Instruments 70
  • Notes 97
  • 5 - Financial Futures and Forward Commitments 104
  • Notes 121
  • 6 - Consumer Lending 124
  • Notes 135
  • 7 - The Elimination of Interest Rate Ceilings 138
  • Notes 148
  • 8 - The Introduction of Now Accounts 152
  • Notes 160
  • 9 - Mergers and Conversions 163
  • SUMMARY AND CONCLUSIONS 184
  • 10 - The Future 189
  • Notes 195
  • Bibliography 197
  • Index 211
  • About the Author 217
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