11.10.3.2 Size of the acquiring bank

The relative size of the acquiring bank (in relation to the size of the bank that is taken over) is a relevant characteristic: the larger the acquiring bank, the more capable it is to absorb the transfer of the ailing bank. Therefore, in many decisions the relative size of the acquiring bank was taken into account.

The relevance of the integration into a larger bank is illustrated by the Opening Decision on Nea Proton Bank. In that decision, the Commission noted that “if the bank was integrated in a larger and solid bank, it would probably give more confidence to depositors and increase the range of services offered to them, such that the bank would not have to continue offering interest rates on deposits which are significantly above the rate offered by most competitors”.1

In most cases, the acquiring bank was much larger than the ailing bank. For instance, Banco de Valencia was taken over by CaixaBank. The Commission noted that CaixaBank was much larger than Banco de Valencia. In terms of total assets, the ratio exceeded 1:15. The Commission therefore considered that the impact of the acquisition of Banco de Valencia on CaixaBanks’ accounts and prudential position was limited.2 This consideration can be found in many other decisions. The exact ratio is, however, not the same. For instance, in the case of Banco Gallego, the ratio exceeded 1:37. An even higher ratio can be found in the decision on the transfer of Banca Romagna Cooperativa (BRC) to ICCREA: the Commission noted that ICCREA was 50 times larger than the transferred activities in terms of total assets.3

It is possible that the acquiring bank is not larger than the ailing bank. It can even occur that the acquiring bank is much smaller than the ailing bank that it takes over. For instance, Eik Banki Foroya was taken over by TF Holding. The Commission observed that the assets bought by TF Holding were about five times higher than the total assets held by TF Holding.4 So the transferred business was absorbed into a smaller bank. However, the Commission noted that there were several measures to ensure the viability of the transferred business within the acquiring bank. The Commission noted that the fact that the FSC retained 30% of Eik Banki Foroya’s equity shares contributed to the long- term viability of the bank.5 The fact that the State remained a shareholder stabilised shareholding and ensured that one shareholder would be a large entity.

Another example is the case of AB Ukio bankas. The assets and liabilities of Siauliu bank (i.e. the acquiring bank) had almost doubled following the takeover of assets and liabilities from Ukio bank. The Commission did not consider this to be an impediment to Siauliu bank’s ability to manage the business of the combined banks. This was explained by the fact that the transferred assets were dominated by liquid assets, which would not present any management issues to Siauliu bank.6

These examples illustrate that the size of the acquiring bank is a relevant – but not decisive – factor in the assessment of the acquiring bank’s viability and capability of absorbing the transfer.