ch 3 - LV10091 A Tale of Two Bank Mergers A Case Study in...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
LV10091 A Tale of Two Bank Mergers: A Case Study in Corporate Governance Issues during Acquisition Hoje Jo Santa Clara University Vivek Durairaj Santa Clara University Tim Driscoll Santa Clara University Andrew Enomoto Santa Clara University Joseph Ku Santa Clara University ABSTACT We examine the two recent acquisitions and their responses to offers. We suggest that while the managements at Bank of America and Merrill Lynch fail to exercise fiduciary prudence in their merger, the managements at Wells Fargo and Wachovia exercise fiduciary duty in their merger. We also compare the performance of the two banks, Bank of America and Wells Fargo, in terms of how corporate governance had an impact on their stock performance after their respective acquisitions. Wells Fargo’s effort in adhering to proper corporate governance, such as, no irregularities in executive compensation during and after merger, conservative credit practices, transparency of information, and proper due diligence in Wells Fargo - Wachovia merger, are relatively quite ethical and transparent. We suggest that Wells Fargo’s effective governance leads to better Wells Fargo’s stock performance than those of Bank of America and Philadelphia Banking Index, a benchmark used in the banking industry. Keywords: Corporate governance, bank acquisition, agency problem, stock performance INTRODUCTION Corporate governance is defined as “the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
1 controlled.” 1 Corporate governance aims to reduce or eliminate the agent-principle problem inherent in a corporation, thus helping to achieve the goal of any corporation, that is, maximization of shareholders’ wealth. One aspect of corporate governance deals with the responsibilities of management and board of directors of a corporation to its shareholders. Among these responsibilities, “the duty of due care requires that they act with the care that a reasonably prudent person in a similar position would exercise under similar circumstances, and that they perform their duties in a manner that they be in the best interest of the corporation.” 2 In this paper, we examine the actions taken by the management and board of directors (“the agents”) of two large U.S. financial institutions in regards to their handling of recent acquisitions and responses to offers. Particular attention is paid in this paper to how these corporations responded to the U.S. federal government’s interjection into the examined acquisitions. We assert that the agents at Bank of America (BAC) and Merrill Lynch (MER) failed to exercise duty of care in their merger, whereas, the agents at Wells Fargo (WFC) and Wachovia (WB) exercised duty of care in their merger. We also compare the performance of the two companies BAC and WFC, after their respective acquisitions to show how corporate governance had an impact on market’s perception of their stock.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern