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Do Large Bank Mergers Affect The Performance of Large Banks? A Case study of Bank of America, Citigroup, and

JPMorgan Chase

Abstract

In this paper, I examine the overall performance changes after large mergers of the three largest banks in the United States as of 2007: Bank of America, Citigroup, and JPMorgan Chase. I study six mergers (two mergers for each bank) announced between 1998 and 2004, and trace overall bank performance using return on equity (ROE), return on assets (ROA), and bank stock prices. To do this, I evaluate performance before the announcement date of a merger, between the announcement date and the completion date of a merger, and after the completion date of a merger. I find that very large mergers negatively affect bank performance. These mergers add more volatility to the performance of banks, especially during the implementation stage of a merger. It is evident that the overall performance of very large banks deteriorates after very large mergers even while their dominance in the market increases.

Yelena BryantUniversity of Massachusetts, Boston

College of Management, Honors ProgramProfessor Theodora Welch and Professor Martin Konan

May 2008

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Table of Contents

Table of Exhibits, Graphs, and Tables............................................................................................ 3I. INTRODUCTION....................................................................................................................... 5

Contribution ................................................................................................................................ 6Structure of the Thesis ................................................................................................................ 7

II. Literature Review....................................................................................................................... 7Post-Merger Performance Based on ROE and ROA .................................................................. 9Stock-Price Reaction................................................................................................................. 10

III. Sample Description and Statistics........................................................................................... 12Merger Sample.......................................................................................................................... 12Sources of Data ......................................................................................................................... 14Performance Ratios................................................................................................................... 14

Return on Equity (ROE) ....................................................................................................... 14Return on Assets (ROA) ....................................................................................................... 15

Assumption ............................................................................................................................... 15ROE and ROA Analysis Model................................................................................................ 15Stock Behavior Analysis Model ............................................................................................... 16Criteria Determining a Successful Merger ............................................................................... 17

IV. Empirical Results.................................................................................................................... 18Bank of America ....................................................................................................................... 18

NationsBank and BankAmerica Merger............................................................................... 18Bank of America and Fleet Merger ...................................................................................... 25

Citigroup ................................................................................................................................... 30Travelers Group and Citicorp Merger................................................................................... 30Citigroup and Golden State Bancorp. Merger ...................................................................... 37

JPMorgan Chase ....................................................................................................................... 42Chase and JPMorgan Merger................................................................................................ 42JPMorgan Chase and Bank One Merger............................................................................... 49

IV. Summary and Conclusion....................................................................................................... 54APPENDICES .............................................................................................................................. 56

Appendix I ................................................................................................................................ 57Return on Equity (ROE) and Return on Assets (ROA) for Bank of America, Citigroup, and............................................................................................................................................... 57JPMorgan Chase ................................................................................................................... 57

Appendix II ............................................................................................................................... 61Capital Market Data for Bank of America, Citigroup, and JPMorgan Chase ...................... 61

Appendix III.............................................................................................................................. 80Bank and Merger Sample Data for Bank of America, Citigroup, and JPMorgan Chase ..... 80

REFERENCES ............................................................................................................................. 84

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Table of Exhibits, Graphs, and Tables

Exhibit 1, Summary of Studies on the Performance of Banks Involved in Mergers...................... 7Exhibit 2 Merger Sample ........................................................................................................... 13Exhibit 3 ROE and ROA Analysis Model ................................................................................. 16Exhibit 4 Stock Behavior Analysis Model................................................................................. 17Table 1 NationsBank and BankAmerica Merger, Ratios Variance ........................................... 18Graph 1 (a) Quarterly Return on Equity for Bank of America, 3/31/93 12/31/03.................. 20Graph 1 (b) Quarterly Return on Assets for Bank of America, 3/31/93 12/31/03.................. 21Table 2 NationsBank and BankAmerica Merger, Stock Variance ............................................ 22Graph 2 (a) Bank of America, Stock Prices 30 Days before Announcement and 30 Days after

Completion of a Merger........................................................................................................ 23Graph 2 (b) Bank of America, Behavior of Stock between Announcement and Completion

Dates of a Merger.................................................................................................................. 24Table 3 - Bank of America and Fleet Merger, Ratios Variance ................................................... 25Graph 3 (a) Quarterly Return on Equity for Bank of America, 9/30/98 12/31/07.................. 27Graph 3 (b) Quarterly Return on Assets for Bank of America, 3/31/93 12/31/03.................. 28Table 4 - Bank of American and Fleet Merger, Stock Variance .................................................. 29Table 5 Travelers Group and Citicorp Merger, Ratios Variance............................................... 30Graph 4 (a) Quarterly Return on Equity for Citigroup, 3/31/93 12/31/03.............................. 32Graph 4 (b) Quarterly Return on Assets for Citigroup, 3/31/93 12/31/03.............................. 33Table 6 - Travelers Group and Citicorp Merger, Stock Variance................................................. 34Exhibit 5 (a) Citigroup, Stock Prices 30 Days Before Announcement and 30 Days After

Completion of a Merger........................................................................................................ 35Exhibit 5 (b) Citigroup, Behavior of Stock between Announcement and Completion Dates of a

Merger................................................................................................................................... 36Table 7 Citigroup and Golden State Bancorp. Merger, Ratios Variance................................... 37Graph 6 (a) Quarterly Return on Equity for Citigroup, 3/31/97 12/31/07.............................. 39Graph 6 (b) Quarterly Return on Assets for Citigroup, 3/31/97 12/31/07.............................. 40Table 8 Citigroup and Golden State Bancorp., Stock Variance ................................................ 41Table 9 Chase and JPMorgan Merger, Ratios Variance ............................................................ 42Graph 7 (a) Quarterly Return on Equity for JPMorgan Chase, 6/30/95 12/31/05.................. 44Chart 7 (b) Quarterly Return on Assets for JPMorgan Chase, 6/30/95 12/31/05 ................... 45Table 10 Chase and JPMorgan Merger, Stock Variance ........................................................... 46Exhibit 8 (a) JPMorgan Chase, Stock Prices 30 Days before Announcement and 30 Days

After Completion of a Merger .............................................................................................. 47 Exhibit 8 (b) JPMorgan Chase, Behavior of Stock between Announcement and Completion

Dates of a Merger.................................................................................................................. 48Table 11 JPMorgan Chase and Bank One Merger, Ratios Variance......................................... 49Graph 9 (a) Quarterly Return on Equity for JPMorgan Chase, 12/31/98 12/31/07................ 51Graph 9 (b) Quarterly Return on Assets for JPMorgan Chase, 12/31/98 12/31/07................ 52Table 12 JPMorgan Chase and Bank One Merger, Stock Variance .......................................... 53Exhibit 5 Determining a Successful Merger.............................................................................. 54Table 13 Return on Equity and Return on Assets for Bank of America, Quarterly Data: 3/31/03

- 12/31/07 .............................................................................................................................. 58

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Table 14 Return on Equity and Return on Assets for Citigroup, Quarterly Data: 3/31/03 -12/31/07 ................................................................................................................................ 59

Table 15 Return on Equity and Return on Assets for JPMorgan Chase, Quarterly Data: 3/31/03 - 12/31/07 .............................................................................................................................. 60

Table 16 Stock Performance around the NationsBank and BankAmerica Merger ................... 62Table 17 Stock Performance around the Bank of American and Fleet Merger......................... 65Table 18 Stock Performance around the Travelers Group and Citicorp Merger....................... 68Table 19 Stock Performance around the Citigroup and Golden State Bancorp. Merger........... 72Table 20 Stock Performance around the Chase and JPMorgan Merger .................................... 75Table 21 Stock Performance around the JPMorgan Chase and Bank One Merger ................... 77Graph 10 Bank Ranking Based on Total Assets........................................................................ 81Exhibit 6 (a) Merger Sample...................................................................................................... 82Exhibit 6 (b) Merger Sample ........................................................................................................ 82Exhibit 7 Bank Ranking Based on Consolidated Assets ........................................................... 83

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I. INTRODUCTION

In this paper, I investigate the performance of the three largest banks in the United States

that have participated in large mergers1: Bank of America, Citigroup, and JPMorgan Chase. I use

three criteria to evaluate performance: return on equity (ROE), return on assets (ROA), and stock

price. I analyze two mergers for each bank, six mergers in total, announced between 1998 and

2004. I chose this specific time period when there were no major economic shocks to the

performance of banks. The late 1990s and the early 2000s were relatively prosperous for the

banking industry and the United States economy in general. This made it easier for me to control

for variables that could have affected bank performance other than a merger.

In order to use ROE, ROA performance ratios, and bank stock prices to analyze whether

mergers have an effect on overall bank performance, I test for changes in these indicators before

the announcement date of a merger, between the announcement date and the completion date of a

merger, and after the completion date of a merger.

Banking deregulation in the late 1990s made it easier for banks to merge and expand

geographically. As a result, banks that were large are becoming even larger. These very large

banks are transforming the banking industry. They are responsible for the stability of the

financial system. As a result, their performance can be very crucial to the overall performance of

the financial system and the economy.

My results demonstrate that the financial performance of the three largest banks in the

United States does not improve, but worsens, after large mergers. Large mergers add more

volatility to the overall bank performance thus, more risk to the bank. On average, the banks

stock prices drop between the announcement and the completion dates. Also, mergers increase

1 I do not address the differences between mergers and acquisitions and refer to both as mergers

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volatility in the overall bank performance especially during the implementation stage of a

merger. This performance deterioration may have negative implications in the long-run.

Currently, the overall performance of very large banks is worsening even though their

dominance in the market is growing. Eventually, investors may lose confidence in the banks and

start withdrawing money like in a recent bank run that happened with Bear Stearns in March,

2008. Even if the government is willing to step in to bail out a failed bank the financial system

and the economy will still be damaged and the financial system will be exposed to more

systematic risk. Thus, the performance of large banks should periodically be examined and

improved.

Contribution

My study differs from the existing literature in several ways. The previous studies that

examine pre-merger and post-merger performance of banks mainly focus on mergers from the

1980s and the early 1990s. But I examine mergers that occurred in the late 1990s and the early

2000s.

Ratio analysis is widely used to analyze post-merger results. However, some studies just

concentrate on one ratio either ROE or ROA. For instance, Knapp, Gart, and Becher (2005)

only focus on the impact of mergers on ROE and not ROA. I, on the other hand, focus on both

performance ratios: ROE and ROA. By focusing on both ratios I am able to better assess the

merger effect on bank performance.

Unlike other researchers, I analyze the performance of banks between the announcement

date of a merger and the completion date of a merger. Since other researchers tend to examine

several hundreds of mergers at one time, they cannot possibly look at the performance of each

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bank between the announcement and the completion dates. But since I only focus on the largest

three banks and 6 mergers in total, I am able to individually measure the bank performance

between the announcement and the completion dates of a merger for each bank.

Structure of the Thesis

The remainder of this paper proceeds as follows: first, I review the empirical literature

that studies the performance of banks that are involved in mergers. Second, I describe my merger

sample. I also describe in detail the methods I am using to investigate the performances of the

three largest U.S. banks. Third, I present my results. And finally, I conclude by summarizing the

main findings.

II. Literature Review

Exhibit 1, Summary of Studies on the Performance of Banks Involved in Mergers

Summary of Studies on the Performance of Banks Involved in MergersConclusion Author/s of a

StudySummary

Mergers Lead to Performance Gains

Cornett and Tehranian (1992)

The authors examine the performance of thirty large bank mergers between 1982 and 1987. The authors find that on average, the merged banks perform better than other banks in the industry. Also, the authors find a significant correlation between stock prices and performance, arguing that the market can accurately forecast performance improvements ofbanks after mergers.

Craig and dos Santos (1996)

The authors examine mergers that occurred in the late 1980s and the early 1990s. The authors find that the merged banks outperform the industry in the post-merger period. The authors report that acquired banks go from underperforming in the industry to outperforming it in terms of both ROA and ROE. The authors also find that the changes in performance begin one year after the merger.

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Conclusion Author/s of a Study

Summary

Mergers do not Lead to Significant Performance Gains

Berger and Humphrey (1992)

The authors examine mergers that occurred in the 1980s and that involved banks with at least $1 billion in assets. The authors conclude that mergers of large banks do not lead to significant changes in return on assets (ROA).

Rhoades (1990), Rhoades (1993), andRhoades (1994)

In Rhoades (1990) and Rhoades (1993) the author examines 13 mergers involving billion dollar banks. In both studies the author finds no performance effect due to mergers. In Rhoades (1994) - the author provides a summary of the studies examining the changes in the bank post-merger performance for the period between 1980 and 1993. The author finds that mergers do not result in improved operatingperformance.

Pilloff (1996), andPilloff and Santamero (1996)

In Pilloff and Santamero (1996) the authors conclude that profitability is unaffected by merger activity. In Pilloffs study (1996) five out of the six profitability measures show no significant change. Pilloff finds only a small impact of mergers on performance. The authors find no significant change in post-merger ROE.

Akhavein, Berger, and Humphrey (1997)

The authors examine large mergers that occurred between 1981 and 1989. The authors report no significant change in ROE after mergers.

Peristiani (1997)

The author examines mergers that occurred in the 1980s. The author finds no performance improvement after the merger.

DeLong (2003)

The author examines mergers that occurred between 1991 and 1995. The author finds no significant changes in post-merger performance.

Evanoff and Ors (2002)

The authors examine mergers that occurred between 1984 and 1999. The authors find that overall profitability declines relative to the industry in each of the five post-merger years.

Knapp, Gart, and Becher (2005)

The authors examine 80 large mergers occurred between 1987 and 1998. The authors find that overall profitability declines relative to the industry in each of the five post-merger years. The authors also find that credit quality is the most important factor driving the post-merger decline in ROE. The authors find that on average the market reaction to merger announcements is negative the authors conclude this is due the post-merger tendency to under-perform. The authors also find that stock-price reactions to merger announcements reflect the post-merger results.

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Post-Merger Performance Based on ROE and ROA

Exhibit 1 above summarizes the studies that examine post-merger bank performance. It

shows that most empirical studies that examine post-merger performance of banks conclude that

on average, mergers do not lead to significant positive changes in performance. As a result, some

suggested that managers are unable to generate benefits from bank mergers on average (Knapp,

Gart, and Becher, 2005).

Some studies compare bank profitability ratios, such as the return on assets (ROA) and/or

the return on equity (ROE) before and after mergers relative to peer groups of banks that did not

engage in mergers. Earlier studies by Cornett and Tehranian (1992) and Craig and dos Santos

(1996) find that the bank performance increases following the merger.

Cornett and Tehranian examine thirty large bank mergers that occurred between 1982 and

1987. The authors find that on average, the merged banks perform better than other banks in the

industry. Cornett and Tehranian use mean annual ROA and find that the merged banks under-

perform the industry in the three years prior to merger, but outperform the industry in the three

years following the merger. But this study has been widely criticized by Pilloff (1996) who

argues that Cornett and Tehranian chose banks that performed well in the late 1980s and

excluded many banks from the southwest region that performed poorly at that time.

Similarly to Cornett and Tehranian (1992), Craig and dos Santos (1996) also find that

mergers lead to performance gains. The authors examine mergers that occurred in the late 1980s

and the early 1990s. Craig and dos Santos find that merged banks ROE and ROA are larger than

ROE and ROA for the industry. Thus, the authors conclude that the merged banks outperform

the industry in the post-merger period.

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Earlier studies by Berger and Humphrey (1992) examine the 1980s mergers among banks

with at least $1 billion in assets. Berger and Humphrey find no significant changes in ROA. This

suggests that bigger banks that were involved in the merger activity in the 1980s did not improve

their performance like smaller banks did. Similarly, the study by Akhavein, Berger, and

Humphrey (1997) reports no significant changes in post-merger ROE between 1981 and 1989.

Akhavein, Berger, and Humphrey analyze changes in performance experienced in the same set

of large bank mergers as examined by Berger and Humphrey.

Other empirical studies also conclude that mergers do not lead to significant performance

gains. The studies conducted by Rhoades in 1990, 1993, and 1994 report no significant

performance effects due to mergers. Similar to Berger and Humphrey (1992) and Akhavein,

Berger, and Humphrey (1997), Pilloff studies large mergers. Another study by Knapp, Gart, and

Becher (2005) examine eighty large mergers that occurred between 1987 and 1998. The authors

find that overall performance declines relative to the industry in each of the five post-merger

years. Knapp, Gart, and Becher also find that merging banks tend to under-perform the industry

in the first five post-merger years, mainly due to problems with credit quality and below-average

generation of fee income. According to the authors credit quality is the most important factor in

driving the post-merger decline in ROE.

Like Knapp, Gart, and Becher, Evanoff and Ors (2002) find that overall bank

performance declines relative to the industry in each of the five post-merger years. Similarly,

empirical studies by Pilloff (1996), Pilloff and Santamero (1996), Peristiani (1997), and DeLong

(2003) find no significant performance gains due to mergers.

Stock-Price Reaction

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In addition to analyzing post-merger performance using ROA and ROE, some scholars

analyze market reaction to bank merger announcements. The empirical literature is mixed on the

markets ability to accurately predict successful mergers (Knapp, Gart, and Becher, 2005). The

early study by Cornett and Tehranian (1992) finds a significant correlation between stock prices

and long-term bank performance. The authors argue that the market can accurately forecast

performance improvements of banks after mergers.

Unlike Cornett and Tehranian, Piloff (1996) finds no correlation between market reaction

and long-term bank performance. But Knapp, Gart, and Becher find the market reaction to bank

merger announcements on average to be negative. The authors suggest that the negative market

reaction toward mergers is due to the post-merger tendency of merged banks to under-perform.2

According to the authors, stock-price reactions to merger announcements accurately reflect the

post-merger results.

Knapp, Gart and Becher try to explain why the empirical literature is mixed on the

markets ability to accurately predict successful mergers. The authors argue that different

findings might be the result of a constantly changing environment. They state that according to

Flannery (1999) the environment in which banks merge is continually changing mostly due to

deregulation and technology. Now the banking deregulation of the late 1990s permits very

diverse banking institutions to merge together into different geographical areas making it

difficult to examine potential value creation of bank mergers.

2 For more discussion on post-merger bank performance see section Post-Merger Performance Based on ROE and ROA prior to this section.

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III. Sample Description and Statistics

Merger Sample

As I mentioned in the introduction, I examine the performance of the three largest banks

in the U.S. (based on consolidated assets and total assets see Graph 10 and Exhibit 7 in

Appendix III) that were involved in very large mergers over the period 1998 2004. Exhibit 2 on

the next page and Exhibit 6 (a) and Exhibit 6 (b) in Appendix III show the merger sample details.

My sample contains some of the largest, most notable bank mergers. These mergers were heavily

publicized in the media thus, I assume that investors had a lot of information to assess the

impact of a merger on a bank and their reaction should be reflected in the banks stock price.

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Merger Sample

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1998 1998 2000 2002 2004 2004

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$ B

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Bank of America=NationsBank+BankAmerica Corp.

Citigroup=Travelers Group+Citicorp

JPMorgan Chase=Chase+JPMorgan

Citigroup+Golden State Bankcorp, Inc.

Bank of America+Fleet Bank

JPMorgan Chase+Bank One

Exhibit 2 Merger Sample

Note:

The mergers are ranked by the acquisition cost. Out of the six mergers that I examine, the Travelers and Citicorp merger involves the highest price while Citigroup and Golden State Bankcorp involves the lowest price. Later in the study I compare the most expensive with theleast expensive acquisitions to see whether more expensive acquisition affect the bankperformance differently than the least expensive acquisition.

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Sources of Data

I collected balance sheet and income statement data for Bank of America, Citigroup, and

JPMorgan Chase from Mergent Online database. I collected stock price data from Yahoo!

Finance.

The two databases that I had access to: the Compustat database and the Mergent Online

database did not have quarterly ratio data that I could use in my study. The Compustat database

reported average quarterly data (where annual ratios were divided by 4 to compute quarterly

ratios). As a result, the quarterly data that was reported in the database did not vary from one

quarter to another. But for my study it was important to get ratios that would show the volatility

of performance throughout a year in order to assess whether the merger affected the bank

performance.

On the other hand, the Mergent Online database, reported quarterly data that varied from

one quarter to another, but the reported data were not always complete and consistent. A lot of

years were missing and for some years only one or two quarters data were reported. Thus, for

my study I used excel spreadsheet to calculate financial ratios (ROE and ROA) for all three

banks using the financial statements that I downloaded from the Mergent Online database.

Performance Ratios

I use two profitability ratios return on equity (ROE) and return on assets (ROA) to

measure the overall bank performance before and after the merger.

Return on Equity (ROE)

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Return on equity is also called return on net worth.3 ROE measures the success of

management in using the capital invested in the bank to generate a return on that capital.4 I

calculate return on equity by dividing the net income of the bank by the amount of its total

shareholders' equity.

Return on Assets (ROA)

ROA measures the success of management in using the assets of the bank to generate

profits.5 Higher ROA indicates better efficiency. I calculate return on assets by dividing the net

income of the bank by the amount of its total assets.

Assumption

While it is likely that there are factors unrelated to the mergers that affect bank

performance during these time periods, for the sake of simplification I will assume that these

factors are insignificant. Based on the consistency of my results, I can conclude that it is likely

that during the studied time periods the mergers were dominant factors in bank performance.

ROE and ROA Analysis Model

I use the following model to analyze the performance of banks after mergers:

3 In this paper I refer to this ratio as return on equity (ROE)4 Definition is adopted from the article Bank Performance around the Introduction of a Section 20 Subsidiary by Marcia Millon Cornett, Evren Ors, and Hassan Tehranian in The Journal of Finance, February 2002, Volume LVII, 1: 501-521 and the book by Dun & Bradstreet called Industry Norms & Key Business Ratios, One Year. Desk-Top Edition, 2002-2003. 5 Ibid.

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Exhibit 3 ROE and ROA Analysis Model

Using ROE and ROA ratios, first, I trace the performance eight quarters (two years)

before the announcement of a merger and eight quarters after the completion of a merger. In the

model above the numbers from 1 to 8 represent the eight quarters. Second, I trace the

performance between the announcement and the completion dates of a merger. In the model

above the two circles represent the announcement and the completion dates. The variable x

stands for the number of days it takes for a merger to be complete after its announcemt. Third, I

calculate variance for both ROE and ROA for three time periods: variance before the

announcement of a merger, variance between the announcement and the completion dates, and

variance after the completion date of a merger. By computing variance for all three time periods

I am able to assess at which point the performance of a bank becomes the most volatile (most

risky).

Stock Behavior Analysis Model

I use the following model to trace the behavior of a stock:

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Exhibit 4 Stock Behavior Analysis Model

First, I trace the performance of stock thirty days (1 month) before the announcement

date and thirty days after the completion date of a merger. In the model above each vertical line

represents one day. Second, I trace the behavior of stock between the announcement and the

completion dates of a merger. The two circles in the model above represent the announcement

and the completion dates. Again x stands for the number of days it takes for a merger to be

complete after its announcement. Third, I calculate variance of bank stock before the

announcement of a merger, variance of bank stock between the announcement and the

completion dates, and variance of bank stock after the completion date of a merger. And then I

compare variance for all three time periods to assess at which point bank stock price is the most

volatile (most risky).

Criteria Determining a Successful Merger

I consider a merger to be successful if it fulfills two criteria:

1) The variance of ROE and ROA eight quarters after the completion date of the merger is lower

that the variance of ROE and ROE eight quarters before the announcement date of the merger.

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2) The variance of the 30-day stock price after the completion of the merger is lower than the

variance of the 30-day stock price before the announcement of the merger.

IV. Empirical Results

Bank of America

NationsBank and BankAmerica Merger

ROE and ROA

Graph 1 (a) and Graph 1 (b) on pages 20 and 21 illustrate quarterly ROE and ROA for

Bank of America between March 31, 1998 and December 31, 2003. Two perpendicular lines

mark the announcement and the completion dates of the NationsBank and BankAmerica merger.

Before the announcement date of the merger, the performance of both ROE and ROA was

relatively stable. However, ROE and ROA become very volatile between the announcement and

the completion dates of the merger.

Table 1 bellow displays ROE and ROA for three time periods: before the announcement

date of the merger, between the announcement and the completion dates of the merger and after

the completion date of the merger:

Table 1 NationsBank and BankAmerica Merger, Ratios Variance

NationsBank and BankAmerica Merger, before Announcement

ROE Change ROA Change3/30/1992 3.784 -5.021 0.264 -3.0746/29/1992 4.314 13.998 0.315 19.2019/29/1992 4.698 8.904 0.333 5.858

12/30/1992 4.610 -1.867 0.340 2.1423/30/1993 3.432 -25.557 0.297 -12.7756/29/1993 3.816 11.183 0.317 6.8489/29/1993 3.879 1.646 0.325 2.527

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12/30/1993 3.834 -1.155 0.309 -4.874Variance 0.198 Variance 0.001

NationsBank and BankAmerica Merger, between Announcement and Completion Dates

ROE Change ROA Change3/31/1998 1.971 -48.597 0.158 -48.8906/30/1998 5.279 167.897 0.457 189.2959/30/1998 0.791 -85.025 0.063 -86.243

12/31/1998 6.282 694.654 0.467 642.917Variance 6.854 Variance 0.043

NationsBank and BankAmerica Merger, afterCompletion

ROE Change ROA Change3/30/1995 4.087 -34.944 0.312 -33.3096/29/1995 4.197 2.683 0.312 0.0769/29/1995 4.687 11.692 0.347 11.138

12/30/1995 4.281 -8.676 0.301 -13.2433/30/1996 4.945 15.517 0.341 13.5466/29/1996 4.498 -9.030 0.304 -11.0779/29/1996 3.903 -13.231 0.272 -10.312


It is evident from the table that the variance for ROE and ROA was the lowest eight

quarters before the announcement of the merger. However, the variance between the

announcement and the completion dates of the merger is the highest indicating that the volatility

and risk increased a lot during the implementation stage of the merger.

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Graph 1 (a) Quarterly Return on Equity for Bank of America, 3/31/93 12/31/03

Source: Mergent Online DatabaseNote:

The two perpendicular lines - | | - indicate the announcement and the completion dates of the NationsBank and BankAmerica merger. The announcement was made on 4/13/98 and the completion date was on 9/30/98.

Bank of America, Return on Equity (3/31/93 - 12/31/03)

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Graph 1 (b) Quarterly Return on Assets for Bank of America, 3/31/93 12/31/03


The two perpendicular lines - | | - indicate the announcement and the completion dates of the NationsBank and BankAmerica merger. The announcement was made on 4/13/98 and the completion date was on 9/30/98.

Bank of America, Return on Assets (3/31/93 - 12/31/03)

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Stock Behavior

In Graph 2(a) on page 23 the solid line represents the behavior of Bank of America stock

30 days before the announcement of the merger between NationsBank and Bank America and 30

days after the completion of the merger. The price of the stock went up right before the

announcement of the merger and moved up and down a lot (Graph 2 (a) on page 23) until the

completion of merger. After the merger was completed, the price of Bank of America stock

remained to be somewhat volatile. The table below shows the variance for three time periods:

Table 2 NationsBank and BankAmerica Merger, Stock Variance6


Variance of Stock before the Announcement Date

Variance of Stock between the Announcement and Completion Dates

Variance of Stock after the Completion Date

8.33151957 88.62904703 15.06038645

It is evident from the table above that the volatility of the stock between the

announcement and the completion dates was the highest while the volatility of the bank stock

was the lowest before the announcement date of the merger. Similar to the volatility of financial

ratios performance, Bank of America stock was the most volatile between the announcement and

the completion dates of the merger.

6 For detailed calculation of stock variance see Appendix II

23

Graph 2 (a) Bank of America, Stock Prices 30 Days before Announcement and 30 Days after Completion of a Merger

Source: Yahoo! Finance

Bank of America, 30 Days Before Announcement and 30 Days After Completion of a Merger

0

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1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63

NationsBank and BankAmerica Merger Bank of American and Fleet Merger

24

Graph 2 (b) Bank of America, Behavior of Stock between Announcement and Completion Dates of a Merger


Bank of America, Behavior of Stock between Announcement and Completion Dates

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25

Bank of America and Fleet Merger

ROE and ROA

Graph 3(a) and Graph 3(b) on pages 27 and 28 illustrate quarterly ROE and ROA for

Bank of America between September 30, 1998 and December 31, 2007. Two perpendicular lines

mark the announcement and the completion dates of the merger between Bank of America and

Fleet Bank. Before the announcement date of the merger, the performance of both ROE and

ROA was quite volatile. But between the announcement and the completion dates of the merger,

the volatility was not as high as it was before the merger. After the completion of the merger the

performance remains to be volatile. The performance of Bank of America remained to be very

volatile since the last merger that I described earlier.

Table 3 bellow displays ROE and ROA for three time periods: before the announcement

date of the merger, between the announcement and the completion dates of the merger and after

the completion date of the merger:

Table 3 - Bank of America and Fleet Merger, Ratios Variance

Bank of America and Fleet Merger, before Announcement

ROE Change ROA Change9/29/1997 1.677 -59.132 0.131 -59.375

12/30/1997 4.242 152.935 0.331 151.9273/30/1998 4.524 6.651 0.351 6.1946/29/1998 4.650 2.792 0.348 -1.0309/29/1998 4.633 -0.361 0.339 -2.657

12/30/1998 5.195 12.123 0.396 16.8783/30/1999 4.843 -6.774 0.357 -9.9026/29/1999 5.367 10.819 0.356 -0.177Variance 1.334 Variance 0.007

Bank of America and Fleet Merger, between Announcement and Completion Dates

ROE Change ROA Change

26

9/30/2003 5.792 7.928 0.396 11.36712/31/2003 5.682 -1.915 0.370 -6.6263/31/2004 5.497 -3.256 0.329 -11.2416/30/2004 4.017 -26.920 0.371 12.949Variance 0.687 Variance 0.001

Bank of America and Fleet Merger, after Completion

ROE Change ROA Change9/29/2000 3.840 -4.393 0.346 -6.859

12/30/2000 3.863 0.581 0.347 0.2823/30/2001 4.766 23.374 0.387 11.7386/29/2001 4.273 -10.338 0.345 -11.0019/29/2001 4.076 -4.615 0.330 -4.389

12/30/2001 3.296 -19.120 0.259 -21.3833/30/2002 3.852 16.864 0.363 39.9476/29/2002 4.283 11.169 0.379 4.480Variance 0.186 Variance 0.002

As I mentioned above, the volatility was the highest before announcement of the merger,

then it was the lowest 8 quarters after the merger was complete. However, the volatility of the

performance between the announcement and the completion dates still remained high compared

to the volatility after the completion of the merger.

Unlike the merger between NationsBank and BankAmerica, the merger between Bank of

America and Fleet did not cause a dramatic increase in volatility of the performance during the

implementation stage of the merger and after the merger was complete.

27

Graph 3 (a) Quarterly Return on Equity for Bank of America, 9/30/98 12/31/07

Source: Mergent Online DatabaseNote:The two perpendicular lines - | | - indicate the announcement and the completion dates of the Bank of America and Fleet merger. The announcement was made on 10/27/03 and the completion date was on 4/1/04.

Bank of America, Return on Equity (9/30/98 - 12/31/07)

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28

Graph 3 (b) Quarterly Return on Assets for Bank of America, 3/31/93 12/31/03


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Bank of America and Fleet merger. The announcement was made on 10/27/03 and the completion date was on 4/1/04.

Bank of America, Return on Assets, (9/30/98 - 12/31/07)

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29

Stock Behavior

The dashed line in Graph 2(a) on page 23 represents the behavior of Bank of America

stock 30 days before the announcement of the merger between Bank of America and Fleet Bank

and 30 days after the completion of the merger. Unlike before the announcement of the merger

between NationsBank and BankAmerica, the price of Bank of America stock went down before

the announcement of the merger between Bank of America and Fleet.

Table 4 below shows that the variance of stock between the announcement and the

completion dates of the merger was much higher than the variance before the announcement of

the merger or after the completion of the merger.

Table 4 - Bank of American and Fleet Merger, Stock Variance7

Bank of American and Fleet Merger




3.608996129 7.629488991 0.958010323

Unlike the volatility of financial ratios performance, Bank of America stock was the most

volatile between the announcement and the completion dates of the merger.


30

Citigroup

Travelers Group and Citicorp Merger

ROE and ROA

The performance of Citigroup before the announcement of the merger between Travelers

Group and Citicorp as well as between the announcement and the completion dates, and after the

completion date of the merger behaves very similar to the performance of Bank of America

before, during, and after the merger between NationsBank and BankAmerica that I described

earlier. In Graph 4(a) and Graph 4(b) on pages 32 and 33 it is evident that the performance is

very volatile during the implementation stage of the merger.

The variance for ROE and ROA is the highest between the announcement and the

completion dates of the merger:

Table 5 Travelers Group and Citicorp Merger, Ratios Variance

Travelers Group and Citicorp Merger, before Announcement

ROE Change ROA Change3/30/1992 4.532 -12.578 0.439 -17.1936/29/1992 4.913 8.407 0.405 -7.6669/29/1992 4.815 -1.995 0.410 1.084

12/30/1992 4.914 2.066 0.426 3.8603/30/1993 4.993 1.607 0.417 -2.0216/29/1993 4.657 -6.738 0.415 -0.3929/29/1993 5.484 17.764 0.486 16.934


Travelers Group and Citicorp Merger, between Announcement and Completion Dates

ROE Change ROA Change3/31/1998 5.057 8.257 0.268 5.9786/30/1998 5.088 0.603 0.272 1.5099/30/1998 0.897 -82.363 0.056 -79.538

12/31/1998 7.900 780.411 0.505 807.900

31

Variance 8.325 Variance 0.034

Travelers Group and Citicorp Merger, after Completion

ROE Change ROA Change3/30/1995 5.373 -31.986 0.342 -32.2256/29/1995 5.412 0.717 0.355 3.7999/29/1995 5.217 -3.604 0.354 -0.220

12/30/1995 5.277 1.159 0.366 3.2513/30/1996 7.133 35.177 0.486 32.9746/29/1996 5.826 -18.324 0.380 -21.9159/29/1996 5.757 -1.194 0.384 1.107


From the table above it is evident that the variance before the announcement date of the

merger is the lowest indicating that the merger caused the performance to be more volatile (and

more risky).

32

Graph 4 (a) Quarterly Return on Equity for Citigroup, 3/31/93 12/31/03


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Travelers Group and Citicorp merger. The announcement was made on 4/6/98 and the completion date was on 10/8/98.

Citigroup Return on Equity (3/31/93 - 12/31/03)

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Graph 4 (b) Quarterly Return on Assets for Citigroup, 3/31/93 12/31/03


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Travelers Group and Citicorp merger. The announcement was made on 4/6/98 and the completion date was on 10/8/98.

Citigroup, Return on Assets (3/31/93 - 12/31/03)

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34

Stock Behavior

Similar to the behavior of Bank of America stock before, during, and after the merger

between NationsBank and BankAmerica, Citigroup stock price goes up before the announcement

of the merger and drops significantly after the merger (Exhibit 5(a), page 35). But then the stock

price is very volatile between the announcement and the completion dates (Exhibit 5(b), and the

table below).

Table 6 - Travelers Group and Citicorp Merger, Stock Variance8

Travelers Group and Citicorp Merger




13.9063 109.8394701 15.45351183

From the table above it is evident that the volatility 30 days before the announcement of

the merger was the lowest. Again, indicating that the merger caused the market performance to

be very volatile mostly during the implementation stage of the merger and then after the

completion of the merger.


35

Exhibit 5 (a) Citigroup, Stock Prices 30 Days Before Announcement and 30 Days After Completion of a Merger


Citigroup, 30 Days Before an Announcement and 30 Days After a Completition of a Merger

0

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1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63

Travelers Group and Citicorp Merger Citigroup and Golden State Bancorp.

36

Exhibit 5 (b) Citigroup, Behavior of Stock between Announcement and Completion Dates of a Merger


Citigroup, Behavior of Stock between Announcement and Completion Dates

0

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1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127

Number of Days

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Travelers Group and Citicorp Citi Group and Golden State Bankcorp.

37

Citigroup and Golden State Bancorp. Merger

ROE and ROA

Graph 6(a) and Graph 6(b) on pages 39 and 40 portray quarterly ROE and ROA for

Citigroup between March 31, 2007 and December 31, 2007. Two perpendicular lines mark the

announcement and the completion dates of the Citigroup and Golden State Bancorp. merger.

After the completion of the merger between Travelers Group and Citicorp the performance

volatility has increased. However, between the announcement the variance increased even more

(see table below).

Table 7 Citigroup and Golden State Bancorp. Merger, Ratios Variance

Citigroup and Golden State Bancorp. Merger, before AnnouncementROE Change ROA Change

3/30/1996 7.133 35.177 0.486 32.9746/29/1996 5.826 -18.324 0.380 -21.9159/29/1996 5.757 -1.194 0.384 1.107

12/30/1996 5.794 0.647 0.425 10.7403/30/1997 5.153 -11.064 0.375 -11.8826/29/1997 5.014 -2.705 0.371 -1.0109/29/1997 4.052 -19.173 0.297 -19.810


Citigroup and Golden State Bancorp. Merger, between Announcement and Completion Dates

ROE Change ROA Change3/31/2002 5.790 21.408 0.458 24.2476/30/2002 4.765 -17.715 0.377 -17.6699/30/2002 4.854 1.866 0.380 0.798


Citigroup and Golden State Bancorp. Merger, after Completion

ROE Change ROA Change3/30/1999 4.698 67.712 0.361 63.0076/29/1999 4.608 -1.916 0.362 0.3589/29/1999 4.924 6.876 0.388 7.143

12/30/1999 4.856 -1.381 0.377 -2.953

38

3/30/2000 5.175 6.570 0.400 6.2746/29/2000 1.164 -77.516 0.082 -79.5319/29/2000 5.135 341.295 0.369 351.071


The variance after the completion of the merger was the highest indicating that the

merger increased volatility in performance and risk.

39

Graph 6 (a) Quarterly Return on Equity for Citigroup, 3/31/97 12/31/07


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Citigroup and Golden State Bank Corp. The announcement was made on 5/21/02 and the completion date was on 11/6/02.

Citigroup, Return on Equity (3/31/97 - 12/31/07)

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40

Graph 6 (b) Quarterly Return on Assets for Citigroup, 3/31/97 12/31/07


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Citigroup and Golden State Bank Corp. The announcement was made on 5/21/02 and the completion date was on 11/6/02.

Citigroup, Return on Assets (3/31/97 - 12/31/07)

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41

Stock Behavior

Graph 5(a) and Graph 5(b) on pages 35 and 36 trace Citigroup stock performance 30 days

before the announcement of the merger, 117 days between the announcement and the completion

dates, and 30 days after the completion of the merger. Similar to the stock behavior during other

mergers discussed above, Citigroup stock price decreased after the completion of the merger and

was very volatile during the implementation stage of the merger.

Table 8 Citigroup and Golden State Bancorp., Stock Variance9

Citigroup and Golden State Bancorp.




3.170538495 24.79017386 1.085091398

From the table above it is evident that the variance between the announcement and the

completion dates of the merger was the highest. Similar to Bank of America and Fleet merger,

the merger between Citigroup and Golden State Bancorp did not cause a dramatic increase in

volatility of the performance after the merger was completed. However, unlike the Bank of

America and Fleet merger, the Citigroup and Golden State Bancorp merger significantly

increased volatility of Citigroup stock price during the implementation stage of the merger.


42

JPMorgan Chase

Chase and JPMorgan Merger

ROE and ROA

Graph 7(a) and Graph 7(b) on pages 44 and 45 illustrate quarterly ROE and ROA for

JPMorgan Chase between June 30, 1995 and December 31, 2005. From both graphs it is evident

that after the merger the performance of bank became very volatile and decreased a lot compared

to the eight quarters before the announcement of the merger.

The table below shows that the variance eight quarters after the completion of the merger

was the highest. And the variance eight quarters before the announcement of the merger was the

lowest.

Table 9 Chase and JPMorgan Merger, Ratios Variance

Chase and JPMorgan Merger, before AnnouncementROE Change ROA Change

6/29/1994 4.750 44.410 0.293 47.6219/29/1994 3.605 -24.108 0.235 -19.762

12/30/1994 4.807 33.356 0.313 33.3913/30/1995 5.041 4.863 0.325 3.6646/29/1995 6.134 21.684 0.390 20.2169/29/1995 5.313 -13.388 0.320 -18.044

12/30/1995 7.169 34.922 0.417 30.3153/30/1996 5.673 -20.862 0.347 -16.669Variance 1.116 Variance 0.003

Chase and JPMorgan Merger, between Announcement and Completion Dates

ROE Change ROA Change6/30/2000 4.384 -22.716 0.275 -20.7039/30/2000 3.003 -31.513 0.208 -24.638

12/31/2000 5.650 88.155 0.334 61.0703/31/2001 2.765 -51.063 0.168 -49.753Variance 1.793 Variance 0.005

Chase and JPMorgan Merger, after CompletionROE Change ROA Change

6/29/1997 0.891 -67.775 0.053 -68.4339/29/1997 1.051 17.924 0.056 5.914

43

12/30/1997 -0.808 -176.885 -0.048 -185.2133/30/1998 2.387 -395.553 0.138 -387.9236/29/1998 2.405 0.753 0.139 0.7219/29/1998 0.092 -96.172 0.005 -96.115

12/30/1998 -0.915 -1093.365 -0.051 -1045.7723/30/1999 3.249 -455.225 0.185 -463.503Variance 2.388 Variance 0.008

The higher variance two years after the completion of the merger relative to the much

lower variance two years before the announcement of the merger indicates that the merger had

increased the volatility of the performance of the bank.

44

Graph 7 (a) Quarterly Return on Equity for JPMorgan Chase, 6/30/95 12/31/05


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Chase and JPMorgan merger. The announcement was made on 9/13/00 and the completion date was on 12/29/00.

JPMorgan Chase, Return on Equity (6/30/95 - 12/31/05)

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Chart 7 (b) Quarterly Return on Assets for JPMorgan Chase, 6/30/95 12/31/05


The two perpendicular lines - | | - indicate the announcement and the completion dates of the Chase and JPMorgan merger. The announcement was made on 9/13/00 and the completion date was on 12/29/00.

JPMorgan Chase, Return on Assets (6/30/95 - 12/31/05)

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46

Stock Behavior

Graph 8(a) and Graph 8(b) on pages 47 and 48 illustrate the behavior of stock for

JPMorgan Chase. Initially, before the announcement of the merger, the stock price went down

and was fluctuating a lot during the implementation stage of the merger.

Similar to the stock volatility of Bank of America (before, during, and after the

NationsBank and BankAmerica merger) and Citigroup (before, after, and during the Travelers

Group and Citicorp merger), the stock of JPMorgan Chase was the most volatile between the

announcement and the completion dates of the merger. And similarly to other banks, JPMorgans

stock volatility was the lowest before the announcement date of the merger indicating that the

merger added more volatility and more risk to the bank.

Table 10 Chase and JPMorgan Merger, Stock Variance10

Chase and JPMorgan Merger




5.131909462 12.16295093 7.406789892


47

Exhibit 8 (a) JPMorgan Chase, Stock Prices 30 Days before Announcement and 30 Days After Completion of a Merger


JPMorgan Chase, 30 Days Before an Announcement and 30 Days After a Completition of a Merger

0

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1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63

Chase and JPMorgan Merger JPMorgan Chase and Bank One Merger

48

Exhibit 8 (b) JPMorgan Chase, Behavior of Stock between Announcement and Completion Dates of a Merger


JPMorgan Chase, Behavior of Stock between Announcement and Completion Dates

0

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Number of Days

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Chase and JPMorgan JPMorgan Chase and Bank One

49

JPMorgan Chase and Bank One Merger

ROE and ROA

Graph 9(a) and Graph 9(b) on pages 51 and 52 show that the volatility of JPMorgan

Chase performance was very high before the JPMorgan and Bank One merger. The large merger

in 2000 between Chase and JPMorgan negatively affected the performance of the bank as I

discussed earlier. As a result, the volatility of the performance increased dramatically before the

JPMorgan and Bank One merger.

Table 11 JPMorgan Chase and Bank One Merger, Ratios Variance

JPMorgan Chase and Bank One Merger, before Announcement

ROE Change ROA Change12/30/1997 -0.808 -176.885 -0.048 -185.2133/30/1998 2.387 -395.553 0.138 -387.9236/29/1998 2.405 0.753 0.139 0.7219/29/1998 0.092 -96.172 0.005 -96.115

12/30/1998 -0.915 -1093.365 -0.051 -1045.7723/30/1999 3.249 -455.225 0.185 -463.5036/29/1999 4.076 25.443 0.228 22.7859/29/1999 3.621 -11.162 0.205 -9.779Variance 4.055 Variance 0.013

JPMorgan Chase and Bank One Merger, between Announcement and Completion Dates

ROE Change ROA Change12/31/2003 4.039 11.527 0.242 17.7323/31/2004 4.012 -0.650 0.241 -0.3586/30/2004 -1.193 -129.729 -0.067 -127.8149/30/2004 1.340 -212.303 0.125 -285.867Variance 6.275 Variance 0.021

JPMorgan Chase and Bank One Merger, after Completion

ROE Change ROA Change12/30/2000 1.577 17.712 0.144 15.5833/30/2001 2.149 36.298 0.192 33.4666/29/2001 0.943 -56.114 0.085 -55.8329/29/2001 2.381 152.429 0.210 147.516

50

12/30/2001 2.517 5.695 0.225 7.1313/30/2002 2.844 13.009 0.242 7.5286/29/2002 3.198 12.461 0.267 10.1649/29/2002 2.903 -9.224 0.246 -7.562Variance 0.558 Variance 0.004

The table above indicates that the variance between the announcement and the

completion dates of the merger was the highest. While the variance after the merger was the

lowest. This indicates that the merger, similar to the merger between Bank of America and Fleet

bank did not cause a dramatic increase in volatility of the performance during the

implementation stage of the merger and after the merger was complete.

51

Graph 9 (a) Quarterly Return on Equity for JPMorgan Chase, 12/31/98 12/31/07

Note:The two perpendicular lines - | | - indicate the announcement and the completion dates of the JPMorgan Chase and Bank One merger. The announcement was made on 1/14/04 and the completion date was on 7/1/04.

JPMorgan Chase, Return on Equity (12/31/98 - 12/31/07)

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JPMorgan, Return on Assets (12/31/98 - 12/31/07)

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-07

Graph 9 (b) Quarterly Return on Assets for JPMorgan Chase, 12/31/98 12/31/07

Source: Mergent Online databaseNote:The two perpendicular lines - | | - indicate the announcement and the completion dates of the JPMorgan Chase and Bank One merger. The announcement was made on 1/14/04 and the completion date was on 7/1/04.

53

Stock Behavior

The dashed line in Graph 8(a) on page 47 illustrates the behavior of stock 30 days before

the announcement of the merger and 30 days after the completion of the merger. JPMorgan

Chase stock price slightly went up before the announcement of the merger. But the stock price

did not move a lot during the 30 days before the announcement of the merger and 30 days after

the completion of the merger. However, Graph 8(b) on page 48 shows that the stock price was

moving up and down a lot during the implementation stage of the merger.

Table 12 JPMorgan Chase and Bank One Merger, Stock Variance11

JPMorgan Chase and Bank One Merger




1.752323656 4.059731491 0.296706452

The table above indicates that the variance of stock between the announcement and the

completion dates was the highest while the variance after the completion date was the lowest.

This shows that the merger had an effect on stock performance during the implementation stage

and not so much influence after the completion date of the merger.


54

IV. Summary and Conclusion

Earlier in the paper I established 2 criteria to determine a successful merger (see section

Determining a Successful Merger in Sample Description and Statistics chapter). Exhibit 5

(columns 2 and 3) below shows that only two out of six mergers in the sample satisfied the

criteria:

Exhibit 5 Determining a Successful Merger

Determining a Successful Merger

Variance of Post-

Completion ROE and ROA are lower than

Variance of Pre-

Announcement ROE and ROA

Variance of the 30-day stock price Post-

Completion is lower than the Variance of the 30-day stock

price Pre-Announcement

Variances ofROE, ROA, and 30-day price stockbetween

Announcement and Completion are Lower than Pre-Merger and

Post-Merger

NationsBank and BankAmerica Merger NO NO NOBank of America and Fleet Merger YES YES NOTravelers Group and Citicorp Merger NO NO NOCitigroup and Golden State Bancorp.Merger NO YES NOChase and JPMorgan Merger NO NO NOJPMorgan Chase and Bank One Merger YES YES NO

The column 4 in the exhibit above indicates that all six mergers in my sample

significantly increased the overall volatility in performance of the banks during the

implementation stage of the merger.

The bank stock price and performance ratios (ROE and ROA) tend to be very volatile

between the announcement and the completion dates of the merger. This increased volatility in

the overall bank performance is a clear sign of the increased risk.

55

Consistent with the prior findings by Peristiani (1997), Evanoff and Ors (2002), and

Knapp, Gart, and Becher (2005) I find that the overall performance of banks declines after a

merger. Unlike Berger and Humphrey (1992), Pilloff (1996), and Akhavein, Berger, and

Humphrey (1997) I find significant changes in return on assets (ROA) and return on equity

(ROE) after the completion of the merger. But I especially find significant changes in

performance during the implementation stage of the merger.

My results in the Empirical Results section demonstrate that more expensive acquisitions

that take longer time to complete a merger tend to increase volatility of overall bank performance

more than the least expensive acquisitions and those that take less time to complete. This

indicates that larger mergers tend to add more risk to the bank and more cost. This also indicates

that bank managers may want to decrease the time to complete a merger to minimize the

volatility and risk in the overall performance of the bank.

56

APPENDICES

57

Appendix I

Return on Equity (ROE) and Return on Assets (ROA) for Bank of America, Citigroup, and

JPMorgan Chase

58

Table 13 Return on Equity and Return on Assets for Bank of America, Quarterly Data: 3/31/03 - 12/31/07

Date ROE % ROA % Date ROE % ROA % 3/31/1993 5.85 0.40 9/30/2000 3.90 -13.23 0.27 -10.316/30/1993 3.62 -38.18 0.25 -37.59 12/31/2000 2.91 -25.50 0.22 -20.799/30/1993 3.90 7.81 0.24 -1.08 3/31/2001 3.83 31.54 0.31 42.20

12/31/1993 3.74 -4.15 0.24 -3.26 6/30/2001 4.10 7.27 0.32 5.453/31/1994 4.10 9.68 0.25 6.79 9/30/2001 1.68 -59.13 0.13 -59.376/30/1994 4.17 1.78 0.27 5.23 12/31/2001 4.24 152.93 0.33 151.939/30/1994 4.02 -3.55 0.25 -5.13 3/31/2002 4.52 6.65 0.35 6.19

12/31/1994 3.68 -8.61 0.24 -5.31 6/30/2002 4.65 2.79 0.35 -1.033/31/1995 3.90 6.15 0.24 0.90 9/30/2002 4.63 -0.36 0.34 -2.666/30/1995 4.06 3.97 0.25 5.23 12/31/2002 5.19 12.12 0.40 16.889/30/1995 4.44 9.34 0.29 14.77 3/31/2003 4.84 -6.77 0.36 -9.90

12/31/1995 3.98 -10.24 0.27 -6.42 6/30/2003 5.37 10.82 0.36 -0.183/31/1996 3.78 -5.02 0.26 -3.07 9/30/2003 5.79 7.93 0.40 11.376/30/1996 4.31 14.00 0.31 19.20 12/31/2003 5.68 -1.91 0.37 -6.639/30/1996 4.70 8.90 0.33 5.86 3/31/2004 5.50 -3.26 0.33 -11.24

12/31/1996 4.61 -1.87 0.34 2.14 6/30/2004 4.02 -26.92 0.37 12.953/31/1997 3.43 -25.56 0.30 -12.78 9/30/2004 3.84 -4.39 0.35 -6.866/30/1997 3.82 11.18 0.32 6.85 12/31/2004 3.86 0.58 0.35 0.289/30/1997 3.88 1.65 0.33 2.53 3/31/2005 4.77 23.37 0.39 11.74

12/31/1997 3.83 -1.16 0.31 -4.87 6/30/2005 4.27 -10.34 0.34 -11.003/31/1998 1.97 -48.60 0.16 -48.89 9/30/2005 4.08 -4.62 0.33 -4.396/30/1998 5.28 167.90 0.46 189.30 12/31/2005 3.30 -19.12 0.26 -21.389/30/1998 0.79 -85.03 0.06 -86.24 3/31/2006 3.85 16.86 0.36 39.95

12/31/1998 6.28 694.65 0.47 642.92 6/30/2006 4.28 11.17 0.38 4.483/31/1999 4.09 -34.94 0.31 -33.31 9/30/2006 4.05 -5.34 0.37 -1.356/30/1999 4.20 2.68 0.31 0.08 12/31/2006 3.89 -4.16 0.36 -3.659/30/1999 4.69 11.69 0.35 11.14 3/31/2007 3.90 0.29 0.35 -2.84

12/31/1999 4.28 -8.68 0.30 -13.24 6/30/2007 4.24 8.91 0.38 7.333/31/2000 4.94 15.52 0.34 13.55 9/30/2007 2.67 -37.09 0.23 -37.626/30/2000 4.50 -9.03 0.30 -11.08 12/31/2007 0.18 -93.16 0.02 -93.33

Bank of America Corp. (NYS: BAC)

59

Table 14 Return on Equity and Return on Assets for Citigroup, Quarterly Data: 3/31/03 -12/31/07

Date ROE % ROA % Date ROE % ROA % 3/31/1993 4.32 0.75 9/30/2000 5.76 -1.19 0.38 1.116/30/1993 3.71 -14.04 0.71 -6.07 12/31/2000 5.79 0.65 0.43 10.749/30/1993 4.75 28.08 0.55 -22.38 3/31/2001 5.15 -11.06 0.37 -11.88

12/31/1993 3.01 -36.63 0.28 -49.41 6/30/2001 5.01 -2.71 0.37 -1.013/31/1994 3.84 27.46 0.31 13.53 9/30/2001 4.05 -19.17 0.30 -19.816/30/1994 3.70 -3.67 0.28 -11.96 12/31/2001 4.77 17.69 0.37 23.929/30/1994 3.82 3.36 0.29 2.96 3/31/2002 5.79 21.41 0.46 24.25

12/31/1994 3.87 1.10 0.29 1.55 6/30/2002 4.76 -17.72 0.38 -17.673/31/1995 3.52 -8.86 0.30 4.16 9/30/2002 4.85 1.87 0.38 0.806/30/1995 3.81 8.02 0.37 21.31 12/31/2002 2.80 -42.29 0.22 -41.749/30/1995 4.43 16.27 0.43 17.02 3/31/2003 4.70 67.71 0.36 63.01

12/31/1995 5.18 17.14 0.53 23.80 6/30/2003 4.61 -1.92 0.36 0.363/31/1996 4.53 -12.58 0.44 -17.19 9/30/2003 4.92 6.88 0.39 7.146/30/1996 4.91 8.41 0.41 -7.67 12/31/2003 4.86 -1.38 0.38 -2.959/30/1996 4.81 -2.00 0.41 1.08 3/31/2004 5.18 6.57 0.40 6.27

12/31/1996 4.91 2.07 0.43 3.86 6/30/2004 1.16 -77.52 0.08 -79.533/31/1997 4.99 1.61 0.42 -2.02 9/30/2004 5.14 341.30 0.37 351.076/30/1997 4.66 -6.74 0.42 -0.39 12/31/2004 4.87 -5.19 0.36 -2.979/30/1997 5.48 17.76 0.49 16.93 3/31/2005 4.92 1.10 0.37 1.86

12/31/1997 4.67 -14.81 0.25 -48.02 6/30/2005 4.49 -8.83 0.33 -10.253/31/1998 5.06 8.26 0.27 5.98 9/30/2005 6.39 42.32 0.48 47.976/30/1998 5.09 0.60 0.27 1.51 12/31/2005 6.16 -3.56 0.46 -4.339/30/1998 0.90 -82.36 0.06 -79.54 3/31/2006 4.93 -19.99 0.36 -23.38

12/31/1998 7.90 780.41 0.50 807.90 6/30/2006 4.56 -7.45 0.32 -8.953/31/1999 5.37 -31.99 0.34 -32.22 9/30/2006 4.67 2.40 0.32 -2.616/30/1999 5.41 0.72 0.35 3.80 12/31/2006 4.28 -8.32 0.27 -13.669/30/1999 5.22 -3.60 0.35 -0.22 3/31/2007 4.11 -4.12 0.25 -8.89

12/31/1999 5.28 1.16 0.37 3.25 6/30/2007 4.87 18.71 0.28 13.043/31/2000 7.13 35.18 0.49 32.97 9/30/2007 1.74 -64.29 0.09 -66.546/30/2000 5.83 -18.32 0.38 -21.91 12/31/2007 -8.21 -571.73 -0.45 -579.20

Citigroup Inc. (NYS: C)

60

Table 15 Return on Equity and Return on Assets for JPMorgan Chase, Quarterly Data: 3/31/03 - 12/31/07

Date ROE % ROA % Date ROE % ROA % 3/31/1993 3.57 0.25 9/30/2000 3.00 -31.51 0.21 -24.646/30/1993 3.62 1.27 0.26 3.25 12/31/2000 5.65 88.16 0.33 61.079/30/1993 4.59 27.01 0.34 28.33 3/31/2001 2.76 -51.06 0.17 -49.75

12/31/1993 3.11 -32.34 0.23 -31.10 6/30/2001 0.89 -67.78 0.05 -68.433/31/1994 2.91 -6.37 0.19 -17.01 9/30/2001 1.05 17.92 0.06 5.916/30/1994 3.19 9.72 0.21 10.00 12/31/2001 -0.81 -176.89 -0.05 -185.219/30/1994 4.06 27.20 0.26 22.67 3/31/2002 2.39 -395.55 0.14 -387.92

12/31/1994 1.67 -58.86 0.10 -59.72 6/30/2002 2.41 0.75 0.14 0.723/31/1995 3.57 113.51 0.21 99.00 9/30/2002 0.09 -96.17 0.01 -96.126/30/1995 3.98 11.57 0.25 22.11 12/31/2002 -0.91 -1093.36 -0.05 -1045.779/30/1995 4.03 1.28 0.25 0.07 3/31/2003 3.25 -455.22 0.19 -463.50

12/31/1995 4.11 2.03 0.27 5.49 6/30/2003 4.08 25.44 0.23 22.793/31/1996 -0.45 -110.95 -0.03 -111.00 9/30/2003 3.62 -11.16 0.21 -9.786/30/1996 4.21 -1034.70 0.27 -1002.68 12/31/2003 4.04 11.53 0.24 17.739/30/1996 4.06 -3.56 0.27 -0.03 3/31/2004 4.01 -0.65 0.24 -0.36

12/31/1996 3.98 -1.89 0.25 -6.48 6/30/2004 -1.19 -129.73 -0.07 -127.813/31/1997 4.47 12.23 0.27 9.50 9/30/2004 1.34 -212.30 0.12 -285.876/30/1997 4.45 -0.46 0.26 -3.53 12/31/2004 1.58 17.71 0.14 15.589/30/1997 4.64 4.29 0.27 1.95 3/31/2005 2.15 36.30 0.19 33.47

12/31/1997 4.02 -13.36 0.24 -10.74 6/30/2005 0.94 -56.11 0.08 -55.833/31/1998 3.29 -18.17 0.20 -17.09 9/30/2005 2.38 152.43 0.21 147.526/30/1998 4.75 44.41 0.29 47.62 12/31/2005 2.52 5.70 0.23 7.139/30/1998 3.60 -24.11 0.23 -19.76 3/31/2006 2.84 13.01 0.24 7.53

12/31/1998 4.81 33.36 0.31 33.39 6/30/2006 3.20 12.46 0.27 10.163/31/1999 5.04 4.86 0.32 3.66 9/30/2006 2.90 -9.22 0.25 -7.566/30/1999 6.13 21.68 0.39 20.22 12/31/2006 3.91 34.63 0.33 35.919/30/1999 5.31 -13.39 0.32 -18.04 3/31/2007 4.07 4.05 0.34 1.46

12/31/1999 7.17 34.92 0.42 30.31 6/30/2007 3.55 -12.67 0.29 -14.533/31/2000 5.67 -20.86 0.35 -16.67 9/30/2007 2.81 -20.84 0.23 -21.496/30/2000 4.38 -22.72 0.28 -20.70 12/31/2007 2.41 -14.24 0.19 -16.57

JPMorgan Chase & Co. (NYS: JPM)

61

Appendix II

Capital Market Data for Bank of America, Citigroup, and JPMorgan Chase

62

Table 16 Stock Performance around the NationsBank and BankAmerica Merger


Price of Stock 30 Days Before the Announcement

of the Merger

Price of Stock 30 Days After the Completion of

the Merger

Price of Stock Between Announcement and Completion of the

Merger68.5 53.5 80.6268.06 53.69 80.7568.94 55.06 80.3769.06 52 77.8767.87 51.63 78.8769.06 48.94 7868.69 49.63 7769.94 53.88 78.570.19 52.81 77.570.37 53.94 76.569.19 48.06 72.6269.75 49 73.570.56 49.63 73.8171.12 52.88 7672.44 56.06 78.1973.56 54.44 7773.44 57.13 7674.44 56.25 73.9473.25 56.63 73.3772.5 53.94 74.4472.06 54.88 73.5671.12 57.13 76.8172.94 57.5 75.7573.12 58.5 75.6273.19 58.13 75.1273.87 60.38 75.1975.25 62.75 75.9475.44 62.44 77.574.25 60.13 7776.44 59.31 76.9480.62 57 76.12

Variance: 8.33151957 Variance: 15.06038645 75.1976

75.575.3175.3174.5675.3776.3177.1977.44

63



of the Merger


the Merger


Merger78.0678.0677.2575.3774.8175.7576.5676.1975.3174.7577.577.3778.1978.576.6979.9482.2583.6984.25

8786

87.1987

87.948685

85.6984.5682.6283.7583.3182.2582.0679.8779.3781.3779.7578.8774.8176.7577.9475.573.9471.06

64



of the Merger


the Merger


Merger72.5672.0670.0673.1974.9472.8771.3770.3170.3770.6269.25

6562.3157.557.3858.7557.25

5456.5653.7550.3854.557

56.8159

56.0653.2551.94

5458.7554.3856.0657.0655.5653.5

Variance: 88.62904703

65

Table 17 Stock Performance around the Bank of American and Fleet Merger

Bank of American and Fleet MergerPrice of Stock 30 Days

Before the Announcement of the

Merger


the Merger

Price of Stock Between Announcement and

Completion of the Merger77 81.47 73.57

77.64 80.51 72.8577.97 81.25 74.3679.69 82 75.1779.22 81.45 75.7378.6 81.05 75.99

79.05 81.97 75.5478.4 80.5 76.278.5 80.09 76.8478.8 80.28 76.15

78.72 80.78 75.6178.04 81.16 75.5179.22 80.08 75.8179.19 80.58 75.4179.55 81.39 74.7280.45 81.45 74.5780.35 81.25 73.9580.34 81.79 74.3780.67 80.9 7481.12 80.65 74.3581.74 80.49 74.982.5 80.98 75.05

82.06 81.52 75.4781.93 81.57 75.4381.7 80.1 76.35

81.41 78.55 76.6181.02 77.92 75.4581.03 78.43 75.4881.78 80.34 75.1181.86 80.18 7673.57 80.2 75.41

Variance: 3.608996129 Variance: 0.958010323 75.5975.8975.8576.4377.577.8878.979

66



Merger


the Merger


Completion of the Merger79.0679.3179.2579.5980.380.580.4379.0979.3279.1979.0179.0578.3578.578.379.2578.6879.0280.0781.8581.781.2782.24

8280.580.9281.4681.5581.5181.782

82.7681.6881.6281.9981.6581.5781.8681.5781.3781.34

8281.4581.71

67



Merger


the Merger


Completion of the Merger82

81.9282.1382.582.6282.1282.7482.4481.7779.9979.5580.3279.3980.1180.4580.0879.8578.7378.5378.3179.7480.181.0481.7780.9881.47

Variance: 7.629488991

68

Table 18 Stock Performance around the Travelers Group and Citicorp Merger

Travelers Group and Citicorp MergerPrice of Stock 30 Days


Merger


the Merger


Completion of the Merger55.63 32.5 7355.06 35.44 68.37

56 34.94 67.2556 34.84 67.31

55.63 35.63 66.554.88 39.81 66.8755.63 41.81 64.7555.13 42.75 63.3155.63 45.31 64.7555.75 43.94 64.3755.5 45.06 6557.75 46.63 65.25

59 46.31 63.7560 43.56 62.88

60.38 44.31 61.2560.25 45.5 60.75

61 47 60.6960.63 46.13 61.1960.81 44.13 62.19

62 44.13 61.8860.56 45 61.13

62 46.13 59.8862.5 44.88 60.2563.13 43.5 59.63

62 42.38 60.6960.5 41.94 61.9460 43.38 61.63

59.63 44.13 60.7561.25 45.31 62.6361.69 44.25 62.6373 44.44 63.56

Variance: 13.9063 Variance: 15.45351183 64.8763.4463.1362.7561.0661.6361.25

6363.88

69



Merger


the Merger


Completion of the Merger62.563.1364.3764.8764.6263.63

6262.2559.88

6062

61.6361.3160.6960.9462.69

6261.561.4460.6363.1363.6363.8164.5669.2568.37

6970.0671.0670.3770.9471.6972.62

6969.2567.1266.567.566

66.2568.3167.2565.3161.81

70



Merger


the Merger


Completion of the Merger62.7563.1361.1961.5658.7559.1956.75

5658.1959.5658.1956.1954.6353.8855.1354.6350.548.3144.3843.3844.541.1339.0642.1940.0639.540.8841.542.9443.1340.6940.1939.6339.3842.9440.540.2540.539.1937.535.7538.5634.534.5

71



Merger


the Merger


Completion of the Merger31.7532.5

Variance: 109.8394701

72

Table 19 Stock Performance around the Citigroup and Golden State Bancorp. Merger

Citigroup and Golden State Bancorp.Price of Stock 30 Days


Merger


the Merger


Merger48.84 37.89 45.2648.63 36.45 4546.76 36.87 45.3447.1 35.7 44.82

45.92 36.39 43.9848.11 35 43.547.62 36.14 43.3447.05 36.9 43.1846.53 35.82 42.445.45 36.44 41.9945.5 37.79 42.3444.7 38.94 42

44.15 38.54 4143.05 38.65 41.742.88 37.16 40.7143.3 38.97 41.2

43.96 38.88 40.1844.95 38.52 40.244.29 37.85 42.8342.43 37.85 43.0742.15 37.14 42.0644.77 37.56 40.4944.33 36.15 39.843.3 36.79 39.59

44.24 36.26 39.1245.4 36.62 37

45.76 36 39.1646.35 37.48 38.7546.78 37.13 38.4945.85 37.15 37.4845.26 37 37.01

Variance: 3.170538495 Variance: 1.085091398 39.5538.4737.5736.5536.936.3536.9436.236.9336.9

73



Merger


the Merger


Merger36

32.0427

29.5929.6530.7433.3133.9533.5432.330.8828.6530.431.5233.934.3134.0833.135.2435.8434.936.3535.7934.3535.18

3434.434.233.1532.8232.7529.3930.329.330.2831.0730.8730.1429.1529.3829.8829.829.1127.65

74



Merger


the Merger


Merger26.8327.5727.228.0829.5129.0229.65

3129.628.5127.9826.7327.8426.8928.5730.430.3134.1433.8535.7534.9835.5235.5335.4934.6735.736.336.537.0836.9537.6537.638.0137.89

Variance: 24.79017386

75

Table 20 Stock Performance around the Chase and JPMorgan Merger

Chase and JPMorgan MergerPrice of Stock 30 Days


Merger

Price of Stock 30 Days After the

Completion of the Merger


Completion of the Merger51.63 45.44 50.6951.44 44 5050.25 50.63 49.1352.44 52 46.5653.56 48.94 46.8853.5 49.25 46.5

52.31 48.69 44.6351.88 50.94 47.25

52 54.13 4752.75 53.31 46.0651.81 53.19 45.550.38 53 46.8850.69 51.44 46.1950.75 50.56 47.550.94 50.88 46.7552.75 51.69 45.5654.31 53.25 44.4453.25 53.06 42.8852.06 54.19 42.0652.69 55.12 40.8151.88 55.98 40.6953.25 54.99 37.8155.88 55.85 39.6956.31 54.64 39.5657.13 54.6 37.94

56 52.28 36.8857.25 52.33 38.9457.81 51.68 38.3857.5 51.95 38.38

52.81 52.55 40.0650.69 51.14 40

Variance: 5.131909462Variance:

7.406789892 4042.6943.7545.545.6945.544.4445.544.9443.56

76

Chase and JPMorgan MergerPrice of Stock 30 Days


Merger

Price of Stock 30 Days After the

Completion of the Merger


Completion of the Merger44.1342.8142.1342.5640.7540.8839.6338.5638.6937.4439.

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