Consolidation through merger over bankruptcy

| 17 September 2008 07:07

As we plan for another day in financial turmoil, I have to admit to preferring financial services industry consolidation through merger to bankruptcy. I was just reading FT Alphaville‘s post on a proposed Lloyds TSB takeover of HBOS (the UK equivalent of a JP Morgan Chase takeover of Washington Mutual) and I thought, “what a lovely solution. Problem solved.”

After all, Lloyds could get HBOS for a song. The shares have been absolutely decimated.

Here is a stock that is down over 80% since the beginning of 2007. Unless you believe there is zero value in HBOS and they should be liquidated, I can’t see why this is not a neater solution than bankruptcy.

That brings me to JP Morgan Chase and Washington Mutual. The regulators in the U.S. should not just allow things to take their course going forward; they should be encouraging financial institutions to hold merger talks, offering temporary liquidity as an enticement for those having funding difficulties in the money markets. If there is any value left in the likes of Washington Mutual or some of the other beleaguered U.S. institutions, a merger would be so much more preferable to liquidation.

Just my thoughts. What do you think?

UPDATE: 925EDT: The NY Times is reporting that the U.S. regulators did exactly what I would have wanted them to do in the case of WaMu (See story here). As critical as I have been of the Federal Reserve and the Treasury, this Fed under Ben Bernanke has been far better than the Fed under Greenspan.

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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