Distress resolution strategies in the banking sector: Implications for global financial crises

Carapeto, M., Moeller, S., Faelten, A., Vitkova, V. & Bortolotto, L. (2010). Distress resolution strategies in the banking sector: Implications for global financial crises. International Finance Review, 11, pp. 335-360. doi: 10.1108/S1569-3767(2010)0000011015

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Abstract

This chapter investigates the effectiveness and the motivation behind the choice of different types of distress resolution strategies in the banking sector. This is a global study that analyzes key financial characteristics of distressed banks that were either acquired by other banks, divested assets, or were subject to government intervention, as well as the change in the financial profile of those distressed institutions from one year pre-deal to three years post-deal. The results show that governments intervene in the (relatively) best performers that only underperform in liquidity ratios, an indication of critical short-term flow problems. Distressed sellers, the underperformers of the three groups, enjoy much improved performance, in particular in cross-border deals. There is some evidence of foreign acquirers ‘cherry picking’ the least distressed banks, though no significant differences in target performance remain post-deal between cross-border and domestic deals. These findings provide some useful guidance for policy makers globally and for future financial crises that impact the banking sector.

Item Type: Article
Additional Information: Copyright Sage 2010
Uncontrolled Keywords: Banking sector; Distressed acquisitions; Distressed divestitures; Government intervention
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/13753

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