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Students Zone - Answers to Case Study Questions
CASE STUDY 8.1: CROSS-BORDER BANKING BIDS IN ITALY
- Why do you think that Antonio Fazio wanted to see Italian banking consolidate before allowing foreign takeovers to take place?
Answer
Italian banks represented a major business opportunity at this point with indications of strong market growth in the future coupled with current poor returns meaning low share prices and potential vulnerability to takeover. Fazio’s motivation was largely nationalistic – he wanted to ensure a strong Italian banking system, both for the sake of the financial sector in Italy and also to guarantee continuing close links with the non-financial sector. Consolidation was seen as a way of making foreign takeovers more difficult, both by raising the size of potential targets and by giving the banks more time to raise their return on equity.
- Do you think that the European Commission was right to criticise the Italian central bank for its attitude towards such takeovers?
Answer
There is no definite right or wrong answer to this question. Most economists would argue that they were right because the benefits of a competitive market in banking services to Italian consumers and to corporate customers of Italian banks would outweigh the losses to the owners of those banks and some of their existing customers. Theoretically, if some people lose out as a result of the freeing up of the market they could be compensated out of the gains made by others. However, there are two potential counter-arguments to this view. Firstly, the takeovers might adversely affect certain groups, especially small and medium sized companies, who would not have any effective safeguards in a newly competitive market. Secondly, there is some controversy amongst economists about whether takeovers actually do ensure economic efficiency. It might be that allowing foreign competition to enter the Italian market and compete against domestic banks would give all the benefits available to consumers and there would be no need to go further and allow international transfers of ownership.
- What advice would you have given Mr Fazio in April 2005 about whether to allow the bids to take place or not?
Answer
Again there is no right or wrong answer to this question. Fazio’s obstruction of the takeovers eventually led to his resignation. In the light of this probably the best approach might have been to allow the bids to proceed but also to have energetically encouraged restructuring in the banking sector in order to ensure that future takeover targets would be valued at a reasonable price.
Other chapter answers >>
- Case Study 1.2 Karstadt Undertakes Investment for Survival
- Case study 1.3 Europe's International Trading Future
- Case Study 2.1 Porter's Diamond
- Case Study 2.2 The Coffee Market
- Case Study 3.1 Sugar Industry
- Case Study 3.2 FSC Dispute
- Case Study 3.3 Beef Hormones
- Case Study 4.1 SEM Effects of Business
- Case Study 4.2 Africa's Economic Integration
- Case study 5.1 The Effect of Exchange Rates on Businesses – The Us Dollar
- Case Study 5 2 Real Exchange Rates in the Euro-Zone
- Case Study 6.1 SEC to Rethink Post-Enron Rules
- Case Study 6.2 A Controversial New European Directive
- Case Study 8.2 The Future of the London Stock Exchange (LSE)
- Case Study 9.1 Back to Bread and Butter for Europe
- Case Study 9.2 Poductivity in European and International Labour Markets
- Case Study 11.1 Poorer EU Areas Lose Funding
- Case Study 11.2 A Diverse Approach to Curbing Greenhouse Gases
- Case Study 12.1 European and US Entrepreneurship Activity
- Case Study 12.2 EU Enlargement and the SME Sector
