Thursday, May 25, 2006

Two Important Financial Services Deals Today

Well, even in a depressed market, the M&A boom carries on. There were two rather significant deals in the financial services space today, one was a huge deal and the other relatively small (sub $1 billion) but important in many respects.

The first, which is on the forefront of most websites and financial journals, is the announcement that Regions and AmSouth would be merging their bank operations. Regions will be the surviving entity in this megamerger. The combined companies will have a market value of $26 billion. AmSouth is being valued at approximately $10 billion. This marks yet another "big deal" in the bank space. In the past two weeks we also saw Wachovia announce that it would be buying Golden West, the giant California thrift. While the Wachovia-GDW deal was met with skepticism from analysts and investors, the Regions-AmSouth deal has been viewed favorably.

The other deal that caught my attention was UBS' acquisition of ABN Amro's futures and options businesses for $386 million. The deal, which will create the largest futures and options trading entity in the world, is coming at a time when derivatives are hotter than ever. The options industry has seen tremendous growth in terms of contracts traded and is now being viewed favorably among institutions, breaking a longstanding history of retail investor interest. And the futures industry has seen remarkable growth in terms of contracts traded because of massive amounts of interest in the commodities boom. ABN has slowly been divesting many of its business units and perhaps UBS is getting a profitable, scalable business at an opportune time.

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