Why do banks merge?

The banking industry is consolidating at an accelerating pace, yet no conclusive results have emerged on the benefits of mergers and acquisitions. We analyze the Italian market, which is similar to other main European countries. By considering both acquisitions (i.e. the purchase of the majority of voting shares) and mergers we evidence the motives and results of each type of deal. Mergers are more likely between a more and a less services-oriented bank; they seek to improve income from services, but the resulting increase is offset by higher staff costs; return on equity improves because of changes in the capital structure. Acquisitions are more targeted towards banks with a poor credit management record; they aim to restructure the loan portfolio of the acquired bank; improved lending policies result in higher profits