University of Bath PHD A comparison of British and German banking strategies in the context of European financial integration between 1993 and 2003 Janssen, Sven Award date: 2007 Awarding institution: University of Bath Link to publication Alternative formats If you require this document in an alternative format, please contact: [email protected] General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal ? Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Download date: 09. Oct. 2021 A comparison of British and German banking strategies in the context of European financial integration between 1993 and 2003 Sven Janssen A thesis submitted for the degree of Doctor of Philosophy University of Bath School of Management July 2007 COPYRIGHT Attention is drawn to the fact that copyright of this thesis rests with its author. This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognise that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without the prior written consent of the author. This thesis may be made available for consultation within the University Library and may be photocopied or lent to other libraries for the purposes of consultation. [Signature] UMI Number: U60194B All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U601943 Published by ProQuest LLC 2013. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Nivr J/>«?£003 ABSTRACT The British and German financial systems constitute a significant part of the European financial system(s). Banks are important institutional pillars of any financial system. The largest British and German banks are therefore agents that determine the structure of these financial systems. By studying the corporate strategies of eight publicly listed banks, this research shows how and why British and German banks pursued entirely different strategies between 1993 and 2003. The banks researched are The Royal Bank of Scotland (RBS), HSBC, Barclays, Lloyds TSB in Britain and Deutsche Bank, Dresdner Bank, Commerzbank and HVB in Germany. This two-country, longitudinal multiple case research argues that the beginning of the “completed” European Common Market in 1993, along with the global market liberalisation, disintermediation and rapid technological progress in the 1990s, provoked two fundamentally different strategic reactions by the banks. One took the form of a defensive strategy, whereby the bank remained focused on its domestic market. The other fully embraced all new opportunities and led to an international multi-business strategy. Yet, the attempt to capture all, or at least many, of the new opportunities deprived banks of their strategic focus. Effectively, neither of these corporate strategies promoted European financial integration to any significant degree. There exists little work on the interdependence of micro and macro structures in the banking industry. This investigation aims to fill the gap which has emerged following ample research into the European banking sector as an aggregate and the few case studies of specific German and British banks. Evidence is provided that banks which pursued a defensive strategy and accepted the premise of a coherent national financial system fared better than those which attempted to break out of a coherent financial system in order to embrace new business opportunities which were not compatible with the prevailing system. 3 4 ACKNOWLEDGMENTS The decision to do a PhD is, quite frankly, a rather selfish one, with consequences affecting far more people than just the researcher. At the beginning of this PhD project, just as now towards the end of it, was the desire to bridge my real world experience in banking by taking a more detached academic view. This thesis should lay the foundation for my future ambition of remaining committed to bridging things which appear unbridgeable. I would like to thank several people who in one way or another contributed to the completion of this thesis. First and foremost my parents, Inge und Werner Janssen, who have always encouraged me to pursue my dreams and aspirations until they turn into wonderful memories. Without their love and support, this project would not have been possible. I would like to thank my supervisor Dr Alan Butt Philip, who was there on many occasions to share his rich human and academic wisdom with me. My thoughts also go to the late David Fairlamb, former financial correspondent of Businessweek, who would have loved to see this research completed. I am indebted to many of my former colleagues from Bankhaus Metzler, affiliates of the Centre for Financial Studies at the Johann Wolfgang Goethe University in Frankfurt, clients in the fund management industry and the community of financial journalists in Frankfurt. During many discussions in different European financial centres, they contributed to this work and at times served as informal interviewees, sharing with me their insights into the European banking landscape. I also have to thank those who explicitly and consciously took time to talk to me about their professional experience. Finally, I would like to thank the following people who all in their special and individual way were important for this thesis to come about: Roger Eatwell, Anne Thomas, Steffen Kern, Chris Barnes, Christiane Hocke, Sabine Brendel, Yuka Kawakami-Seljegard, Celia Lane, Janine Roeder. I am extremely grateful to those of my close friends who understood that I wanted to pursue this dream and therefore put up with my abruptness, occasional grumpiness and mood swings. Thank you. 5 6 Contents CONTENTS Abstract 3 Acknowledgements 5 Contents 7 List of Diagrams 13 Abbreviations 17 1. The problem and the objective of this research 19 2. The playing field for banking strategies - EU financial integration 25 2.1. Introduction 25 2.2. European financial system(s): between markets and institutions 28 2.2.1. Disintermediation within a financial system from a market perspective 2.2.2. Pension reform and the implications for the financial system 2.2.3. The role of the state in the financial system 2.3. European financial markets - pooling liquidity 38 2.3.1. Money markets 2.3.2. Bond markets 2.3.3. Equity markets 2.3.4. Retail markets 2.4. What is a bank? 53 2.4.1. The rationale for banking regulation 2.4.2. Legal definition of a bank in the European Union 2.4.2.1. Treaty of Rome 2.4.2.2. First Banking Directive (77/780/EEC) 2.4.2.3. Second Banking Directive (89/646/EEC) 7 Contents 2.4.2A. Financial Sen/ices Action Plan (COM(1999) 232) 2.4.3. Legal definition of a bank in the UK 2.4.4. Legal definition of a bank in Germany 2.4.5. Microeconomic definition of a bank 2.4.6. Macroeconomic definition of a bank 2.4.7. Mergers & acquisitions in banking - a macro-force 2.5. Expectations at the outset of the European Common Market and concluding remarks on the benefits of integrating financial systems 81 3. Corporate strategy analysis and applicability to the banking sector 89 3.1. Introduction 89 3.2. Strategy analysis in its historical context 93 3.3. A multifaceted term: “strategy” as it is used in this research 101 3.3.1. Strategy as plan 3.3.2. Strategy as pattern and structure 3.3.3. Strategy as perspective 3.3.4. Strategic positioning 3.3.5. Strategy as ploy and tactic 3.3.6. Between micro and macrostructure: “strategy” in this research 3.4. Economic structures revisited - competitive forces in the banking industry 115 3.4.1. A framework for competition analysis 3.4.2. Barriers to entry in banking 3.4.3. Analysis of competition among established players in a banking market 3.4.4. The substitution problem for banking products and services 3.4.5. The bargaining power behind a bank’s asset-liability management 8 Contents 3.5. A bank’s resources determine its core competence 147 3.6. Banking: the link between micro-and macrostructures 153 4. Research philosophy and methodology 159 4.1. Introduction 159 4.2. The ontological perspective - bridging the micro/macro divide 163 4.3. Strategy and strategic management: an epistemological distinction 167 4.4. Case studies - a means of theory building 171 4.5. Triangulation 174 4.5.1. Accounting analysis 4.5.1.1. Income structure 4.5.1.2. Cost and risk management 4.5.1.3. Asset-liability structure 4.5.1.4. Profitability 4.5.2. Archival research 4.5.3. LexisNexis database survey 4.6. A note on the author’s background and concluding remarks 187 5.