Many banks have made acquisitions recently, and with acquisitions come rationalization of the network and integration of the customers at the acquired bank. A major acquisition and the subsequent integration is a pivotal event, and decisions made can significantly impact the success of the acquisition.
The first key question banks face after an acquisition is which branches to close or consolidate. This process is often straightforward at the start. Some branches may need to be closed to meet regulatory hurdles. If the acquired bank is in overlapping markets, there will also be branches in close proximity that can be consolidated.
But soon the right decisions start getting less clear. A recent article in the Wall Street Journal reports that this is the first year since at least 2002 that the number of bank branches will decline. This is often driven by closing “overlapping branches” after an acquisition, but banks are also “trying to zero in more aggressively on the most profitable locations in areas that generate the most deposits.”
While it is clear which branches are outperforming, it is extremely difficult to understand what will happen when a less profitable branch nearby is closed. The impact of closing a branch is influenced by countless factors: distance to the nearby branch, competitive landscape, demographics of the population, customer loyalty, and so on. This information can be combined in a predictive model that will calculate the impact of closing a branch and identify profitable opportunities. This can prove difficult in practice, but getting it right can make branch closure massively more profitable. (more…)