What are the Advantages of Internet Banks and Online Banking?

Internet banking provides the convenience and ease of modern banking that most customers want. Nowadays, most major banks provide online banking accounts, although there are also some internet-only banks who provide all of their services online. Some of these banks provide a range of online bank accounts to suit different needs, while others specialise in one particular area, for example, savings accounts.

Online Banking Security

When it comes to managing and safeguarding one’s finances on the internet, online baking security is of paramount importance. Most high street and internet-based banks have plausible security measures in place to protect internet banking users from possible online crime and ensure that their money is safe. These include:

  • Automatic log out – if, whilst banking online, a customer inadvertently forget to log out of their account, the respective bank will automatically log him off after a short period of inactivity.
  • Secure log in process – the process for logging into internet bank accounts, although different for each bank, generally requires a customer ID and a valid password in order to log in.
  • Bank card readers- Most banks have also introduced the to use of card reader, in which online banking users would need to insert their bank card and use their PIN number to generate a unique login code. This code will then be used to access their accounts.
  • Disabling user accounts – as a security feature, after several failed attempts to log in to internet banking, most banks will automatically disable a user’s account until he or she can be verified again.

Instant and Convenient Banking System

Banking on the internet does not only allow account holders easy and fast access to their monies but it also allows them to do so at their convenience. Unlike traditional banking, which is limited to the bank’s hours of operation, online banking facilities are available any time of the day or night. This means that those who find it difficult to visit the bank within its hours of operation will have the ease and convenience of conducting a range of activities from home, including:

  • Paying bills online
  • Setting up standing orders
  • Managing accounts
  • Viewing and printing bank statements
  • Transferring money between accounts

Transferring money from one bank account to another no longer requires a long trip to the bank. Internet banking users can transfer money in a matter of minutes. Those in certain regions can also enjoy the benefit of receiving payment and money transfers a lot quicker. In the UK, for example, most major banks are part of a payments clearing scheme called Faster Payments. This scheme enables participating banks to process electronic payments in a matter of hours, typically two hours, after the transaction has been made.

Self-Service Banking Online

One of the greatest advantages of internet banking to users is the ability to manage online bank accounts when it suits them. Internet banking also proves very practical to those who travel frequently, with many banks offering international online banking facilities. Another benefit of banking on the web is the ability to check on the progress of transactions. For example, users who make a cash or cheque deposit at their bank’s self-service kiosk can go home and check that the transaction has been noted by the bank and is showing in the account.

Security of Mobile Banking Application: Mobile Banking Technology

The advent of mobile banking technology has definitely brought flexibility in the ease of banking transactions, but at the same time has increased the risk of banking frauds. Various mobile banking applications have been introduced by international and local banks throughout the world, but most of them have not been tested to the extreme against banking fraud.

Customers are definitely feeling more comfortable completing transactions through their mobile handsets, but at the same time, an awareness of the threats that mobile banking technology poses before them is necessary.

Mobile Banking Technology Threats

The increasing number of developers for software being used on smart phones has its pros and cons. The fact cannot be denied that a large number of developers has reduced the effective cost of any mobile application, but several cases have been reported where a developer has compromised with little tricks such as phishing and scanning, that ultimately capture a user’s confidential bank account information.

Security Flaws with Mobile Banking Applications

Since mobile banking applications make use of the GSM (Global System for Mobile Communication) and GPRS (General Packet Radio Service), the security of a transaction being carried out through a cell phone, also depends upon the security of data transfer through these services.

The GSM network uses A3/A8 mechanism to authenticate a cell phone over a mobile network. The most common algorithm used in this process is the COMP128, which was broken by Wagner and Goldberg in less than a day. Also, GSM uses the A5 algorithm to encrypt transmissions between a cell phone and a base station subsystem. This algorithm was also reverse engineered and cracked.

The GPRS has its flaws as well. Owing to the low processing capabilities of smart phones, the WTLS (Wireless Transport Layer Security) key sizes need to be restricted. These restricted key sizes are unable to meet the security requirements of the mobile banking applications.

A detailed version of the security flaws and their remedies was provided by Kelvin Chikomo, Ming Ki Chong, Alapan Arnab and Andrew Hutchison, in their journal titled, Security of Mobile Banking, for the University of Cape Town.

Security Measures to be Taken By Banks And Mobile Networks to Prevent Mobile Banking Fraud

The security measures that must be adopted to prevent such threats have to be divided into two broad categories viz, the steps to be followed by the bank and those to be followed by the bank’s customers.

One important step that all banks can take is to provide an official mobile banking application to its customers, that prevents them from using an application developed by another individual or entity. This helps users from falling into ‘phishing’ traps set by fraudulent developers.

Secondly, a secure and encrypted data transfer must be enabled between the user cell phone and the service provider, in this case, the telecom carrier. All further connections to the banks servers should be done through dedicated lines or virtual private networks.

Thirdly, transactions that ask for credit or debit, must pass through multiple levels of authentication such as authentication of the cell phone, the customer identification number and the secret mobile PIN or personal identification number allotted to a customer.

Fourthly, at any time during a transaction, the PIN must not be allowed to be transferred as plain text. It should be encrypted and must be interpreted only at the sending and receiving ends.

Precautions Needed While Using a Mobile Banking Application

Never keep messages on the mobile device that contain information such as login passwords sent by the bank. Make a note elsewhere and delete the message.

Secure the information needed for authentication of the cell phone over a network, such as the SIM card number and the SIM card module.

Security is essential not only for the mobile banking application but also for the cell phone. Password protect the mobile device if possible.

Choose a strong password to use the mobile application. Do not use the same passwords that are used for logging into email accounts or public forums.

Try not to flash the firmware of the mobile device with a software not trusted by the mobile phone vendor. Possible vulnerabilities in an untrusted software leave the device prone to security threats.

Various mobile software protection software such as mobile antivirus programs are available in the market. Use such software on the cell phone to prevent any malware from exploiting the cell phone’s system.

Consumer Awareness is the Biggest Asset Against Mobile Threats

According to Victor Smilgys, Tech CU’s AVP of eCommerce and a mobile security expert, “Fraudsters know that the key to their success lies in the consumer” (source: Credit Union Offers Mobile Banking Security Tips published in Dark Reading). It is the consumers who benefit from technology and it is consumers who lose to fraudsters. An aware customer is many times better than any security system. Hence, the safe use of a mobile banking application lies in the hands of an aware customer.

Online Banking Security: Protect Your Online Bank Account

All online banking services provide encryption services using Secured Sockets Layer (SSL) and password protection online bank accounts. However, even with the best banking security, account customers still find their accounts hacked. Some people have thousands of dollars withdrawn from the account. These tips help secure your online bank account and avoid online banking fraud.

Internet Banking Security and Phishing Emails

One of the biggest security holes in online bank accounts is fraud due to phishing emails. Phishing emails look like legitimate correspondence from your banking institution. A phishing email attempts to scam the reader into typing the online bank checking account user name and password by providing a link that harvests private information. The link in the email goes to a fake online banking website, and the user name and password is used to gain access to an otherwise safe and secure bank account page.

The Best Online Banks Require Strong Password Protection

Online banking security includes difficult passwords. This means you do not use any private information or a simple dictionary word as your password value. The best online banks require strong passwords, which means they should have alphanumeric values with special characters. There should also be a minimum length. When you open a bank account online, the banking software asks for a configured password. Online sign up for an online bank account that has password protection rules to make it more difficult for strangers to access the account.

Online Banking Services and Other Personal Accounts

Some people create the same passwords for all online activities. This is a mistake. Using the same password across all online sites means your online bank account is more susceptible to successful hack attempts. For instance, if you use the same online bank account password as one used on a site that does not encrypt passwords and that site is hacked, the hacker now has your password. This password can be used to phish for your bank account details, email account access or other online websites. The increase of susceptibility increases if you use the same account name and password across all websites.

Online Internet Banking and Web Browser Security

Older web browsers such as Internet Explorer 6 (IE 6) are more susceptible to hacks and security breaches. Always keep the computer’s web browser up-to-date. Web browser security also includes updating the latest Windows update patch. Newer Windows operating systems including Windows XP, Windows 7 and Vista have an update service that downloads and installs the latest patches, protecting your computer from security hacks.

Investment Management and Investment Advice for Investors

There are various ways of reducing the risk of investing in equities. The most important is to invest in a portfolio of securities. The value of having a wide portfolio of different securities, instead of concentrating investment on a small number of individual stock or share items, is the reduction in the risk of a poor return. The investor in a portfolio is not putting all his eggs in one basket so that if one share performs badly, it is likely to matter very much because the other stocks and shares in the portfolio might perform well.

Investment management is the total administration of a customer’s portfolio of stocks and shares and unit trust holdings etc. if a bank provides an investment management services, it does so through a separate department or subsidiary company. The service will be provided within the framework of a formal customer agreement. To the banks which offer the service, investment portfolio management is really only profitable for large sums of money invested (perhaps $10,000-$50,000 or more). With smaller sums, the bank might try to persuade the customer to opt for unit trusts, instead of a personal portfolio of investments.

Risk can also be reduced by taking time and trouble to study the Stock Market in depth, and to make well informed investment decisions. An investor who knows more about financial matters and the Stock Market is likely to make better investments that produce a higher return. Not all investors have the time to study the Stock Market. They can improve their chances of doing well by obtaining expert advice, or asking an investment manager to make the investments on their behalf.

When a customer asks a bank to act as investment manager on his/her behalf, there are two different arrangements which might be made.

  1. The customer can give the bank a free hand to change the investments in the customer’s portfolio (to sell off some items and purchase new one) at the discretion of the banks investment managers. The customer will be told about the changes some time later. When the bank is given a free hand with investment decisions, the customer has a discretionary account.
  2. With a non-discretionary account, the bank must refer all proposed changes in the portfolio to the customer for approval.

The bank will prefer discretionary accounts to non-discretionary accounts in the case of small investors. With both discretionary and non-discretionary accounts, the bank will do all the routine paperwork, including dealing with rights issues and bonus issues of shares, redemptions of loans, and preparing a schedule of transactions for capital gains tax purposes. The bank will also hold the investors share certificates for safekeeping, and will handle the receipts of dividends and interest.

A banks fee for acting as investment manager is related to the value of the portfolio. This tends to mean that larger portfolios are much more profitable to manage, because fees are much higher, and are more able to cover direct cost and overheads and so make a profit. For the banks which offer an investment management service.

When a personal customer visits his bank to ask for investment advice, he does not expect just to be told that the bank has some experts that he can talk to. It is the job of the bank staff to be able to discuss investment matters in general terms and also to consider the customers financial position as a whole.

Online Banking: Easily Pay Bills, Manage Savings and More with Online Bank Accounts

Customer satisfaction with online banking software is on the rise. The Foresee Results/Forbes.com Online Financial Services Study utilizes the methodology of the American Customer Satisfaction Index to study the level of customer satisfaction with the quality of financial goods and services in the United States.

Foresee Results and Forbes.com found that customer satisfaction with the online banking industry has reached an all-time high, at 83 out of 100 points on the ACSI scale. To put this number in perspective, 80 points is considered the threshold for excellence. The study notes a consistently upward trend in online banking customer satisfaction over the last seven years and five consecutive study periods.

Online Banking – Internet Bill Payments, Savings Management and More

Online banking software allows bank account holders to perform a number of important banking transactions from their home or office computer, including:

  • Finding information on new products or services.
  • Opening new bank accounts, applying for loans, or purchasing investment products online.
  • Paying bills online.
  • Setting up automatic savings programs.
  • Viewing current account, loan and mortgage balances, transactions and statements.
  • Transferring money to internal or external accounts.

Types of Online Bank Accounts

Online banking software can accommodate most of the services offered by traditional banks. Customers can open and operate a checking account, savings account, investments, mortgages, loans and more, often from one banking interface.

Banking customers can choose to deal with a large or small bank, or a credit union online. Most traditional banks now offer online banking and several companies, such as ING Direct and NetBank, operate exclusively online.

Choosing the Best Online Bank

Customers may choose to use the online banking services of the bank already holding their accounts, or find an online bank to suit their individual needs. Three important factors to consider when choosing the best online bank are:

  • Online banking software functionality: choose an online bank that provides all of the necessary operations and functions, such as bill payments, statement viewing, personal information updating, etc.
  • Online bank account security (see below).
  • Interest rates on deposits and borrowing.

How to Ensure Secure Online Banking

In Canada, choose a bank and savings products that are registered with the Canadian Deposit Insurance Corporation (CDIC). In the United States, select an online bank with coverage from the Federal Deposit Insurance Corporation (FDIC). These entities protect consumer deposits in the event a bank fails.

While banks have measures in place to protect the integrity and security of their online banking software, account holders are responsible for creating secure passwords, logging out after banking sessions, and protecting their banking information at home and online.

Banking Options for Families: Alternatives to Banks for Household Financial Services

Although traditional retail banks are still the biggest players in the finance industry, there are alternatives to banks for excellent household financial services and products. Find out what banking options families have to save and grow their money.

Retail Banks

Retail banks are profit-driven and work to benefit their shareholders, often a small group of investors. Each bank is controlled by a board of directors, who make decisions on the types of services offered and the fees charged. Its customers have absolutely no authority in matters regarding the bank’s operations.

Banks are useful in many ways – they serve anyone and everyone and they usually offer a wide range of innovative financial products and services. However, banks also charge higher fees, higher loan interest rates and impose many restrictions.

Credit Unions

Unlike banks, credit unions are owned and controlled by their members – people who save and borrow with them. They are popular alternatives to banks for household financial services because they exist to provide affordable services to its members, who often belong to a group or association and who receive their profits through dividends and lower fees and loan interest rates.

Although smaller than banks, credit unions are found to provide excellent customer service. Figures released by Abacus – Australian Mutuals, the association representing credit unions and mutual building societies in Australia show that 85.7% of credit union members and 88.5% of building society members reported high customer satisfaction in a survey done in May 2015. Credit unions can also be more flexible and innovative. In fact, a credit union, not a bank, was the first financial institution in Australia to install an ATM and to use electronic funs transfer at point-of-sale (EFTPOS).

However, there are limited numbers of credit union branches and this can cause some inconvenience to members. And because most credit unions have no international banking ties, they are not very useful for those who travel abroad regularly.

Building Societies

Like credit unions, building societies are smaller, regionally based, with fewer financial products. They are customer-driven too and provide customers a strong sense of community. They have their origins in cooperative movements. In Australia, their numbers have shrunk to only nine presently due to decades of mergers and acquisitions. Even so, building societies have a big role in regional communities and have increased their commitment while bigger banks have closed down their branches and moved away.

Community Banks

Big banks’ aims are to make money, not to serve customers in the real sense. Not surprisingly, they have abandoned many smaller, rural areas, much to the disappointment and inconvenience of regional households. Fortunately, a few banks still care and join forces with local communities to build community banks. Often, the bank provides banking authority, financial services and products while a community-owned company runs the operation. One bank that has undertaken this challenge in Australia is Victoria’s Bendigo Bank.

Retail banks are not the only banking options for families, particularly those living in rural or regional areas. These families can consider more customer-centric alternatives to banks for household financial services such as credit unions, building societies and community banks.

U.S. Banking Regulations and Market Control: Foreign Investors and Nonbanking Industries Interest in Status Quo

David Wyss, chief economist at Standard & Poor’s, recently reported to The Washington Times that the S&P is concerned that the financial reform legislation, now pending as a Senate bill, would have adverse effects on foreign investors. Wyss states that “nearly half of the government’s publicly held debt” is held by foreign investors and the pending reform would be seen as the U.S. government’s “attempts to intimidate the Fed” and an attack on the Federal Reserve System’s independence.

Foreign investors are also looking at the U.S. Congress’s delay in reappointing Federal Reserve Chairman Benjamin Bernanke. On December 17, 2009, the Senate Banking, Housing and Urban Affairs Committee sent Bernanke’s nomination to the floor. A populist grassrote movement is developing in the U.S. against Bernanke’s reappointment. Sen. Bernie Sanders (I-Vt) managed to gain tripartisan support to place a hold on the senate vote until January 2010.

U.S. Government Concern with Fed Supervision and Transparency

Within the financial market reformation debate, U.S. lawmakers have constantly raised the issue of Fed transparency. Sen. Richard Shelby (R-Ala.) expressed the concerns of the major political parites in his questions to Bernanke at the December 3, 2009 reconfirmation hearing:

“If we were to go back, Mr. Chairman, and review the minutes and transcripts of all the Federal Open Markets Committee (FOMC) meetings between 2003 and 2008, I wonder what fraction of the time would have been devoted to issues involving supervision and regulation of … holding companies. Was it half the time? Was it a fourth of the time?”

Bernanke initially responded that in a typical meeting “there would be very little discussion of supervision.” He qualified, however, that “[r]ecently we’ve talked about it quite a bit because of the financial crisis,” he said. “But it depends on the situation.”

“‘Congress has a seat’ on the Fed’s rate setting committee,” said Bernard Baumoh, chief global economist at the Economic Outlook Group in a 12/30/09 The Washington Times article. “[A]s long as the Senate strings out a vote on Mr. Bernanke’s nomination and [on the] legislat[ive] debate” the U.S. government could maintain its seat on the FOMC.

The Elephant in the Room: Non-regulation of the Nonbank Financial Sector

Another question regarding direct government control over regulation of the U.S. banking industry is whether the nonbank financial sector will continue to go unregulated? There has been a huge development within the financial industry of financial entities, products, and transactions that make no reference to the word “bank” in their names.

The biggest of these financial growth markets include hedge funds, holding companies, and derivative trading. The growth of pay day lending within the U.S. domestic market also raises the issue whether there needs to be greater consumer protection against usurious payday lending financing. Charles S. Gardner, former senior official at the International Monetary Fund, notes that the nonbanking sector even operated outside of the reach of the Fed and expresses great concern regarding unregulated derivative trading.

“Requiring open trading of derivatives will help regulators identify potentially risky credit creation outside the regulated banking industry,” writes Gardner in his recent article “What the Senate Must Do Now.” Gardner proposes that the U.S. government needs to take a leading role in fostering global financial regulations.

A Senate floor vote is expected on Bernanke’s reappointment, but has been held over to January 2010. According to a joint statement released by lead negotiators, a “deal could be struck before the Senate reconvenes in January” on the pending financial reforms regulations.

Save Money by Using Online Banking: Advantages of Managing Checking & Savings Accounts Online

More and more people are taking advantage of all the bells and whistles that come with doing their banking online. Whether they use it for paying bills, staying on top of account activity or integration with accounting software, these features are well worth the time taken to learn how to use them. This article will look into how these banking features can help anyone to better manage their money.

Paying Bills Online

Many banks offer online banking to their customers for free and allow them to pay bills online without any additional cost. Some might charge for the use of this feature however, so checking with them before using this option is important. Anyone that starts using this feature will probably never go back to writing checks again. It’s easy to become addicted to the idea of going online to pay all your bills without having to worry about postage charges.

The ability to schedule payments weeks ahead of time and to configure regular automatic payments can also pay dividends. For example, many people are familiar with the interest savings that come from paying the mortgage bi-weekly instead of monthly but most mortgage companies charge a fee for setting this up. Most banks will allow this type of payment to be configured for free through online banking.

Monitor Account Activity with Online Banking

When two or more individuals spend money from the same account, it is not difficult to accidentally have overdrawn accounts that create bank charges. Checking the account activity online not only allows verification of existing funds but easy monitoring of scheduled bill payments. If the accounts of children with debit cards are setup this way, their shopping habits can be easily checked and their funds replenished without paying fees money transfer fees.

Integrate with Accounting Software

Many find it difficult to create and stick to a budget because they do not know how their money is being spent. Having access to banking information online can help with this as well. Most banks, and credit card companies, allow account data to be easily downloaded into your accounting software. When all spending data is consolidated in this way, the software can analyze spending habits and give a clear and accurate picture of where the money is going.

There are many ways to save money and time by managing banking information online. Some banks offer all the features mentioned here for free while some might charge for them. Talk with a representative at your bank or credit union or check out their web-site carefully before signing up for these services.

Mergers and Acquisitions: Basic Terminology

In order to grow and/or achieve adequate diversifications, companies often take the route of mergers and acquisitions. An acquisition is when a portion of a company, or the company in its entirety, is purchased by another company.

If the latter is the case, the acquisition of the entire company is also referred to as a merger or the complete amalgamation of one company by another. In most cases, mergers occur when two smaller companies combine their assets and liabilities to form a bigger company.

Mergers can also be defined as takeovers, although a takeover usually implies a hostile transaction. In contrast, in a friendly transaction (takeover), management of both companies usually agrees on the merger and encourages its approval with their respective stakeholders.

Statutory Mergers

When one company ceases to exist as a legal entity and merges all of its assets and liabilities into the purchasing company, this type of a merger is called a statutory merger. There are two types of statutory mergers:

  • a subsidiary merger; and,
  • a consolidation.

In a subsidiary merger, the purchased company (target company or simply target), becomes a subsidiary of the acquiring company (or acquirer). The reason why is often that the target company owns a popular brand and renaming it could potentially cause customer alienation.

In a consolidation, both merging entities cease to exist as former legal entities and agree to form a completely new legal entity. This type of statutory merger occurs when two companies are approximately similar in size and operations.

Horizontal Mergers

In a horizontal merger, the two merging entities operate in the same kind of market, typically as competitors. One of the main reasons why companies pursue horizontal mergers is to achieve economies of scale, which is achieving larger combined operations through consolidation of operations, resources, and trimming of the excess “fat.” As a by-product, with two former competitors now operating as one, higher market presence is also achieved by having one less competitor to worry about and by becoming a larger entity that cannot be easily “pushed around” by other players.

Vertical Mergers

In a vertical merger, the two companies merge along the production process. For example, the acquirer could be a supplier targeting a distributor. Through this type of merger, aside from cost savings, a newly formed entity achieves greater control of the production and distribution.

If an acquirer buys a target company ahead of it in the production chain (e.g. a jewelry manufacturer buying a precious metals mining company), this type of vertical merger is called backward integration. Alternatively, when the acquirer buys a company that is down from it on the production chain (e.g. an iron ore mining company buying a steel manufacturer), this is called a forward integration.

Conglomerate Mergers

Conglomerate mergers occur when the two merging entities’ core businesses are unrelated to each other. For example, General Electric transformed itself into a conglomerate after purchasing numerous companies operating in a wide spectrum of industries, from home appliances, finance, aircraft parts, media, and medical equipment.

Conglomerate corporate structure was very popular during the 1960s to 1980s. The rationale was diversification across both cyclical and non-cyclical industries in an effort to offset potential cash flow volatilities.

At this point, it would be useful to review a short history of mergers in the U.S., which can be read about in the next article in the series.

History of Mergers in the U.S.: Blueprint of the M&A Activity Since the Early 20th Century

Through each wave, mergers and acquisitions varied, usually depending on how much and in what manner the regulatory landscape had changed. The same could be said about the types of industries most heavily involved in each of the waves. Usually, the majority of the M&A activity clustered in a relatively small number of industries as they went through dramatic transformations, such as industry deregulation or technological evolution.

Starting with the Reign of Horizontal Mergers (1897 to 1904)

As the 19th century came to a close, regional markets experienced greater growth rates, mostly due to railroads. With more and more railroads weaving a complex web all over the country, many companies managed to capitalize on the fast-emerging U.S. economy. Operating within a rather lax regulatory environment, many horizontal mergers contributed to the creation of almost monopolistic-type markets in a number of industries. By 1904, the U.S. Supreme Court brought the first wave to a halt with its landmark decision that significantly limited this type of mergers.

Vertical Mergers Take Over (1916 – 1929)

By the time the 1920s arrived, cars, radios and vastly improved transportation infrastructure further advanced the U.S. economy. The second wave of mergers and acquisitions, much like the first wave, was marked by sharply rising stock prices.

However, the regulatory landscape was not exactly favorable towards horizontal mergers and the resulting creation of huge companies that would often monopolize their market segments. Instead, vertical mergers became increasingly popular, as many companies sought to integrate forward or backward along the production chain, which, in turn, led to the creation of oligopolies.

Note that this wave of mergers came to a screeching halt with the devastating stock market crash of 1929.

Conglomerates Rise from the Ashes (1965 – 1969)

By the time capital markets recovered from the 1929 crash, the regulatory environment was vehemently opposed to both horizontal and vertical mergers because both types were perceived as an obstacle to healthy competition with any industry.

Companies that wanted to achieve higher growth rates had to look outside their own market segments, which is how conglomerates stepped onto the scene. Truth be told, many of the conglomerates formed during this period eventually ended up underperforming the market. And their reign effectively ended in 1969 when antitrust laws took a sharper turn, “curbing the enthusiasm” of the conglomerates in the process.

All Mergers Are Back in Vogue, Including Hostile Takeovers (1981 – 1989)

In the 1980s, all types of mergers were much more favorably accepted than was the case two decades earlier. It was a combination of factors, including decreasing interest rates and increasing stock prices, both of which contributed to the popularity of leveraged buyouts. Although hostile takeovers were not exactly a novelty, tapping into the high-yield bond market enabled many takeovers that would not have happened otherwise.

This period was also marked by sophisticated takeover strategies, including corporate raid and its variants, such as greenmailing. A corporate raid is a term used to define a certain type of hostile takeovers, whereby the acquirer immediately sells all of the assets of the target company, essentially dissolving the target.

Greenmailing also involves asset selloffs of a target company, only instead of actually going for it, the acquirer promises to withdraw the takeover offer, provided the target buys back the already purchased assets at usually a stiff premium. Either way, shareholders of takeover companies usually ended up shortchanged.

The Long-Running Bull Market Boosts Merger Activity (1992 – 2001)

After the early 1990s recession, mergers and acquisitions intensified yet again. Many companies enjoyed high market valuations, enabling them to engage in takeovers and to pay for them with their equity. In addition, the regulatory landscape became more open to consolidations and foreigners gaining access to North American capital markets via takeovers. Industries such as banking, healthcare, defense and telecom were among the particularly active ones. Note that the fifth wave ended with another crash; that of the tech bubble in 2001.

The Bigger the Better (2003 – Present)

A more pronounced M&A activity returned in 2003, with a bounty of new deals coming to the table. It appears we are currently in the midst of the sixth wave, which is marked by high transaction volumes, more consolidations, and the creation of large companies that are much better equipped to deal with the cutthroat global competition.