Stocks of banks being bought, however, go up an average of 10 percent after the announcement. CEOs are paying too much and overestimating how much new profits they can wring from old firms, says Michael Bradley, a finance and corporate law professor at Duke University. Only when managers outperform expectations does the stock price recover in the long term. Even when their stock price drops, CEOs gain more from higher salaries and bonuses after mergers, according to a new study by two finance professors, Richard Bliss of Babson College and Richard Rosen of Indiana University. If bigger banks are more efficient, their customers aren't seeing the savings.
Critics say that large banks, which dominate certain markets, charge more because they can.
Two decades of consolidation have nearly halved the number of America's commercial banks, from about 14,500 in 1983 to about 8,000 at the end of last year. The number of branches, however, has risen steadily from 55,000 to 73,000 as banks follow their customers to the places they shop.