close
Share with your friends

The year 2020 will be remembered for many things – deal flow in global banking, however, won’t be one of them. Though banking industry fundamentals remained sound, the operating environment – triggered by the global economic slowdown and COVID-19 – hardened. Accordingly, global deal activity declined 26 percent and 41 percent, respectively, in volume and value compared to 2019. The US, India, China, Italy and the UK remain the most active markets as domestic banking deals continue to dominate, making up nearly three-quarters of total activity.

COVID-19 accelerated talk of M&A and continues to shape much of the European banking landscape. Weak profitability remains a sector-wide concern amid the combined pressures of negative rates on net interest income, sluggish progress in fee generation and limited progress on cost measures. Additionally, a spike in loan-loss provisions following an anticipated increase in NPLs has trimmed down post-tax profits. These sector challenges and weak valuations suggest an uptick in sector M&A is forthcoming.

In 2H2020, sector consolidation had already begun somewhat with a few large deals circulating. The recognition of “badwill” by European regulators might make deals more attractive going forward, especially for high-value transactions. It may also act as a catalyst for domestic rather than cross-border transactions in the near-term. Scale alone however will not be enough to drive deal activity – other factors like margin considerations, NPLs, business model fit, scope for meaningful cost cuts and potential value creation will take priority. The drive to consolidate, from a supervisory perspective, is a logical conclusion to remedy some long-term ECB-cited challenges facing the European banking sector.

While it is still difficult to decipher how the M&A market may evolve in 2021, there are signs of life. Though a global v-shaped economic recovery appears unlikely, several major themes could ignite near-term deal activity. These include:

  • A drop-in valuation has created a buyers’ market, especially for cash-rich private capital players and PE.
  • Digital innovation has normalized, and progressive banks are focusing on the acquisition of digital capabilities like AI and advanced analytics.
  • Organic capital generation alone remains insufficient to restore profitability; thus, banks are looking for options such as new capital issuance, sale or closure of portfolios etc.
  • Global banks are increasingly embedding environmental, social and governance in their risk-management framework. We expect banks to substitute existing business portfolios, though such portfolio transitions might take time.
  • Early signs of asset quality deterioration were seen in 2020. We expect more defaults to materialize in 2021.
  • Regulators in various countries/regions are either relaxing stringent capital requirements or easing deal restrictions, liberalizing and increasing foreign participation to foster deal activity.

After the COVID-19 pandemic, the banking and wealth management industry is experiencing an unseen movement towards consolidation. We see this happening in Belgium as well where the cost of doing business is continuously rising. Banks and wealth managers who survive will thrive on innovation and will create more focus and simplicity in their organizations and their legacy. The question remains, do you want to sit at the table or be part of the menu?

Koen De Loose
Head of Banking
KPMG in Belgium

Banking deals landscape in 2020

Global banking M&A market slumped in 2020, both in volume and their reported size. Deals that were close to signing or execution were moved forward and completed while those in initial phase or near were delayed. During the period, an uptick in non-domestic transactions was seen while at regional level, ASPAC deal activity remained relatively buoyant. 

Banking deals landscape 2020

Global Banking Deals, illustration

Top 10 core banking deals in 2020

In 2020, there were a total of 1,391 deals. Among the top 10 transactions basis deal value, domestic deals remained prevalent while only one cross-border  transaction was announced.5,6

KPMG Banking M&A Outlook 2021
Rank Target Name Target Country Bidder Name Bidder Nation Deal Value (US$bn)
1 Samba Financial Group SJSC Saudi Arabia National Commercial Bank SJSC Saudi Arabia 15.6
2 BBVA USA Banschares Inc United States PNC Financial Services Group Inc United States 11.6
3 Ahli United Bank BSC (cross border) Bahrain Kuwait Finance House Kuwait 9.8
4 Bank of Jinzhou-Credit Assets China Beijng Chengfang Huida Enterprise Management Co. Ltd China 6.4
5 TCF Financial Corp United States Huntington Bancshares Inc United States 5.9
6 China Everbright Bank Co Ltd China China Everbright Group Ltd China 5.4
7 Bankia SA Spain CaixaBank SA Spain 5.1
8 UBI Banca SpA Italy Intesa Sanpaolo SpA Italy 4.8
9 CenterState Bank Corp United States South State Group United States 3.2
10 CIT Group Inc United States First Citizens Bancshares Inc United States 2.2

  

Footnotes

Deals announced include pending and completed deals.
Deal value represents total value of announced transactions where value is disclosed publicly. Deal value is ranking value including net debt of target. 
Non-domestic banking deals include regional and inter-continental (excludes domestic) deals.
Banking deals include payment deals.
*Top 10 core banking deals (excluding payments, fintech transactions and other banking related/support services) only basis deal value. 
Source: ThomsonOne