Strength in the storm, KPMG’s annual analysis of the top 10 banking M&A trends, focuses on the key developments that will shape the financial services industry in 2017.
The year 2016 was not a record breaker for deal activity in the global banking and capital markets space. Even though the industry’s underlying fundamentals remained relatively unchanged, the operating environment became much tougher. We had predicted a higher level of deal activity in 2016; however, deal value and volume remained relatively stable compared to 2015. The continued regulatory pressures, combined with various geopolitical and economic events such as the US election, Brexit, the continued low interest rate environment and the economic slowdown in China all created uncertainty that lingered over the global markets and kept investors cautious.
Domestic deals were a predominant feature of 2016 (with a 73 percent share of total deals) with most deals announced in the US and China. Most deal activity was concentrated among small and medium-sized banks; continued regulation and increasing capital requirements inhibited acquisitions by the large global banks. Chinese and Japanese players focused more on regional and domestic growth and remained less active in overseas acquisitions. The year nevertheless witnessed a few mega-deals — the long-awaited stock exchange merger between London Stock Exchange and Deutsche Borse, the acquisition of regional Crédit Agricole banks by Sacam Mutualisation and the merger between National Bank of Abu Dhabi and First Gulf Bank. Most high-value deals were centered around ‘merger’ as a mode to improve financial strength plus build expertise, global network and synergies.
As the dust from the political uncertainty settles, we expect a reasonably healthy level of M&A in 2017. With President Donald Trump’s administration, interest rate hikes (actual and expected) and a talked-about relaxing of regulation, some of the pressure on local US banks is expected to subside. Additionally, overall deal activity is likely to pick up the pace thanks to: banks eyeing fee-based businesses; the European Central Bank (ECB) encouraging further consolidation amid overcapacity at European banks; continued non-core disposals by global banks; regional deals in Asia-Pacific; increased competitive pressures in the market driving continued demand for fintech innovation; and active NPL markets driven by weak balance sheets. At the same time, we expect the continued emergence of new non-financial services buyers – from real estate, industrials, technology and funds – to change the overall landscape.