In this first blog of a multi-part blog series we provide an overview of the general trends in the global banking M&A market. The following blogs will take a closer look at Global M&A themes and perspectives for 2022, including the impact of Russia-Ukraine war.
Challenging conditions in Europe
The global M&A activity recovered strongly in 2021, reflecting the upturn in many economies as the worst effects of the pandemic receded. Consolidation was a recurring theme, often driven by regulators eager to make banks stronger and reduce risk. Conditions for banks remain challenging in Europe with low interest rates are raging inflation. This has impacted margins and loan loss provisions and been another driver for consolidation. Some European banks have also divested US assets, to raise capital to reinvest into their core markets.
Due to a regulatory crackdown the prospects for mega deals have diminished in North America, after the record surge in deal value in 2021. Commission-driven businesses like insurance, wealth management and consumer finance attract European and international investors. These businesses are less capital absorbing and provide healthy, recurring revenues. Private equity (PE) firms, who have so far shunned Europe's banking market, are also eyeing up their options in this space; in a consolidated market, they see potential for higher profitability from fee-based services in the coming years.
Asian activity tends to be dominated by domestic buyers, partly due to restrictions on foreign ownership in certain key nations, although the Indian government has announced its intention to divest 6 of 12 public sector banks, which could present new opportunities.
Further consolidation in Switzerland expected with "Big 8" as winner
In Switzerland, there was a record increase in assets under management last year. The concentration on the "Big 8", which together with Credit Suisse and UBS will dominate the private banking market in Switzerland in the long term, is increasing. However, the gap between private banks is widening due to the negative impact of the economic environment, which will result in further consolidation in the market.
Higher importance of ESG and digitalization topics
ESG is another key factor that has started to influence banking M&A and is becoming the new normal with banks' credentials, and those of their corporate clients, under increasing scrutiny. In the same way the sector adapted to higher capital requirements, it's hoped that ESG will become absorbed into banks' operating models, although there may be some implementation costs regarding reporting and associated data gathering. Fintech and payments are heavily influencing the M&A landscape, with challenger banks entering markets and gaining share, and consolidation in the payments space, especially in mature markets. But also, traditional banks are rapidly developing their own digital capabilities.
Although year-on-year deal volume in the first half of 2022 declined due to the war in Ukraine, economic disruption, and surging inflation, deal value still rose on. 2022 should be another active year, characterized by further domestic consolidation, and continued interest in digital capabilities and assets with recurring revenues.