2017 Banking and securities M&A outlook
Trends in bank mergers and acquisitions
How will the regulatory environment affect bank mergers and acquisitions (M&A) trends? Will large national banks continue divestitures? Are there value creation opportunities for fintech? As executives navigate these uncertain waters, our banking and securities M&A outlook can provide insight necessary to chart a strong course. This report examines trends and expectations in banking, specialty finance, investment management (IM), and fintech. Take advantage of these insights to make confident decisions.
Bank mergers and acquisitions: Opportunity amid uncertainty
After 2015’s record year for banking and securities M&A, activity in 2016 tempered. While dealmaking increased in the latter part of the year, post-election uncertainty may slow 2017 M&A until greater clarity emerges around the coming regulatory landscape. Even so, large national banks are likely to continue strategic divestitures to trim their expenses and footprint, shedding non-core businesses and those which don’t generate sufficient return on investment. Meanwhile, large regional banks above $50 billion in assets could continue making strategic acquisitions to gain greater scale and absorb regulatory compliance and operational costs.
While financial technology (fintech) acquisitions have historically focused on revenue-enhancement opportunities, we see greater value-creation opportunities today in leveraging fintech as a tool for cost mitigation and rationalization. Continued advances in automation and other fintech applications can drive new efficiencies across banking and securities’ back office and customer service functions, but would require the creation and oversight of strong governance structures and control mechanisms.
Download the PDF to review 2016 M&A activity, our expectations for 2017, and the trends and issues which have the potential to influence banking M&A activity in the coming year.
Drivers of bank M&A trends
After three years of robust activity, banking and securities organizations may take a short pause in early 2017 before resuming M&A activity. Here are some 2017 influencers of bank M&A trends:
- The big unknown: Potential M&A impacts from post-election regulatory policy shifts. Policy and regulatory uncertainty following the 2016 presidential and congressional elections has increased, and may temper financial services M&A in the coming months. The specifics of any changes are yet to be determined and can be expected to take time to implement. Download the PDF to view potential regulatory impacts for 2017 sector M&A.
- Rise in interest rates. The Fed’s December 2016 interest rate increase of a quarter percent was not unexpected, given the sustained improvements in the US economy. And although the rate increase was slight—and the Fed’s signals for more frequent increases in 2017—it is enough so that higher net interest margins (NIM) will give banks at least a little wiggle room to improve ROE.
- OCC charters may boost marketplace lending through fintechs. The Office of the Comptroller of the Currency (OCC) announced that it will consider granting special purpose bank charters to fintech companies. These charters potentially could spark deal activity or strategic partnering. In any case, fintechs choosing an OCC charter, if one becomes available, will need to quickly respond to the increased OCC regulatory requirements compared to the lesser state requirements they may be used to.
- Potential tax reform impacts. Corporate tax law changes may increase war chests for investment in domestic M&A deals but negatively impact the mortgage lending market should interest deductions be impacted.
- New capital requirements may slow inbound M&A. As part of Basel III banking reforms, European banks should anticipate a likely increase in the leverage ratio for SIFIs above the current three percent level. If higher capital requirements are imposed, it could further weaken European banks’ ability to make any near-term acquisitions in the United States.