Financial services M&A update: Q2 2018
In Q2 we saw an uptick in economic growth which can be partially attributed to the increase in interest rates, which have been on the rise for the past two quarters. Banks continue to look for positive growth in Q3 as interest rates are expected to rise again and regulations begin to lessen. This Financial services mergers and acquisitions (M&A) update provides Deloitte Corporate Finance LLC insights and market data analysis that shed light on M&A trends in the financial services industry.
Financial services trends
- Macroeconomic headwinds have impacted bank stock prices1: Despite an improving economy, tax cuts, and higher interest rates, many bank stocks have seen subpar growth during Q2 2018. Many attribute this sluggish growth to economic factors such as United States-China trade war, reduced market volatility, and a flattening yield curve. Looking ahead, bank stocks have positive things to look forward to such as rising interest rates and lessening regulations.
- Customer Due Diligence (CDD) requirements become effective2: The CDD Rule, which amends Bank Secrecy Act regulations helps pave the way to improve financial transparency. By strengthening customer due diligence requirements for US banks, mutual fund brokers, merchants, and other brokers, the CDD Rule adds a layer of protection in verifying the identity of these institutions’ customers.
- Financial services embrace emerging technology3: Consumers today are keen in wanting access to their financial accounts right at their fingertips. For the financial services industry, this means no longer overlooking digital products. From spending $1.7 billion in blockchain to looking into artificial intelligence, the industry continues to use financial technology to reach customers in a unique way and to streamline work processes.
- Federal Reserve maintains confidence in the economy4: For the second straight quarter, the nation’s central bank raised interest rates. In June 2018, the interest rate went up a quarter point to 2 percent. Chairman Powell and the rest of the Fed show no sign of pausing, as rates are expected to increase throughout 2018. The immediate impact to consumers is expected to be rate hikes for all types of debt.
This newsletter is a periodic compilation of certain capital markets information. Information contained in this newsletter should not be construed as a recommendation to sell or a recommendation to buy any security. Any reference to or omission of any reference to any company in this newsletter shall not be construed as a recommendation to sell, buy or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. This newsletter is published solely for the general information of clients and friends of Deloitte Corporate Finance LLC. It does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Certain transactions, including those involving early stage companies, give rise to substantial risk and are not suitable for all investors. This newsletter is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known risks, uncertainties and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. We and our affiliates and related entities, partners, principals, directors, and employees, including persons involved in the preparation or issuance of this newsletter, may from time to time have “long” and “short” positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein. The companies mentioned in this newsletter may be: (i) investment banking clients of Deloitte Corporate Finance LLC; or (ii) clients of Deloitte Financial Advisory Services LLP and its related entities. The decision to include any company for mention or discussion in this newsletter is wholly unrelated to any audit or other services that Deloitte Corporate Finance LLC may provide or to any audit services or any services that any of its affiliates or related entities may provide to such company. No part of this newsletter may be copied or duplicated in any form by any means, or redistributed without the prior written consent of Deloitte Corporate Finance LLC.
1 Kataruka, Nikita.” Can banking stocks rebound after a dull first half?,” Zacks. July 6, 2018. https://www.zacks.com/stock/news/310518/can-banking-stocks-rebound-after-a-dull-first-half, Accessed July 7, 2018.
2 Hudak, Steve. “FinCEN reminds financial institutions that the CDD rule becomes effective today,” United States Department of The Treasury. May 11, 2018. https://www.fincen.gov/news/news-releases/fincen-remindsfinancial-institutions-cdd-rule-becomes-effective-today, accessed July 6, 2018.
3 Bragg, Taylor. “How the financial services industry is embracing emerging tech,” TechWire Asia. June 27, 2018. https://techwireasia.com/2018/06/how-the-financial-services-industry-isembracing-emerging-tech/, accessed July 8, 2018.
4 “Federal Reserve hikes key interest rate another quarter-point,” CBS News June 17, 2018. http://www.ktvq.com/story/38417718/federal-reserve-hikes-key-interest-rate-another-quarter-point, accessed July 8, 2018.