Money ball

Analysis

Financial services M&A update: Q4 2018

The Financial Services industry saw some market slowdown in Q4, affecting areas such as bank stocks which were impacted in part by slow loan growth and interest margin expansion. On the flip side, the Fed raised interest rates for the fourth straight quarter citing strong economic activity and strong work forces. 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

  • Bank stocks experience weak performance during Q4 20181: Bank stocks, much like the market as a whole, experienced a slowdown during Q4 2018. A combination of slowing anticipated loan growth and slowing net interest margin expansion for 2019 help explain bank stocks’ performances. Other reported reasons that attempt to explain the sell-off of bank stocks include the Federal Reserve (Fed) slowing money growth and limited benefits from stock buybacks.
  • Housing markets witness a slowdown as 2018 winds down2: As the Federal Reserve has raised rates for Q4 2018, signs point to higher mortgage rates during 2019. Many investors speculate the housing market may be peaking. Rising rates ultimately slows demand and has put pressure on mortgage firms, particularly those with less purchase volume. The threat of a recession also leaves the industry’s future uncertain moving into 2019.
  • Banks look to place focus on customer-first services3: Customer-first, digital services technologies have grown tremendously and are becoming widely accepted among financial institutions. Digital banks implementing customer technology services have outperformed the world’s top 50 banks across key metrics such as privacy, payment solutions, and security. As 2018 ends, many experts predict consolidation between global banks and new digital banks.
  • Federal Reserve raises interest rates for fourth time4: The Federal Reserve (“the Fed”) raised interest rates for the fourth time in 2018. The target range rose by 25 basis points to a new band of 2.25 percent-2.50 percent. This marks the highest rates since 2008. The Fed pointed toward a strong labor market and economic activity to rationalize their decision. Moving into 2019, the Fed signals fewer rate hikes due to lowered 2019 gross domestic product (GDP) forecasts.

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References

Bove, Richard. "Here’s why bank stocks are leading the market lower and likely to continue to do so,” CNBC. December 10, 2018. https://www.cnbc.com/2018/12/10/bank-stocks-are-weaker-than-the-market-why.html, accessed January 9, 2019.

Passy, Jacob. “What the Fed’s rate hike will mean for America’s wavering housing market,” Nasdaq. December 21, 2018. https://www.marketwatch.com/story/why-2019-wont-lead-to-a-home-buyers-market-2018-11-28, accessed January 9, 2019.

Beatty, Andrew. “The 2019 Banking Landscape–How It’s Set To Deliver Change,” International Banker. https://internationalbanker.com/banking/the-2019-banking-landscape-how-its-set-to-deliver-change/, accessed January 9, 2019.

Udland, Myles. “Fed hikes rates, but signals just two more hikes in 2019,” Yahoo Finance December 19, 2018. https://finance.yahoo.com/news/preview-feds-last-monetary-policy-announcement-2018-155802273.html, accessed January 9, 2019.

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