Bank locker

Analysis

Financial services M&A update: Q4 2019

The banking industry has witnessed great consolidation activity in 2019, and de novos will continue to take advantage of an industry rife with consolidation. Also, global and US economic growth continues to slow down heading into 2020, while the liquidity and asset quality of US banks are expected to remain in good shape. 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

  • Regional bank deals hit a 20-year high:1,2 Regional banks were involved in 35 deals in 2019, the highest number since 1999. This activity is largely fueled by the Crapo bill, which raised the $50 billion asset threshold at which banks become subject to heightened regulatory scrutiny. Reduced interest income due to the Fed cutting rates, coupled with increased technology spending, have both contributed to banks resorting to mergers to alleviate these two pressures. These market dynamics are expected to persist into the next quarter.
  • MOEs wave creates momentum for de novo banks:3 The banking industry witnessed great consolidation activity in 2019, and de novos will continue to take advantage of an industry rife with consolidation. De novo banks are hoping to take advantage by expanding into new markets and capitalizing on potential customer or talent attrition. Of the 21 de novo applications filed with the Federal Deposit Insurance Corp. in 2019, 16 were in states or territories where at least one of the participants in last year's large MOEs had branches.
  • Banks brace for CECL implementation in 2020:4 New CECL rules may have a significant impact on impairment estimates, capital ratios, and the volatility of profit and loss. Banks are anticipating higher-than-usual loan loss provisions in Q1 2020, which will potentially cause challenges in interpreting future allowance for loan loss changes. This may lessen banks’ appetite for long-dated loans.
  • Economic slowdown deepens:5,6 Global and US economic growth continues to slow down heading into 2020. Medium-to-longer-term effects on banks and credit markets remain uncertain. Interest rate cuts will continue to weigh on net interest margins. The liquidity and asset quality of US banks are expected to remain in good shape.

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.

References

1 Maria Tor, Zach Fox, and Syed Fariq Javaid, "2020 Could Bring Another Wave of Regional Bank MOEs," S&P Global Market Intelligence, January 2, 2020, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/56301968, accessed January 12, 2020.
2 Zuhaib Gull and Syed Fariq Javaid, "Bank M&A 2019 Deal Tracker: December Starts With $3.1B Merger," S&P Global Market Intelligence, December 16, 2019, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/49407558, accessed January 12, 2020
3 Zain Tariq, Carolyn Duren, and Lauren Sullivan, "MOE Wave Creates 'Once-in-a-Lifetime' Opening for De Novos," S&P Global Market Intelligence, January 8, 2020, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/56359395, accessed January 12, 2020.
4 Jaclyn Jaeger, "FASB Announces Upcoming CECL Implementation Workshops," Compliance Week, October 22, 2019, https://www.complianceweek.com/accounting-and-auditing/fasb-announces-upcoming-cecl-implementation-workshops/27926.article, accessed January 12, 2020.
5 Linda Yueh, "Global Slowdown Worries," Forbes, November 11, 2019, https://www.forbes.com/sites/lbsbusinessstrategyreview/2019/11/11/global-slowdown-worries/#77e4c2424a25, accessed January 12, 2020.
6 Gavin Gunning, "Global Banking Country-by-Country Outlook 2020: The Calm Before The Turn," S&P Global Ratings, November 18, 2019, https://www.spglobal.com/_assets/documents/ratings/research/global-banking-outlook-2020.pdf, accessed January 12, 2020.

Did you find this useful?