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Analysis

Financial services M&A update: Q3 2018

While total transaction volume fell in Q3 and rumors of an economic downturn in the market were heard, bank stocks beat earnings again this quarter, showing global and US financial strength. The federal reserve also increased rates for the third quarter in a row, and are expected to increase them again in Q4. 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 Q3 reports beat earnings despite volatile market conditions1: Bank stocks are reporting forecast-beating earnings for the third quarter of 2018, helping to alleviate woes that our market may be seeing an economic downturn. Despite increasing economic and geopolitical uncertainties, the US and global economy continue to show strength through bank stocks. Many of these banks are reporting an increase in real business consumer banking.
  • Financial services firms are seeing increased compliance initiatives2: One big trend among financial services firms are increased compliance examinations. These trends will likely continue to have an effect on investment managers and firms as a whole. Although increased compliance costs have a negative impact on bottom-line profit, many firms are acknowledging the importance of compliance in today’s environment.
  • Information M&A trends report3: While many have characterized our trading environment as a seller's market, total transaction volume and value in Q3 2018 has declined in comparison to the previous quarter for many sectors. In reality, the market landscape is comprised of more sellers than buyers and the selective nature of buyers has demonstrated that pricing in the broader M&A market may have peaked.
  • Federal Reserve raises interest rates for the third time4: For the third straight quarter, the federal reserve raised interest rates. In September 2018, the interest rate went up a quarter point to 2.25 percent. Short-term interest rates, such as credit cards, will likely have the most drastic impact on consumers. This increase was expected by most, and the US anticipates another rise coming at the end of the year.

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References

Cao, Sissy.” Mega Banks’ Q3 Reports Show Economy Is Strong, Despite Stock Market Woes,” Observer. October 12, 2018. https://observer.com/2018/10/jpmorgan-chase-citi-wells-fargo-q3-earnings-stock-market-crash/, Accessed October 14, 2018.

Hortz, Bill. “The Most Troubling Compliance Trends in Financial Services,” Nasdaq. September 20, 2018. https://www.nasdaq.com/article/the-most-troubling-compliance-trends-in-financial-services-cm1025594, accessed October 11, 2018.

“Q3 2018 Information M&A Trends Report,” Berkery, Noyes & Co., LLC. https://berkerynoyes.com/q3-2018-information-industry-trends/, Accessed October 23, 3018.

Oyedele, Akin. “The Fed just raised interest rates again—here's how it happens and why it matters,” Business Insider September 26, 2018. https://www.businessinsider.com/how-the-fed-raises-interest-rates-2017-12, accessed October 11, 2018.

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