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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.

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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.

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