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Analysis

Financial services M&A update: Q4 2017

While the new tax bill and leadership changes within the Consumer Financial Protection Bureau are potential sources of optimism for the financial services industry, business loans experienced the lowest growth since 2011 and a slew of recent natural disasters brought challenges for insurance companies facing a record-high $135 billion payout. This Financial Services 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

  • Banks positioned to benefit long-term from new tax legislation1: As of January 23, 2018, bank stocks are up 6.5 percent since December 19, 2017, when the Senate approved the sweeping new tax bill. Though the tax cuts are expected to positively impact banks in the long-term, some institutions expect a decrease in earnings for Q4 2017 due to a decreased value for deferred tax assets.
  • Business loans experience the lowest growth since 20112: As of December 20, 2017, bank loans to companies were only up 1.1 percent from 2016, yielding an average weekly growth rate of 2.7 percent for 2017. Historical growth rates in 2016 and 2015 were 9.3 percent and 11.6 percent, respectively. Some say that the low business loan growth rate may be returning to a normal level, while others say there is “pent-up demand” from borrowers who have been waiting to borrow.
  • New chief appointed to the Consumer Financial Protection Bureau3: Regulatory relief appears to be continuing in the wake of Richard Cordray’s departure from the Consumer Financial Protection Bureau. President Trump’s new appointee, Mick Mulvaney, may limit the agency’s scope and has announced he will not request additional funding for 2Q18.
  • Insurance industry reels from natural disasters4,5: In a year already wrought with damages from three hurricanes and two earthquakes, California suffered its largest and most destructive fires in recent history. The fires created insured losses of roughly $8 billion, bringing the total insured losses for the year to a record-high $135 billion payout from insurers.

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References

1 "America’s bank profits take a hit from tax reform,” The Economist. January 4, 2018.
2 Ensign, Rachel Louise. “Business-Loan Growth Fell Off a Cliff in 2017 and No One Can Figure Out Why,” WSJ. January 2, 2018.
3 Puzzanghera, Jim. “Trump Names Mulvaney as Acting Chief of Consumer Bureau as Richard Cordray Departs,” Los Angeles Times. November 24, 2017.
4,5 Tierney, Lauren. “The grim scope of 2017’s California wildfire season is now clear. The danger’s not over,” The Washington Post. January 4, 2018.

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