Global trend of bank mergers and acquisitions (M&A) activity given the repercussions of the war between Russia and Ukraine.
Global M&A activity rebounded strongly in 2021, echoing the economic recovery in many countries and when the most painful effects of the pandemic faded. The topic of consolidation has returned to debates, often under the impetus of regulators interested in strengthening banks by reducing risks.
Europe faces its challenges
For banks, conditions remain difficult in Europe, in a context of low interest rates and rampant inflation. This affected both margins and loan loss provisions and helped strengthen consolidation. Some European banks have also divested US assets in an effort to raise capital to reinvest in their core markets.
Due to a tightening of regulations and in the wake of the record increase in the value of deals in 2021, the outlook for mega deals has darkened in North America. Commission-based businesses, such as insurance, wealth management and consumer credit, attract European and international investors. These businesses absorb less capital while producing solid, recurring revenues. Although private equity (PE) firms have so far avoided the European banking market, they are now evaluating the options available to them in this area; in an established market, they foresee a greater potential for profitability in the field of commissioned services for the years to come.
In Asia, the business tends to be dominated by home buyers, particularly due to foreign ownership restrictions in some large countries, although the Indian government has announced plans to divest six of the twelve public sector banks with, the key , the possibility of new opportunities.
Further consolidation in Switzerland with the “Big 8” on the top step of the podium
Switzerland recorded a record increase in assets under management last year. In the long term, the “Big 8” will increase their dominance in the Swiss private banking market, together with Credit Suisse and UBS. However, the gap between private banks is widening under the effect of the deteriorating economic environment, a trend that will lead to further market consolidation.
ESG issues and digitization are gaining in importance
ESG criteria are emerging as one of the key factors that have started to influence mergers and acquisitions in the banking sector and are now establishing themselves as the new normal in terms of benchmarking for banks, but also for their corporate clients. , in a context of heightened surveillance. As the industry has adapted to rising capital requirements, it is hoped that ESG criteria will be absorbed by banks’ operating models, although implementation costs related to reporting and associated data collection cannot be ruled out.
Fintech and payments are strongly affecting the merger and acquisition landscape, with “challenger” banks entering the markets and eating market share, along with the consolidation of payments, especially in mature markets. Not to mention that traditional banks are experiencing a rapid development in their digital capabilities.
Although the volume of transactions declined year over year during the first half of 2022 due to the war in Ukraine, economic disruptions and runaway inflation, the fact remains that the value of transactions is increasing. 2022 should turn out to be an active year, driven by national consolidation and continued interest in digital capabilities and resources that generate recurring revenue.