Financial institutions M&A trends: Banks

Bank appetite for dealmaking picks up

4 min read

With balance sheet repair largely behind them, global banks are now cautiously re‑emerging in competitive auctions

Banks, on the back foot following the financial crisis, are finally making a calculated comeback to M&A as they start to focus on core geographies and business lines. With balance sheets strengthened and capital reserves being rebuilt, global banks are now better placed to focus on markets and product offerings they believe will deliver the most growth in 2018.

Our 2018 M&A forecast

Steady growth in M&A driven by ongoing non-core disposals, re-emergence of strategic M&A, continued interest from PE, and in-bound US and Chinese investment.

Disposal of non-core assets—one of the major drivers of deal activity in 2017—is likely to continue in 2018

A number of banks exited divisions they deemed non-core in 2017: Barclays has sold its French retail and wealth management businesses, disposed of a 22 per cent stake in its Africa Group and exited its UK trust business. Société Générale has offloaded a 49 per cent stake in Fortune and a 15.42 per cent stake in Eurazeo and spun-off TBC Bank. UBS, HSBC, BNP Paribas and Deutsche Bank are among the other banks to have made similar strategic disposals.

Investing for growth gains momentum

Institutions are beginning to invest for growth and pursue strategically important deals. Goldman Sachs, J.P. Morgan, UBS and Citi have announced expansion plans in Saudi Arabia while BNP Paribas has acquired stakes in Italian credit insurer Cargeas Assicurazioni and Swedish consumer credit group SevenDay Finans.

International buyer interest strengthens

Cross-border deals involving non-EU investors will continue in 2018. US investors—driven by stronger balance sheets—are likely to be active, taking advantage of the strengthening US$ and the loosening regulations.


2018 outlook

A steady growth in M&A activity driven by factors including ongoing non-core disposal programmes, re‑emergence of strategic M&A (i.e., larger banks seeking to expand within newly selected core territories), in-bound US and Chinese investment, and continuing PE appetite.

Current market

  • Upward

We are seeing

  • Continuing non-core and financial asset disposals
  • Sustained focus on restructurings, aimed at:
    • Streamlining within borders and movement towards leaner and simpler business models
    • Optimising regulatory capital and EU permission, governance, operational and tax efficiencies through centralisation
    • Leveraging existing third-party provider relationships across business lines and legal entities
    • Streamlining intra-group service arrangements (particularly in light of upcoming EU General Data
  • Protection Regulation compliance requirements and rising cybersecurity threats)
    • "Hard" Brexit contingency planning
  • Consolidation across Central and Eastern Europe, with support from political and regulatory authorities
  • Early signs of re-emergence of strategic M&A
  • JVs and other forms of collaboration focused on fintech development

Key drivers

  • Banks are still shoring up their balance sheets, given mega-fines and increasing capital buffer requirements
  • Stronger capitalised banks are ready to grow again, and regulators are being more supportive
  • Competition from 'challenger' banks and fintech offerings
  • US and Chinese buyers taking advantage of the strengthening US$

Trends to watch

  • M&A strategies are very carefully managed:
    • Banks are acutely aware of internal resource restraints and seek to optimise use of management time
    • Many banks have limited P&L capacity for losses and prefer to attempt to improve businesses before selling
    • Wealth of experience of divestment activity means auction and bilateral processes are better managed
    • Some banks are holding out for improved market conditions and maximising positive impact on valuation multiples of retained businesses
  • US in-bound investment, driven by repaired balance sheets (e.g., all US banks participating in the Federal Reserve's 2017 stress tests passed, loosening regulation (e.g., Volcker rule) and optimism for lighter post‑Brexit UK regulation)
  • Increasing focus by financial sponsors in FIG investment—including in banks
  • Differing prerogatives between supranational and local prudential regulators
  • Competition between local regulators across Europe attracts banks post-Brexit
  • Squeeze-out of smaller banks following MiFID II coming into effect in January 2018


Key deals and situations

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