Systemically important banks are streamlining within geographic borders, continuing to generate deals through non-core disposals and strategic acquisitions
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We are seeing
- Run-offs/sales of financial assets and disposals of non-core businesses
- More disposals triggered by mega-regulatory fines
- Continued focus on intra-group re-organisations, aimed at:
- Optimising regulatory capital, governance, operational and tax efficiencies through centralisation of regulatory permissions and maximum utilisation of EU passporting efficiencies
- Leveraging existing relationships across legal entities, business units and functions
- Streamlining intra-group service arrangements
- 'Hard' Brexit contingency planning
- Stronger capitalised banks are ready to grow again (and regulators are more open to this than before)
- International buyers taking advantage of the strengthening US dollar
- Response to potential 'deregulation' of the US banking sector (promised by the Trump administration) and optimism towards lighter UK regulation post-Brexit
- The need to compete with 'challenger' banks
- But some banks:
- Are holding out for improved market conditions with a view to generate a higher sale price and achieve a positive impact on the valuation multiple of the retained business
- Have limited P&L capacity for losses and prefer to attempt to improve businesses before selling them
- Are seeking to optimise use of management time and resources
Trends to watch
- Differing prerogatives of local and supranational prudential regulators
- Heavy reliance on central bank liquidity/funding around Europe, but government rescue funds may not be large enough to cover existing financial needs
- Re-emergence of stronger, larger banks as acquirors
- Many banks, including mega- banks, are streamlining within borders, moving towards leaner and simpler business models. Will banks weaken within home markets?
- Where divestment activity is happening, it is better managed internally than ever before
- Slow progress on developing new capital structures, but transactions are being implemented
- Not clear whether insurance businesses will continue to justify capital strain for all larger banking groups. But who will buy them?
Our M&A forecast
A steady growth in M&A activity driven by factors such as uncertainty around the UK's regulatory equivalence post-Brexit, bullish Trump-era optimism, FX rates, and larger banks seeking to expand within newly selected core territories, while others continue with non- core disposal programmes.
Publicly reported examples
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