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The total number and value of global banking M&A transactions has declined steadily over the past few years. If 2007 represented the end of the bull market for banking M&A, then 2008 and 2009 were defined by a wave of nationalisations and rescue transactions. Since then banking deals have cooled, although M&A has remained a vital tool for adaptation, retrenchment and reform.
Moving forward to the present, global banking transactions continue to decline faster than all-sector M&A, and will record another weak year in 2012. During the first ten months of 2012, the total value of completed global banking deals fell by 37% on a like-for-like basis, compared with a decline of 20% for all-sector global M&A.
Banking deals have consistently accounted for the majority of financial services M&A over the past decade. The decline in banking M&A over the past three years – or excluding government-led deals, over the past five years – is not just a cyclical downturn. It represents a radically changed economic and regulatory environment, and the end of previous assumptions about the banking industry’s models, profitability and investment returns.
In this paper we set out our view that the size and nature of global banking M&A has changed permanently. To support this argument we review the changing drivers of banking deals; how banking M&A is already evolving; and what changes we expect to see in the future. We end with some questions that we believe all banks – including those not currently engaged in M&A activity – should be asking themselves.