PwC: Decline in banking M&A is a fundamental shift, not just a cyclical downturn

Economic growth and Europe’s debt crisis are radically changing banking M&A, Asia is most active region

KUALA LUMPUR, 16 April 2013 – Research from PwC has found that recent years’ decline in banking M&A is not simply due to a cyclical downturn but represents a radically changed economic and regulatory environment.

The sovereign debt crisis in Europe will continue to affect banking M&A for as long as it continues. The political and economic uncertainty emanating from the eurozone is making it harder to predict future impairments, agree on valuations, arrange funding and gain shareholder approval. The crisis is also having a significant impact on deal confidence, and thus frustrating M&A.

The picture is less gloomy in the USA but some banking institutions still have significant restructuring ahead of them. Those in stronger financial shape are well placed to expand overseas. Asia-Pacific and Latin America will be the most attractive regions for outbound M&A, as the growth in middle income consumers and the rapidly expanding corporate sector demands more services.

High growth economies are now homes to some of the world's largest and increasingly influential banks. A far broader range of institutions are initiating transactions than in the years leading up to the financial crisis. Increasingly, banks from high growth economies are becoming more active acquirers, both in their home markets and abroad, and are establishing their own approaches including partnerships and distribution agreements.

Asia-Pacific

Supported by rapid economic expansion, increasing middle-class demand for banking products and a growing high-net-worth segment, Asia-Pacific is likely to remain the most active region for banking M&A. Domestic deals will continue to drive M&A, as banks respond to increasing competition and the need for greater operational and capital efficiency.

Tan Siow Ming, PwC Malaysia Advisory Leader, said:
“Malaysian banks will continue to seek growth through M&A. As our domestic market matures, they will look beyond just organic growth. Our banks will continue to expand regionally to capitalise on the growth story of Asia, and South-east Asia specifically.

“The new Financial Services Act and enhanced regulatory environment will also encourage industry consolidation or restructuring, which will drive local M&As as well. With the global banking M&A trend on a decline overall, the fact that our region bucks the trend is promising indeed”.

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