The emergence of increased regulations in M&A is stifling deal activity, according to new research.
The emergence of increased regulations in M&A is stifling deal activity, according to new research.
KPMG’s report, Bruised but not broken, predicts that global banking M&A activity will continue to be locally focused.
According to the research ‘big-ticket’ M&A transactions are unlikely to return for ‘at least’ two years.
Stuart Robertson, lead of global transactions and restructuring banking at KPMG, says that currently M&A is used mainly by banks buying on their geographic doorstep.
He adds: ‘Activity over the next few years is likely to be dominated by second-tier consolidation in countries such as China, the US, Germany and Spain, giving rise to mainly home market transactions.’
The research shows that local M&A activity from 2005 to 2010 accounted for 73 per cent of all banking transactions, with 19 per cent within region.
Only 8 per cent of all banking transactions were inter-continental deals.
The number of banking M&A transactions worldwide (including domestic, regional and intercontinental) dropped from 1,982 in 2009 to 1,863 in 2010, with only 1,104 forecasted for 2011.
Robertson explains that, in the West, it is regulation that is set to continue to ‘choke’ large banks’ ability to pursue big-ticket M&A. However he says that it will prompt some asset disposals as banks look to consolidate and adapt operating models.
Regulations such as Basel III, which strengthens bank capital requirements and provides regulatory requirements on liquidity and leverage, disadvantage banks which are present in multiple jurisdictions more so than those that are domestic or only in a select few territories.
Global head of retail banking at KPMG, David Sayer, says that China is now seen as having the best growth potential for banking over the next decade.
However he explains that ‘strong concerns’ exist around the troubles that Chinese banks have in penetrating the market and to build scale.
Sayer adds: ‘India is the clear second-favourite, though trepidation also lingers over the ability of foreign banks to achieve scale in the country.’
With regulation choking big-ticket M&A, organic growth looks the likely route to achieve progress.
