The banking industry faces several challenges due to recent economic, geopolitical and regulatory developments. KPMG has identified the top 10 issues facing banks in 2022 and beyond, and in this article we examine the topic of M&A.
Create new capabilities
While scale and efficiency needs are driving bank M&A, especially as institutions focus on acquiring new technology capabilities and entering new markets, we expect the pace to be somewhat constrained … at least for another few months.
Though there is general agreement that alliances with fintechs and mergers of equals may benefit most customers, the possibility of stricter regulations from the current administration may slow down the number – although not the value – of deals in the near term. This is due in large part to the sweeping executive order, issued in July, that directed federal regulators to strengthen oversight of bank mergers.
It is the improvement of technological capabilities and added scale that appear to be the major fuel of growth, as so many traditional institutions remain in a swift race with non-traditional providers of financial services.
Our view is that competition for increasingly tech-savvy customers – who wholly embraced digital behaviors as the pandemic’s impact intensified – is only beginning. The value of collaboration with fintechs has never been greater – and, in our view, will intensify. The rewards accruing from that strategy can be significant, but so are the risks.
The foundation for superior M&A deal making has always dogged due diligence efforts. Fit, culture, and systems integration are key to improving the chances of success. There also are issues associated with understanding the extent of outsourcing processes by a target, and there are heightened accounting issues, such as the purchase accounting for credit deteriorated loans.
More than ever, it seems, success requires judgement about sophisticated diligence and meticulous execution.