Banking Turmoil Could Put M&A Back on Ice
Banks are likely to feel pressure from all sides for the foreseeable future.
It isn’t just depressed valuations and the specter of more regulation in response to the collapse of Silicon Valley Bank and Signature Bank. Banks are also going to be struggling with ramifications of an increasingly challenging deal-making climate.
With the Federal Reserve expected to slow—or even pause—interest-rate hikes, Wall Street has been hoping that merger-and-acquisition deals would increase as funding costs stabilize, giving a much-needed boost to banks’ advisory fee revenue. But the recent banking turmoil has raised concerns that reduced lending and greater risk aversion might spill over to nonbank industries, again putting deal making on ice despite recent signs of growth.
“How long it will take for green shoots to re-emerge remains to be seen, but with financing costs rising/availability tightening, there was clearly less confidence in activity inflecting in the second half of 2023,” writes Wolfe Research managing director Steven Chubak in a research report.
And banking may face other pressures as it becomes a target for deal making. Regional and larger savings banks have grown increasingly vulnerable to activism after their financial position weakened due to the rising cost of funding, notes Jason Frankl, a senior managing director at FTI Consulting, in a report.
While consolidation for the industry would be welcome to shareholders, it could cause unwanted noise in the near term.