At least two years before big banking deals return

  • @MrNickClark

Big ticket banking takeovers will not return for another two years at least, as global financial groups continue to feel the pressure in the wake of the downturn, according to a report out today.

Mergers and acquisitions in the banking sector will be dominated by second-tier consolidation, accountancy group KPMG said, as regulation "chokes off" large Western banks' abilities to target larger deals. The report, Bruised But Not Broken, found that global banking M&A activity will be locally focused as the regulatory trends such as Basel III – and the current weakness in the financial markets – play out over the next five years.

Stuart Robertson, global transactions and restructuring banking sector lead at KPMG, said: "At the moment M&A appears to be used mainly by banks buying on their geographic doorstep."

Between 2005 and 2010, a total of 73 per cent of banking transactions have been local and a further 19 per cent in the region. Only 8 per cent have been across continents.

He added: "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 average size of a banking deal has fallen dramatically from before the credit crunch. The annual value from the peak in 2007 of $243m (£148m) has fallen to $87m last year.

While regulation "will continue to choke large banks' ability to pursue big-ticket M&A" it will encourage some asset disposals, according to KPMG. "The impact of regulatory change on operating models may be the biggest driver of top-end M&A as banks realign their portfolios and seek to generate asset sales," the report said.

The largest banking deal since the onset of the credit crisis was Lloyds' takeover of troubled HBOS in a deal worth £25.4bn in 2008.