2019 Corporate Outlook: Increasing M&A with a Chance of Recession

By Shannon Hawkins

old lighthouse lamp from inside Kincardine, Ontario looking out windows to Lake Huron and the harbor

April 2, 2019 Financial Services M&A

No matter what sector your company operates in, the health of the financial services sector remains a harbinger of the overall health of global markets. At the recent Bank Director annual conference, Acquire or Be Acquired, participants received an in-depth look at the factors impacting the financial sector in 2019. These data points provide a barometer of the larger economy and provide insight for directors across industries.

Financial services continue to be the largest sector in the world and represents 17 percent of economic activity in the S&P Global 1200, according to research from investment bank Keefe Bruyette & Woods. However, while bank fundamentals remain strong, current valuations are the lowest since 2004—well before the financial crisis. Several trends in investor composition and sentiment contribute to this phenomenon, including steady net outflows of financial stocks from mutual funds in recent years. And while the number of bank initial public offerings has increased over the last few years, the size and performance is nowhere near earlier benchmarks. Consolidation remains on the rise.

Within the financial sector, the advantage of size continues to grow. Tom Michaud, president and CEO of KBW, explained on a panel that the largest 10 percent of banks have more than 90 percent of all deposits. Larger banks have additional advantages in their ability to invest in cutting-edge fintech solutions and the positive impact that scale has on profitability. His point was emphasized when SunTrust and BB&T recently announced plans to merge, stating that the deal will “accelerate investment in transformative technology to embrace disruption and create a more distinctive client experience.”

Innovation and productivity in the United States provide two reasons to feel cautiously optimistic about the economy, according to conference panelist and University of Chicago professor Austan Goolsbee. He weighed the confluence of factors impacting the economy in 2019. In the near term, he believes the U.S. economy will grow but cautioned that recession triggers abound, including trade wars, the government shutdown and a drop in asset prices. Furthermore, inequality, expensive healthcare and automation displacement persists. Therefore, 2019 will be paved with some growth, increasing merger and acquisition activity and the niggling fear of an economic downturn lurking in the not-too-distant future.