Outcomes From the Banking Crisis: M&A, Restructuring, Financing and More

Markets are closely watching the banking industry, with a keen eye on signs of potential new bank failures or the end of the crisis, while assessing the root causes and creating new measures to guard against future catastrophes. Many experts have highlighted a number of factors that are putting pressure on this sector, including regulatory gaps, rising interest rates, losses in bond portfolios, concentrated operating models (ex. SVB was focused on tech and life sciences and dominated by a few venture capital companies who “moved their deposits in lockstep”) and recession fears that may impact the broader economy.

While some think the crisis nearing its end — after its recent takeover of First Republic Bank, JPMorgan CEO Jamie Dimon said, “This is getting near the end of it, and hopefully this helps stabilize everything.” —there is likely to be more speculation and activity in the banking industry. As has always been the case in financial services, a failure in one area creates opportunities for savvy investors, bankers and dealmakers. For example, the massive mega-deals underway, such as JPMorgan acquiring First Republic, UBS’ takeover of Credit Suisse and HSBC’s acquisition of and SVB U.K., mostly benefit the acquiring banks. By buying the other banks’ deposits and loans at significant discounts, they stand to gain significantly from these deals. 

Furthermore, recent bank failures have led to an increase in distressed corporate debt, adding USD 69 billion to USD 624 billion global pool, which presents yet another opportunity for investors who are willing to take the risk.

There are several other possible outcomes that may result from this banking crisis

• Consolidation/mergers and acquisitions (M&A) – Large banks may acquire smaller, financially troubled counterparts, or mid-size banks may acquire competitors to strengthen their balance sheet;
• Restructuring – Many mid-size and regional banks are likely assessing their options and may decide to restructure their operations, which may also involve…
• Financing – Troubled banks may seek financing to stay afloat, while others might seek funding to acquire another bank;
• Distressed asset sales – Bank mays decide to divest portions of their business that they can no longer sustain or sell off portfolios of non-performing assets;
• More customers to onboard – Banks that acquire other banks will need to onboard those accounts as well as conduct know-your-customer (KYC) diligence to ensure they are not taking on any suspicious accounts or customers. Stable institutions, such as large banks and credit unions, may also see an influx of new accounts and customers as some decide to sever relationships with troubled mid-size and regional banks.

Overall, the current crisis in the banking industry is likely to result in significant changes and challenges, but it may also create opportunities for those who can navigate the market with resources to quickly assess their options, facilitate efficient due diligence and close transactions quickly.