Global Financial Services M&A and Capital Markets H1 2023 Review

Global Financial Services Market H1’23: A Turbulent First Half

The global economy has been burdened by concerns about a recession and rising interest rates while central bankers battled record inflation across many countries. There is no doubting that the first half of this year has been challenging for dealmakers and investors across the financial services industry.

Banking stability was put to the test in March 2023. Regional US banks Silicon Valley Bank (SVB) and Signature Bank of New York failed because of a sudden exodus of depositors. A week later, following a lack of market confidence, Swiss authorities announced a state supported merger of Credit Suisse with UBS. Since the global financial crisis, this was the first instance of a globally significant bank failing.

Apart from risks related to financial stress, there were other possible sources of macroeconomic risks that can still have macro-financial implications, like, an escalation of geopolitical tensions or a sharp rebound in economic activity in China could spark a sharp rise in energy prices, pushing headline inflation higher again.

As a result, the need for transformation is acutely felt in the financial services industry. The global market uncertainty still lingers, regulators continue to exert pressure, environmental, social, and governance (ESG) issues are becoming more prevalent, and platforms, including embedded finance, and fintech’s are disrupting the status quo.

The narrative changed a bit in Q2’23 with the peaking of interest rates, a slowdown in inflation, the failure of several banks, the avoidance of the US debt limit issue, and the general sense that everyone is waiting for the next big development. The light at the end of the tunnel continues to grow brighter.

The following key developments had a strong bearing on M&A and Capital markets’ activities across the global financial services market during the H1’23:

  • While both businesses and customers have so far managed to withstand rising interest rates and the pressure on cash flow, concerns grew louder during the quarter which might materialize swiftly if lending criteria become much stricter going forward
  • Liquidity stress transmitted through parts of the international banking system and financial markets
  • Spotlight on divestitures of non-core assets as businesses attempted to strengthen their balance sheets and make their business models more resilient
  • Financial sponsors’ cautious approach to deploy their ‘eager capital’
  • More stringent regulatory approval process ensured there were lesser mega deals

The focus seems to be shifting to long-term planning and M&A as a way of addressing strategic issues in the sector like market access, economies of scale, and technology debt as inflation and interest rates come under control, leading to a return of investor confidence and stability to banking markets.

Arjun Paul
Manager, Financial Services Posts
Roza Chopra

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