Global Financial Services M&A and Capital Markets Q3 2023 Review

Global Financial Services Market Q3’23: Risks Remain High

The year has been a tough one for the entire financial services industry. Given that core inflation is still stubbornly high with marginal decline in many advanced economies, central banks may need to stick to their tight monetary policies for an extended period. However, in emerging market economies, efforts to curb inflation seems to be bearing fruit, the advantages of early rate hikes are beginning to materialize.

Nonetheless, asset valuation among parties has been driven by the sole confidence of a ‘soft landing’ for the global economy, in which deflation proceeds at a rapid rate and a recession is averted. Even if the severe strain on the world banking system has lessened, several nations still have a weak banking sector. Adverse feedback loops could be set off in the case of a rapid tightening of financial conditions, which would put the global financial system's resilience to the test once more.

In addition to risks associated with financial stress, other potential sources of macroeconomic risks may also have macro-financial ramifications. For example, a sharp increase in geopolitical tensions or a sharp uptick in China's economic activity may cause energy prices to spike sharply, driving headline inflation higher once more.

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 following key developments had a strong bearing on M&A and Capital markets’ activities across the global financial services market during the Q3’23:

  • 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 big-ticket 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, Corporate and Investment Banking LoB Posts
Roza Chopra
Lead Analyst, Corporate and Investment Banking LoB Posts

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