It looks like banking executives have shifted their focus toward regulation and placed mergers and acquisitions on the back burner, according to recent survey by KPMG LLP.
In the KPMG Banking Outlook Survey, 35 percent of participants believe that bank management will spend most of their time on initiatives related to navigating significant changes in the regulatory environment, compared to 18 percent in last year's survey. Seventy-two percent identified regulatory and legislative pressures as the most significant barrier to growth over the next year, while 77 percent said political and regulatory uncertainty posed the biggest threat to their bank's business model.
"It's no surprise that bank executives continue to remain focused on dealing with regulatory-related matters due to the pervasive impact they are having on their respective institutions and, as a result, many are strengthening their risk management and compliance programs," KPMG's Banking and Capital Markets practice national leader Brian Stephens said in a statement. "Exams and interactions with regulators are increasing and we don't see any indication this will end any time soon, as hundreds of rules coming out of the Dodd-Frank Act–including the Volcker Rule, living wills, and consumer protection –are still being written and less than 40 percent overall have been finalized to date."
The survey asked the bank executives if they would be involved in M&A activity next year, 35 percent said their bank would likely be involved as a buyer, while 8 percent said their bank would likely be involved as a seller. Both figures represent declines over last year's findings.
"The fact that bank executives view M&A activity as less likely over the next year is somewhat counterintuitive, as the economy and business fundamentals are improving, the value of bank currency in the form of stock has increased, and liquidity on bank balance sheets remains high," added Stephens. "But the findings reinforce what we've been seeing in the marketplace as banking executives perceive deals as more difficult to get done due to the large gap between bid and ask prices, regulatory-related issues, and targets' balance sheet issues."
Fifty-seven percent of KPMG survey respondents believe anticipated regulatory actions or issues are the greatest impediment to M&A in the banking industry.
Instead of M&A, the banking executives intend to tap into other avenues to maintain growth. According to the KPMG survey respondents, the biggest drivers for revenue growth over the next one to three years will come from cross-selling services (46 percent), traditional commercial banking products such as loans and mortgages (39 percent), and asset and wealth management (32 percent). The focus on traditional banking products represented a significant decline, as they were cited as the top driver
(56 percent) in last year's survey.
Bank executives cited the mass affluent (25 percent), young rising professionals (24 percent), and commercial customers (18 percent) as the customer segments representing the greatest growth opportunity for their banks.
"Banks are no longer relying on their 'bread and butter' for growth, but looking at numerous ways to grow the top line including new products and services and expansion into new geographies and customer segments," said Stephens.
The KPMG survey took place during the spring of 2013 and reflects the responses of 100 senior executives in the banking industry. Based on revenue in the most recent fiscal year, 58 percent of respondents work for institutions with annual revenues exceeding $10 billion, 23 percent with annual revenues in the $1 billion to $10 billion range, and 19 percent with revenues in the $100 million to $1 billion range.
For a complete rundown of the survey see KPMG Survey: Regulation Top of Mind For Banking Execs.
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