The banking industry in Europe, and in particular the corporate and investment banking divisions of the large universal banks, stand poised to go through a profound restructuring and consolidation in the months ahead, which will lead to a boost in M&A numbers.
Dealogic data show that the broadly defined financial services industry declined to be the third most active sector in M&A for 2011 behind real estate, and oil and gas.
This is its lowest position since 1996, when it was also third, and although the finance sector recorded the highest number of M&A transactions greater than $1 billion in 2011, with 56 such deals worth $151.1 billion, total volume of $256.7 billion was down 8% on 2010.
In the months ahead, M&A bankers are not expecting a surge of big deals, although these could resume when the industry has re-ordered itself.
"The large transformational are on ice for now but will not be on ice forever" Stefano Marsaglia, chairman FIG IBD at Barclays Capital
However, RBS has enjoyed some success using the M&A market to exit businesses. Just days after announcing its planned withdrawal from equities and M&A, the majority state-owned UK bank sold RBS Aviation Capital its aircraft leasing business, now the fourth largest in the world to Sumitomo Mitsui Financial Group and Sumitomo Corporation for £4.7 billion ($7.3 billion). The sale boosts RBSs tier 1 capital while also reducing wholesale funding requirements.
If you look just at asset sales, there are big buyers from Asia, even Japan and parts of the Middle East that have been bidding for asset portfolios, says Marsaglia. Can this translate to M&A? Well, many buyers will be cautious and some constrained, but if you do have spare capacity on the capital and funding side, this could be a very good time to think about acquisitions. Its a buyers market. And for large banks, Im a big believer in the benefits of diversification.