It’s fair to say that Brexit uncertainty has sparked a wave of unmitigated carnage in the banking sector. Brexit seems to have ignited investor concerns about everything from increased regulation, to falling interest rates and a slowdown in economic activity. As a result, investors have reacted by dumping bank stocks across the board.
What’s more, there are now some serious concerns that a full-blown banking crisis may take place within Europe, and this is likely to put the brakes on the continent’s already fragile economic recovery.
Unfortunately, it may be the case that banks on the continent are already starting to put the brakes on loan growth. In the past, analysts have linked bank share price performance to loan growth. So falling bank stocks across Europe may already be causing lenders to reconsider loan applications.
International trading giant
Depressed share prices may also lead to a wave of mergers and acquisitions among the major banks as they try and achieve better returns in a low-interest rate environment.
There’s plenty of speculation by analysts on Wall Street that banks could be the perfect M&A targets. Barclays (LSE: BARC) is one of the names that keeps coming up again and again. Barclays is one of the few European banks that can compete with its US peers in the field of investment banking. However, the bank isn’t big enough to be able to dominate the European investment banking market and efficiently take on US rivals. This is why analysts believe that Barclays would do well to merge with Deutsche Bank.
Deutsche Bank is another of Europe’s largest investment banks and by combining with Barclays, the enlarged banking group would be able to compete effectively for business with US rivals. Granted, both Barclays and Deutsche have their own problems and are both trying to slim down their investment banks. But by combining, the synergies available could help the banks cut costs faster and more efficiently while being able to achieve additional economies of scale.
Asian exposure
Standard Chartered (LSE: STAN) is another possible target. It’s a lot easier to believe that Standard could be brought out by a larger peer. Many large US banks would love to have the same exposure to Asia as Standard and after recent declines in the bank’s share price, they would be able to get their hands on this exposure without having to pay a premium. At time of writing, Standard’s market capitalisation is £19.4bn; that’s around 10% of JP Morgan’s market capitalisation of $227bn.
JP Morgan could be a potential acquirer. You see, the US bank has been trying to increase its presence in wealth management over the past few years to reduce its dependence on traditional banking activities, which are producing lower and lower returns. At the same time, Standard has been restructuring its operations to focus on wealth management in Asia as lending in the region becomes riskier. If JP Morgan is looking to get exposure to the Asian wealth management market, Standard could be the perfect bet.
