What's driving FIG consolidation at the moment?

Hi I have a coffee chat next week with an MD who works in the FIG group of a BB in the UK. 

I find FIG very interesting because of how banks, insurance groups etc. all are modelled differently to your traditional company and also in part due to regulations they have to abide by. 

Deals I find interesting include UniCredit's pursuit of Commerzbank, JPM's acquisition of SVB and FRB and more recently in the UK, Virgin Money being acquired by Nationwide. 

However, one thing I struggle to figure out is why there is so much consolidation at the moment in the FIG space. Aside from JPM's acquisition of SVB and FRB which was more down to the Government's request, I got the impression that the FIG space is quite fragmented in EMEA, so it presented a valuable opportunity. 

On the other hand, I seem to infer that one of the drivers is the cheaper source of capital that deposits can be used for in terms of lending to retail and corporate customers. Some of these deals I'd assume have a large stock-based compensation aspect, something I've found more recently common due to higher share prices in a handful of companies in various industries (most notably O&G). 

Also, in the need for digitalisation and meet regulatory pressures, it's easier to buy another FIG company than just organically grow as a bank. That's my understanding of it, anyway. 

I just wanted to clarify my understanding and see if anyone here can open up on why there is so much FIG consolidation at the moment in EMEA and worldwide.

Thank you!

3 Comments
 

Part of it is the higher rate environment that we have been in for some time now. NIMs improved and most banks were posting great profits.

Banks (and insurers) were already paying steady dividends and had initiated SBB programs, so the logical next step to drive shareholder value/returns is leveraging the current favourable rate environment to grow inorganically.

 

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