Analysis: U.S. banks to pounce on fintech deals as valuations plunge

NEW YORK, Nov 17 (Reuters) – Financial technology companies, long seen as a threat by the likes of JPMorgan Chase & Co ( JPM.N ), have become targets for takeovers by traditional U.S. banks. because of the rise in interest rates and the fall in their value. extension.

The valuation of listed financial technology companies will fall 70% by 2022, analysts at Jefferies Group said in a note last week. Over the same period, the S&P 500 bank index fell 33%, while the S&P 500 (.SPX) index fell 23%, according to data from Refinitiv IBES.

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The cuts provide an opportunity for Main Street banks to buy businesses and improve their technology in digital banking, online payments and other financial services and expand beyond lending.

Huntington Bancshares Inc (HBAN.O) is one such bank. The Columbus, Ohio-based regional bank is looking for more targets after it bought Torana, a payments fintech, in May.

“We may buy more on the payment side,” Huntington Chief Executive Steve Steinour told Reuters in an interview.

Investors have dumped fintech stocks this year along with other tech stocks, which perform better when economic growth is strong. With the US heading towards a possible recession and rising interest rates, the outlook for fintech has taken a turn for the worse. The high-profile explosion of crypto exchange FTX last week also shook confidence.

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“If valuations are down, and the IPO and SPAC market is pretty dry right now, there’s definitely more room for fintech buyouts of traditional banks,” Dan said. Goerlich, a partner at PwC who focuses on financial transactions.

The new interest is in contrast to the previous year, when finance chiefs balked at acquiring companies they thought were too valuable, he said.

The year’s losses were significantly reduced. For example, shares of Affirm Holdings (AFRM.O), which is currently offering a buyout offer, have fallen about 85% this year. Private equity firm Dave Inc (DAVE.O) fell nearly 97%.

Affirm declined to comment. Dave did not immediately respond to a request for comment.

Startup founders may be under more pressure to make deals as their businesses become more expensive to run. Investors have been focused on rising bond prices, Jefferies analyst John Hecht wrote in a note.

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JPMorgan CEO Jamie Dimon has been warning for a decade that Silicon Valley is coming to eat banks’ lunch. At the time, fintech was booming as consumers and businesses embraced digital financial services. Pandemic shutdowns reinforced the trend as everyone moved online. However, inflation has stalled this year as the economic outlook has darkened.

Seeking to meet the challenge, bought the largest American lender. In September, JPMorgan agreed to acquire Renovite Technologies Inc, a cloud-based payments technology company, the latest in a $5 billion deal in the past 18 months.

PNC Financial Services Inc (PNC.N) in September bought Linga, a fintech focused on restaurant and retail operations.

“You’re going to see an explosion of deals” over the next year and a half, said Michael Abbott, Accenture’s global banking leader.


Large lenders have many reasons to strike a deal. The rise in fintech valuations coincides with banks making more money in the traditional mortgage business as interest rates rise.

Fintech deals can be easier than bank mergers, which have been delayed by regulatory scrutiny.

“The management team and the board of directors have activated some of the focus on non-banking opportunities,” said Brennin Kroog, managing director of Lazard’s institutional group. These include digital wealth management tools and trade finance.

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Fintech deals allow banks to buy new technologies or products instead of developing them in-house. Purchases can also be hedging activities in other businesses outside of lending, such as travel services.

Not all sellers will find buyers. Some banks have rejected buy-now, pay-later businesses because of concerns about their loan portfolios and the potential for scrutiny. Crypto providers were already considered unattractive due to regulatory uncertainty, even before FTX crashed.

Even on better terms, striking deals aren’t easy.

PNC, based in Pittsburgh, Pennsylvania, looked at more than 50 acquisitions this year and finally settled on one company, CEO Bill Demchak told Reuters. However, because “values ​​have decreased, our level of activity may be higher,” he said.

Reporting by Saeed Azhar and David French in New York; Additional reporting by Niket Nishant in Bengaluru; Writing by Lananh Nguyen and Anna Driver

Our Standards: The Thomson Reuters Trust Principles.


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