Heightened Pressure on the Banking Sector
Lenders remain pressured as the pandemic continues to put significant stress on the U.S. economy. Wells Fargo and J.P. Morgan chase both reported receipt of more than 300,000 applications for loans under the U.S. Payroll Protection Program. As the situation is prolonged, lenders will experience heightened pressure on credit card and loan repayments. They will need to work closely with regulators in the short-term to ensure firms and consumers receive access to vital funding.1
Diversified Lenders Fare Better During COVID-19
J.P. Morgan Chase, Wells Fargo and Citigroup set aside more than $17 billion to its loss reserve, indicating that lenders are preparing for significant customer defaults. Lenders with investment banking operations such as Goldman Sachs have been able to offset losses through enhanced trading activity in the fixed income and equities market. These firms are faring better than those with no investment banking operations.2 3
Industrial-Loan Operators Receive Green Light to Issue Loans
Federal and state banking regulators approved an application from financial-tech company Square, Inc. to start its bank in Utah. Industrial-loan operators have been pushing for years to gain regulatory approval; with Square's green-light, other operators are expected to gain approval soon. As viability is tested with current market conditions, banks will need to remain diligent to ensure they can compete efficiently if industrial-loan operators can excel in a downturn of economic cycles.4
Robinhood's Expected $200MM+ Capital Raise
Despite its recent technological disruptions, Robinhood is continuing to pursue a capital raise of more than $200MM amid increased market activity. As a result of the pandemic, Robinhood has benefited from record revenue growth. Online trading companies will need to ensure that the technology is capable of handling increased activity to meet consumer needs.5
Legislative Action Threatens to Nullify Insurance Exclusions
Pressure on insurance companies is mounting as costs of the pandemic shutdown is assessed. At the time of this report, the primary unknown adverse effect of the COVID-19 on the insurance industry could be legislated changes that nullify exclusions and force insurers to cover business interruption losses caused by events of the pandemic.6
Insurance M&A Appetite
Insurance Distribution M&A volume experienced an 18% increase YoY in 2019. Private equity-owned aggregators drove a significant majority of the represented transactions. While M&A appetite has dampened due to the coronavirus, the insurance industry did announce the sector's second-largest acquisition with Aon PLC acquiring Willis Towers Watson PLC for nearly $30 billion.7
Largest Transactions Closed
- Privilege Underwriters, Inc.
- HCC Insurance Holdings Inc.
- AmeriLife Group, LLC
- Thomas H. Lee Partners, L.P.
- Mutual of Omaha Bank
- CIT Bank, National Association
- TB&T Bancshares, Inc.
- First Financial Bankshares, Inc.
- Bankmanagers Corp.
- First Midwest Bancorp, Inc.
- ASE/ DMS/ IDG/ OSI/ SAC/SAC Admin/ SAC Insurance/Smart AutoCare/Smart AutoCare Admin/FIC
- Tiptree Warranty Holdings, LLC
- Two River Bancorp
- OceanFirst Financial Corp.
- State Bank Corp.
- Glacier Bancorp, Inc.
- Bancorp Of New Jersey, Inc.
- ConnectOne Bancorp, Inc.
- Country Bank Holding Company, Inc.
- OceanFirst Financial Corp.
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes