Just as a calm seems to have taken hold in the liquidity crisis, banks should now brace for “a wave of shareholder activism and industry consolidation,” according to institutional investors surveyed by Edelman Smithfield, the financial arm of global communications firm Edelman.
“Our research indicates that many investors still believe financial services companies are overvalued at current levels,” said Hunter Stenback, a senior vice president at Edelman Smithfield.
Three-hundred institutional investors—one-third of them U.S.-based—participated in the survey in early May. Key findings from the report, entitled “Unlocking Value in Financial Services,” include:
• Only 13% of investors consider financial services firms undervalued. Nearly half, 49%, believe they are overvalued.
• The investment outlook for the next 12 months is decidedly negative. Fifty-eight percent of investors have a negative outlook for large global banks, and 57% are pessimistic about national,regional, and community banks.
• Nearly three quarters (73%) of investors expect an increase in shareholder activism. And 73% say they are frequently inclined to support an activist.
• Like Janet Yellen, most investors expect financial services consolidation to accelerate. Over the next 12 months, 73% expect more M&A—only 2% expect less.
Ted McHugh, Edelman Smithfield’s head of strategic situations and investor relations, said with industry consolidation expected to accelerate “M&A can be a path to unlocking additional value” and that companies should prioritize deals that allow for immediate incremental growth and “enhance business diversification, while ensuring they maintain a healthy balance sheet.”
Download the complete report here.
Want more content like this? Subscribe to the RMA Insider newsletter.