by Haith Nori
April delivered some light relief following the volatility witnessed over the first quarter of the year. There has been a flurry of Merger & Acquisition deals within the financial industry, including Rathbones buying the UK arm of Investec and Deutsche Bank agreeing to buy London based investment bank Numis. JP Morgan Chase have had their offer accepted on First Republic Bank after being in a bidding war in the final week of April following the Federal Deposit Insurance Corporation (FDIC) reaching out to big banks in the US.
On Tuesday 4th April, the ‘US unveiled $2.6 billion worth of military assistance that includes three air surveillance radars, anti-tank rockets and fuel trucks, the Pentagon announced’[i]. Countries are still providing support to Ukraine as the war has still not reached a resolution. In the UK, Jeremy Hunt, Chancellor of the Exchequer, confirmed that an additional $500 million in guaranteed loans would be provided by the UK on 13th April.
On 4th April, Rathbones agreed to buy the UK Wealth arm of Investec in an ‘all-share deal that values the unit at 839 million pounds ($1.04 billion)’ [ii]. If the deal goes to plan, a very large wealth manager will be created with approximately 100 billion in assets under management. On the flip side, Investec will own 41.25% stake in the combined firm. The deal is still subject to the necessary regulatory approvals and is estimated to be completed in the final quarter of 2023.
On Friday 28th April, Germany based Deutsche Bank announced that it ‘had agreed to buy Numis Corp (NUM.L), a London-based boutique investment bank, for about 410 million pounds ($511 million) as the German company continues to deepen its links with British corporate clients’[iii]. This is a cash consideration deal valuing Numis at 350 pence per share and is Deutsche Bank’s largest acquisition in more than a decade. The deal will provide Deutsche Bank with strong links to the UK and Ireland which it intends to combine its existing corporate finance business in these areas with Numis, a leading UK corporate broking and advisory house. The deal is again expected to be completed during the final quarter of 2023 subject to regulatory approval.
First Republic Bank, the third bank to fail since March after Silicon Valley Bank and Signature Bank, saw several bidders trying to capitalise on the bank’s demise. The bank had been seized by regulators and the Federal Deposit Insurance Corporation (FDIC) was subsequently appointed the bank’s receiver. In the last week of April, the FDIC had been reaching out to other big banks in the US to gauge interest in acquiring its assets. On Sunday 30th April, the race had reduced to just four competitors after the FDIC informed potential investors to input their final bids by a deadline of noon. JP Morgan Chase were one of the bidders and had dedicated the task of due diligence on First Republic Bank to over 800 employees. The deal was later accepted by the FDIC and announced in the early hours of Monday morning, where ‘JP Morgan will pay $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) as part of the deal to take control of most of the San-Francisco-based bank’s assets and get access to First Republic’s coveted wealthy client base’[iv]. US President Joe Biden praised the deal, announcing his evaluation that JP Morgan was helping make the US banking system more secure. The deal has received all the necessary regulatory approvals and has since closed.
On 12th April US CPI data was released for the 12 months ending in March of 5%, down from 6.0% in February, 6.4% in January, 6.5% in December 2022 and 7.3% in November 2022, continuing its gradual decline since June of last year at 9.1%! This is the largest decrease seen for a while, and lower than expectations which shows some positivity. On 19th April UK CPI data released was 10.1% for the 12 months ending in March, compared to 10.4% in February and 10.1% in January. A decline has been seen but the headline rate remains above double digits and is now back to the levels achieved at the start of the year. There has been a 1% decrease since October’s 11.1% and there is still a long way to go if the Bank of England is to achieve their overall inflation target of 2%. The next meetings for the Federal Reserve, Bank of England and the European Central Bank will be held at the beginning of May where they will once again address the decision of whether to change interest rates.
In other asset classes the UK 10-year Bond yield started the month at c.3.429%, ending at c.3.718% showing an increase in yields, returning to levels last seen at the end of February and beginning of March. On the other hand, the US 10-year Treasury yield started the month at c.3.432% and ended at c.3.452% showing little gain (and unlike the UK 10-year bond has not returned to its levels at the beginning of March). The price of Gold, which increased in March, saw little movement during April remaining at high levels. GBP continued to gradually strengthen against the US Dollar over the course of April ending the month at its highest level since the beginning of the year. Global equity markets closed marginally higher in April. In the UK house prices have increased by 0.5% ‘following seven consecutive falls going back to last September’[v].
Overall, April has seen less volatility than has occurred since the beginning of the year within asset classes. Brent Crude, after starting the month back at levels of c.$85 per barrel, increased slightly over the course of April and subsequently fell, ending the month at c.$80 per barrel. UK 10-year Bond yields were higher than US 10-year treasury yields.
[i] https://www.reuters.com/world/us-pledges-another-26-billion-weapons-aid-kyiv-statement-2023-04-04/
[ii] https://www.reuters.com/markets/deals/rathbones-investecs-uk-wealth-arm-merge-deal-valued-839-mln-stg-2023-04-04/
[iii] https://www.reuters.com/markets/deals/deutsche-bank-buy-institutional-stockbroker-numis-511-mln-2023-04-28/
[iv] https://www.reuters.com/business/finance/california-financial-regulator-takes-possession-first-republic-bank-2023-05-01/
[v] UK house prices rise after seven months of falls; factory downturn deepens; eurozone inflation rises to 7% – business live (theguardian.com)
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