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Creation from Destruction: Restructuring Financial Services Organisations

By: VRL
Published: July 2009

Restructuring Financial Services Organisations

Prior to the global slowdown, restructuring was for a time, synonymous with the process of an aggressive expansion strategy, brought about by shareholder demands for double-digit earnings growth in mature markets or for ambitious cross-border expansion strategies. More recently, it has become associated with cost-cutting in an era of diminished expectation. 

As the dust settles, this report presents an invaluable best practice guide to the range of change management and restructuring processes needed to succeed within the industry today. 

Restructuring is one of the most pressing tasks facing senior management in financial services  whether it involves managing the aftermath of a merger, outsourcing, branch closure, introducing a new product line or developing a new organisational culture. 

Report Content

  •    The merger valuation model - reconsidered
  •    Managing IT systems integrations
  •    The restructuring of distribution
  •    Cross-border branch network strategies
  •    Organisational designs facilitating innovation
  •    Evaluation of the outsourcing process: outsourcing versus rightsourcing

Restructuring has become a constant for many financial services companies seeking to survive and grow in an era of diminished expectations. Prior to the global slowdown, re-structuring was for a time, synonymous with the process of an aggressive expansion strategy, brought about by shareholder demands for double-digit earnings growth in mature markets. The Mergers and Acquisitions report published by VRL in July 2008 made the following observations:

‘As the banking sector consolidates and deals become larger and more complex, an unsuccessful M&A transaction is capable of destroying a CEO’s reputation with investors. Yet as long as investors demand double-digit earnings growth as well as double-digit return on equity (ROE), there will be an irresistible trend towards bank consolidation….Yet the actual impact on shareholder value for the buyer is uncertain, primarily because the merger valuation model still calls for most – if not all – of the total synergies to be paid away under normal circumstances to the seller. Academic studies based on share prices and performance metrics before and after the transaction have long dismissed bank M&A– as adding at best only marginal value to the buyer’s owners…..One study of mergers by 17 European banks actually estimates the total return on invested capital at 8-9%, marginally below a typical cost of capital. On balance, the mixed M&A record of almost all major bank acquirers would appear to indicate that success is largely a function of buying the right target at the right time. In addition, that success or failure may be established only after many years.

Looking to the future, bank M&A in the context of the 2007-08 credit crisis is most likely in the short term to take the form of ‘mercy killings’, as well-capitalised and highly-regarded banks buy up their weakened brethren. Over the longer term, however, the former sellers’ market will return, with acquirers competing to buy up a limited number of attractive candidates. Private equity firms have added considerable professionalism to the acquisition process, although their actual deal track record has been mixed. M&A will create ever larger and more complex banking entities, and many of our interviewees have begun to question their ability to manage such entities successfully. There is thus a preference in many cases for smaller, fill-in transactions or re-shaping the existing portfolio of businesses to match management’s core competences.’

Following the publication of these lines, September 2008 saw wholesale carnage in the banking sector resulting in the disappearance of some of the best known names in financial services and the involvement of government in running the affairs of the banking sector on a scale not seen since the banking collapse of the 1930s. Some of the riskier and more daring acquisition activity of the previous years quickly came to be seen as ill-advised.   And yet there was more to come, by the start of 2009 some of the ‘mercy acquirers’, having acquired in haste and with thoughts of gaining previously undreamed of levels of market share, were themselves candidates for acquisition and support as a result of unanticipated losses stemming from their recent purchases.  

As the dust settles and individuals companies and indeed the industry as a whole face up to restructuring and the issues of job cuts, branch closures and the ever difficult task of systems and CRM integration this report presents an invaluable best practice guide to a variety of change management and re-structuring processes within financial services.

Part one focuses on the theory and practice of merger and acquisition activity in developed markets. Why are synergies frequently not realised and is the main driver of activity simply ‘management testosterone’.

Part two looks specifically at the impact of change management on financial services distribution. Even prior to the credit crunch and the shareholder fuelled acquisition strategies.  One of the main areas of innovation throughout financial services has been in distribution channels – from the branch, to call centre, online and now increasingly the mobile channel.

Part three focuses on the credit card organisation. It considers the ‘innovating’ organisation, what drives it and why it remains an elusive and misunderstood beast. Finally it considers best practice in outsourcing across key parts of the credit card operation.

 

Section I. A review of merger literature

Chapter 1: The merger valuation model

Chapter 2: Planning and executing the merger/acquisition

Chapter 3: Leadership, people selection and culture

Chapter 4: Managing IT systems integration in a merger

Chapter 5: Merger outcomes: what has been the track record?

Section II. Restructuring and financial servicesdistribution

Chapter 6: Promoting change - Implementation guide for best practice

Chapter 7: The principles and practice of outsourcing

Chapter 8: International sales organisations: Moving cross-border

Section III. Innovation and Outsourcing in Credit Cards

Chapter 9: Overview of Innovation

Chapter 10: Outsourcing toolkit

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Retail Banking Products:

Publications:

Retail Banker International
Banking and Payments Asia

Conferences:

Retail Banking and Cards Forum, September 2010, Bahrain (TBC)  
Retail Banking/Payments Innovation, Kuala Lumpur, 11-12 May 2010

Roundtables:

Retail Banking/Payments Asia Roundtable, detailed subject matter TBC, Hosted by Titien Ahmad, VRL Asia-Pacific, and Hugh Fasken, Editor, Retail Banker International, August 2010

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