|
|
Thursday, 25th April 2024 |
| Major restructuring in financial services predicted |
Back |
| A new wave of restructuring is expected in the financial services sector worldwide over the next five years, with India touted as being the location to benefit most from this. However, Irish companies can become more integrated into the value chain of their institutions and play a greater role than heretofore Paul Halpin says. |
MMergers and acquisitions, joint ventures, alliances and outsourcing are back according to a global survey, which included Ireland. Conducted by PricewaterhouseCoopers and the Economist Intelligence Unit the survey is predicting major restructuring in the financial services sector worldwide over the next five years.
The principal findings are that restructuring will be very different from the blockbuster transactions of the 1990s – increasing regulation and intense competition has changed the global industry landscape, economic recovery remains fragile and institutions are more wary than ever of reputational and other forms of risk.
Four out of five respondents expected their firms to be restructured significantly within the next five years and 92 per cent of survey participants believed that restructuring will be ‘important, very important or integral’ to helping complete their strategies.
Many institutions will no longer seek to be in every segment and territory in which they operate but will look to expand regionally instead of globally or focus on particular financial products and
services.
Regulators will have a major influence on the nature of restructuring. Almost a third of the survey respondents pointed to restrictions imposed on them by regulators, such as tougher rules on compliance, capital needs and competition, as being a key external driver of restructuring. Some 64 per cent and 53 per cent of respondents respectively said regulatory capital and reporting requirements respectively were the two issues most likely to have an impact on their firms’ strategy for restructuring. Five key drivers for success were identified in the report:
1. Define a clear strategy. Only by defining such a strategy is it easy to identify genuine opportunities and to exit, through sale or outsourcing, marginal activities. Successful restructuring requires senior management to know which areas of the business are truly core to achieving their goals.
2. Effective communication, both inside and outside the company. Articulating the strategy behind restructuring will become ever more critical and winning stock market’s support will also be vital for a company to be credible in the eyes of the market. Communication skills are likely to become as important as deal-making ability.
3. Manage regulatory risk. Regulatory activity will be a key factor over the coming years in determining everything from levels of capital to reporting processes. Winners will understand the current and future regulatory environment and will embed a culture of compliance throughout their organisation. They will also have close relationships with the regulators, enhancing their ability to push through specific deals.
4. Differentiation. In markets where institutions require scale but where suitable acquisition opportunities are scarce, or where they lack scale and consolidation is likely, differentiation is the key to winning the right target or getting the right price.
5. Innovate. Joint ventures and creative outsourcing with long-term partners bring risks of their own but can be more effective than mergers, acquisitions and disposals in reaching certain goals? They need to be part of an armoury of restructuring strategies.
As to what this all means for Ireland’s position in the global financial services markets, it is too early to say. However there is likely to be some focus from overseas on the domestic players. As for internationally focused members of our financial services community, there will be more opportunities to become service providers and business partners of international banks and insurers.
In that sense Ireland will become more integrated into the value chain of the institutions themselves and of the managed services community. Some might say that India will benefit most from the restructuring, but the regulators have not been heard yet; and Ireland can play its part to a greater extent than heretofore. |
Paul Halpin is a partner at PricewaterhouseCoopers.
|
| Article appeared in the February 2004 issue.
|
|
|
