Trade Finance: Fin-tech as an Agile Booster

“Too big to fail” Current Banks Merger & Acquisition Leads & Pitfalls – Analysis“Too big to fail” Current Banks Merger & Acquisition Leads & Pitfalls – Analysis

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What do we mean when we say a financial institution is too big to fail? This term might best be applied to an institution that is so large that its activities make up a significant portion of a country’s payment system, credit-granting process, or other key financial roles. As a result, any substantial disruption in the particular institution’s operations would be likely to have a serious effect on a country’s financial markets, either preventing the markets from operating properly or raising questions about their integrity. The consequence of the “too big to fail” factor is that countries extend protection to large institutions and their customers that is not granted to others. Taking BIS viewpoint, although the new banking and financial conglomerates may pass our traditional statutory and regulatory guidelines, such combinations require that we refocus our attention on a long-standing and vexing concern. To the extent that institutions become too big to fail and are perceived as being protected by implicit guarantees, the consequences may be serious. Moreover, under these circumstances, our current mix of market and regulatory discipline may tend to shift further away from market discipline and, increasingly, toward regulatory discipline, resulting, perhaps, in a less efficient industry.

Overcoming resistance to change

Kurt Lewin has suggested model which encompasses 3 stages: 

The first stage is unfreezing the organization’s existing culture by discontinuing current practices, attitudes and behaviors. 

The second stage is transition which basically involves teaching the work force new concept. 

And the final stage is refreezing the culture by reinforcing new practices, attitudes and behaviors once the change was implemented. 

Similarly, there are different approaches to change. Main goal is to maximize shareholder value and asset base, which manages change from the top down and main focus is to build structure and systems. The first plan the capital consolidation and then establish sequential acquisition programs. the motivation in employees shall come through financial incentives and security through major absorptions. Consultants analyze and shape the problem into culture based organizational goals. GE under J. Welsh; IBM under L. Gerstner has adopted these steps during their merger and acquisition. On the other hand, developing organizational capabilities, encourages participation from the bottom up, build up corporate culture employees’ behavior and attitudes. It motivates employee through commitment, and consultants support to management in shaping their own solutions. More examples are Microsoft, Intel, 3 M, Merck, Schwab has adopted this process in many of the acquisitions.

The 3 important assessments and control measure for any fallout in M&A process:

• To assess the stress level of bank employees’ (post-merger).
• To assess the satisfaction level of bank employees after merger.
• To identify the stressors in context with mergers and acquisitions
• To manage redundancy and employee absorption to a level of maximum threshold.
• The time span required or under any predictable estimation for completion of M&A process, more the delay the more expenses and futile process.  

Technology Capital Confidence Barometer – Drive for Innovation and Growth Sustains Record for Technology in M&A:

With the deal on the table permanently reset, these are the better questions executives needs to target for maximizing their growth strategy in current market trends.

• Are you capitalizing on the breadth of deal structures to realize your strategic objectives?

Amid unprecedented change, many banks have to reinvent themselves fast. Beyond traditional M&A, joint ventures, alliances, partnerships and industrial mash-ups are emerging as alternatives to effectively secure deal value.

• Are you using analytics and big data to bring greater clarity to increasingly complex deals?

Complexity around the deal table can be simplified through the use of transaction analytics. Companies are looking at an increasing number of targets, often in unfamiliar industries. With multiple stakeholder considerations, ensuring access to the skills to find better answers to complex capital strategy questions is an imperative.

• Is an off-the-shelf approach to integration the best recipe for success?

Realizing full transaction value has historically been difficult to achieve. With the pace of deal making intensifying and the realization of back office and customer value enhancement nonnegotiable, a disciplined, C-suite-sponsored integration strategy unique to the deal scenario is crucial.

• Are you enhancing or destroying the value of acquired innovation?

The rapid rise of new ways of doing business, predominantly through digital channels and unique ways of utilizing labor, is fueling deal making aimed at securing innovation. Companies that adapt their strategies and operating models not only protect but take advantage of technology and innovative thinking and will be best placed to seize competitive advantage. 

Below survey where data taken across the global industry emphasizing on decision makers impact priorities on technological embedded tasks vs. others:

Recent developments causing banks to merge

Throughout the world, banking industries are undergoing a rapid and sometimes startling process of consolidation, spurred occasionally by hostile takeover bids, but, more often, by friendly mergers by institutions that were once fierce competitors. Several reasons that drive banks to merge can be identified:

Firstly, banks are tussling with the same technology, delivery and customer-service issues that have become pressing for major international banks. Banks are feeling forces of globalisation and technological change and must invest huge amounts in their own information technology systems. The electronic revolution also undermines the traditional role of banks as intermediaries between borrowers and savers, in the process reducing banks’ profits. This, in turn, is forcing banks to cut costs more urgently, and a merger with another bank becomes an attractive option for a bank.

Advances in information technology also open up a growing array of delivery channels. Online banking, in all its increasingly varied forms, is poised to become a key channel for transacting banking business. The importance of physical branches in a cyber-world may decline and the nature of the services that branches provide will probably change. Technology is here to stay, and the challenge is for bankers to embrace technology to their own and their customers’ advantage.

Secondly, in Europe, economic, monetary and financial unity has implied increased competition among banks and is forcing them to seek ways to cut costs and to increase market share.

Thirdly, it is believed that the banking and securities industry might in time consolidate into about 15 world mega-firms and that the financial institutions that do not merge soon, increase their size and obtain market share might be left in the cold.

Fourthly, it is believed that banks might become too small to compete effectively, except in niches, either in terms of products or geographically. In several countries, governments and regulators are urging banks to merge not because the merger would make them better, safer or more profitable, but because it would allow them to compete internationally with the main American and European banks counterparts. What governments and regulators should keep in mind is that, very often, the best way to create local banks that can compete internationally is to allow international banks to compete locally.

Fifthly, the choicest merger partners are taken up very rapidly. It is believed that if a bank does not act soon, it might be left with an unattractive merger partner.

Conclusion

The restructuring of the banking industry represents a challenge for bankers and for regulators. Besides the strengthening of supervisory arrangements, it is up to the regulators to support the wave of restructuring by continuing to level the playing-field in the banking industry and by eliminating any competitive distortions. This condition needs to be met for restructuring to have its full effects in terms of economic efficiency and proper resource allocation. Reg-Tech being need of hour to cover many cross-border regulations i.e., ESMA/EMIR, MiFID II, Dodd Frank, IFRS, IAS, BASLE-III, AAOIFI, ISDA, ISA, EMIR, sifma, ICMA, Fed, & Central Banks.

The thrust should be on improving risk management capabilities, corporate governance, technological legacy and room for agility, strategic business planning, competing disruptions, IOT, RPA, Block Chain, smart contracts, and resilient Fin-tech drive. In the short run, attempt options like optimization of resources, outsourcing, strategic alliances, etc. can be considered as first principles. Banks need to take advantage of this fast-changing environment, where product life cycles are short, time to market is critical and first mover advantage could be a decisive factor in deciding who wins in future. Post-M&A, the resulting larger size should not affect agility.

A bigger player can afford to invest in required technology. Consolidation can give the benefit of regional and global opportunities as well in funds’ mobilization, credit disbursal, investments and rendering of financial services, also generate lower intermediation cost and increase reach to untapped segments.

About Post Author

Mirza Ashraf Beg @ Dubai

Author is a Fin-tech entrepreneur having excellent track record of over 20 years of banking and financial industry in U.A.E, Saudi Arabia and India. Wide-range of experience in Corporate & Wholesale Banking, Treasury, Investment Banking, Funds, Corporate, Commercial, Credit, Cash, Trade Finance, & Islamic Operations. Outclass expertise in Products & Regulatory Controls, Risk Management, in “Business Modeling” focused on bespoke client products along with technology adoption. Proven in-depth understanding of micro/macro financial market econometrics, Offshore, Cross Border Banking and Legal Barriers. Major Strengths: • Debt & Asset Management • Treasury, Investment & Funds • Credit Management & Product Development • Structured products and Restructuring • Hedging and Derivative Markets • FinTech & Reg Tech Advisory Expert in Regional/Global Regulatory operational management having exemplary accolades in Islamic Banking with high end achievements in structured products. Expertise in Global Intelligence, Value Research, Product Development & Processing, projects related to current global disruptive technological changes & its adaptation through FinTech Landscape – micro/macro. Author is a Fintech Writer, Market Researcher, Speaker & Panelist in various International Banking & Technology Forums: Terrapin, Clear stream/Euroclear, Fleming, BII, Allan Lloyds, Trescon, Alpha-one, PWC, Finastra Universe - Misys-Connect etc.

[email protected]

https://moneyprotects.com

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