The necessity of restructuring in Capital Markets today
Firms across the capital markets industry are now facing pressures on multiple fronts. On one side they’re competing hard against their peers to stay relevant to clients, generate satisfactory returns and balance continuous optimisation initiatives against the demands of business-as-usual. On the other, they’re walking a tightrope through an uncertain regulatory landscape, while burdened with legacy technology and a dispersed legal entity structure that’s increasingly unfit for purpose.
What’s more, they’re doing all this while operating in an industry landscape that’s becoming more competitive by the day. And with ever-increasing capital requirements eating away at their precious profit margins.
These pressures are clear and present — and together they add up to an unarguable case for change. For capital markets participants, the only question is how to respond.
The path forward: reassess, optimise, grow
Based on our extensive industry experience and research, we believe the only viable approach is to plan and execute a restructuring programme based on the three actions of re-assess, optimise and . Firms should undertake this programme across their four parallel change initiatives — business model, operating model, legal entity optimisation, and mergers & acquisitions (M&A).
In our view, if leaders act now to design and deliver a restructuring agenda of this type, they can overcome today’s pressures — and position their firm for future success.
A drill-down into the change drivers
To achieve this positive outcome, it’s vital for leaders to start from a clear understanding of how the pressures are manifesting themselves across the industry in general, and for their own business in particular.
Currently, we’re seeing ongoing trends including diminishing returns on investment banking globally and continued rigorous regulatory scrutiny — both of which are driving and accelerating the need for restructuring. To these can be added the more immediate challenges of disruption as a result of the COVID-19 pandemic and a shift in power towards the buy-side and niche players. This shift reflects a combination of factors, including the pressures we’ve mentioned on the sell-side and ongoing increases in buy-side assets under management, together with the rise of players focused on geographic and product niches.
Looking forward, as sustainable investment becomes mainstream and firms increasingly use innovation to support a changing workforce, we expect that those firms that remain relevant will all share some key characteristics. Specifically, they’ll have pivoted successfully to an agile model and will be innovating continually based on the industry landscape and customers’ needs, while also delivering an exceptional client experience. As Francesco Filia, Chief Executive Officer of asset management firm Fasanara Capital, has stated: “Banks are dead but banking is not….they need to react to that forcefully, debunking their operative models and equipping themselves of the tech tools of the new economy.”
Planning out the restructuring programme
The message is clear: restructuring should be top of the leadership agenda. However, what will this require in practice? First and foremost, firms need to have a clear and strong restructuring agenda that their leadership — both today’s and tomorrow’s — supports and buys into. They should also consider looking externally to strengthen key focus areas in the business, adopt innovative solutions, and invest in capabilities to meet future shifts in demand.
In planning out the restructuring activity in both the near and long term, it’s important to take into account that the impact of each industry challenge is unique for every firm in terms of effect and timescale. Only by getting a clear view of their own firm’s exposure to each change driver can leadership begin to craft an appropriate restructuring agenda.
While the precise initiatives taken within the programme will vary between firms, the overall approach shown below can be applied in every case. how to develop your personal brand — We’ll now examine each of the three phases in more detail.
Leaders must start by reviewing their current restructuring agenda based on the challenges their firm is facing today — margin compression, intensifying competition, rising regulatory scrutiny, behavioural change among customers, and so on — and the current and future impacts on their business.
Armed with an informed understanding of their firm’s individual exposure to each challenge, leaders can formulate a refreshed strategy that prioritises low-risk and quick-win cost optimisation and stabilisation gains through changes to business and operating models. At this stage, legal entity optimisation (LEO) and M&A activities should be accorded a lower priority and shifted back in the agenda.
Having completed the re-assessment, firms should then shift the focus to enhancing and optimising their operating and business models to adapt to the emerging post-pandemic environment, primarily targeting revenue generation and efficiency gains.
The need for these actions reflects the fact that, in a relatively short space of time, the market has become stressed and the way firms work has changed dramatically. To keep pace, banks need to undertake optimisation initiatives driven by data and analytics to transform their ability to adapt to future ways of working, talent management approaches and real estate strategies. Accenture Research has shown that becoming more agile makes a financial services firm more than twice as likely as the average player to achieve top-quartile financial performance.
With optimisation initiatives underway and starting to deliver results, the focus can then be extended to capital optimisation and LEO-driven changes to support and align to the new models.
Together, the restructuring initiatives across all four areas — business model, operating model, LEO and M&A — will provide a solid platform to grow the business both internally and externally. Importantly, M&A opportunities can now be pursued to further enrich go-to-market offerings in line with the strategy, while actions to optimise the firm’s legal entity structures and business and operating models can continue in parallel.
Now is the time to act…
How to develop a growth mindset — In summary, once the leadership have established how the industry pressures and change drivers we’ve highlighted will impact their firm, they should look to develop a focused and transformative restructuring agenda. Given the speed at which the industry pressures are intensifying, this agenda should then be implemented at high pace across the four restructuring initiatives in three steps:
- Reassess your current strategy against your business’s major priorities
- Focus initially on optimising your operating and business models, in light of the anticipated changes that will come with new ways of working
- Be prepared to be bold and collaborate with your full ecosystem to grow your business through LEO and M&A activity.
…and Accenture can help
Capital markets firms are not alone on their journey of transformation and adaptation. There are several ways Accenture can help — ranging from identifying the best restructuring options, levers and outcomes to supporting end-to-end delivery and implementation. We have a wealth of restructuring experience built up over many years and deep global resources and assets to match. If you’d like to discuss your restructuring challenges and agenda, please don’t hesitate to get in touch directly.
Originally published at https://www.linkedin.com.