of all companies surveyed consider banks - oliver wyman · 2019-04-29 · of all companies surveyed...

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of all companies surveyed consider banks to be neither clearly part of the solution nor clearly part of the problem in a corporate crisis. On the one hand, the role of the bank depends on whether the company can provide a coherent restructuring strategy and, on the other, on the bank’s willingness to respond flexibly to the company’s specific circumstances. 7: Making better use of capabilities

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EdITORIAL

Banks play a distinctive role in the event of a corporate crisis, as traditionally they provide the lion’s share of borrowed capital and are thus crucial to a company’s survival. But banks can be much more than just financiers in crisis situations: They have the capability to closely examine a company’s restructuring strategy, assess whether it can be implemented, and point out possible weaknesses.

The banking environment has changed dramatically in recent years. Competition among banks has intensified, the market for corporate loans has stagnated, and more companies are turning to other financing sources to meet their capital needs. Moreover, regulations have reduced banks’ leeway to act and increased loan costs, which banks are unable to pass on to their customers through an increase in interest rates.

In view of this situation, are banks still in a position to grant loans to companies in crisis? Are they still able to help crisis-ridden companies effectively? Or could their ability to help resolve a crisis be something that distinguishes them from competitor banks and other lenders, especially now?

To address these questions, Oliver Wyman surveyed experts at companies, banks, and other lenders. The results provide food for thought, since they seem to indicate a need to redefine the role of banks in a crisis. With this study, we seek to contribute to the ongoing debate and hope you find it interesting reading.

Best regards,

dR. LUTz JÄdE

Head of Restructuring

[email protected]

+49 89 939 49 440

dear readers:

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M ANAgEMENT SUMM ARY

07 MASTERINg DIFFICULT TERRAIN TOgETHER The current market environment spells both challenges and

restrictions for banks. But they have greater leeway for resolving corporate crises than generally expected.

S TUDY

11 WHO PROVIDES THE gEAR? Companies require capital to invest in growth and innovation.

Today, an increasing number of companies are drawing on sources beyond traditional bank financing to meet their financing needs.

15 WHEN SAFETY BECOMES A HINDRANCE Regulations are forcing banks to primarily concentrate on companies

with a high credit rating when granting loans. As a result, the interest rates for financially sound companies are declining more strongly than those for companies with lower credit ratings.

CONTENTS

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19 CATCH THEM OR LET THEM gO? Lenders will pull out of hopeless situations if they can, but a coherent

restructuring strategy can offer numerous ways to manage in a crisis.

23 MANAgINg THE CRISIS AS A ROPE TEAM Companies believe that banks have special capabilities for preventing

or resolving a crisis. Both companies and banks appear to be willing to strengthen their partnerships.

CONCLUSIONS

27 MAKINg BETTER USE OF CAPABILITIES In times of crisis, companies should involve their banks earlier, more

comprehensively, and more proactively. This enables banks to apply their capabilities for resolving a crisis more effectively.

29 ACTION RECOMMENDATIONS

CONTAC T

30 THE OLIVER WYMAN RESTRUCTURINg PRACTICE

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MANAgEMENT SUMMARY

rates or good collateral. In such instances, it will be in the interest of banks to actively contribute to resolving crisis situations.

OPPORTUNITIES FOR CRISIS RESOLUTIONIn principle, both companies and financiers see banks and other lenders as partners for managing through a corporate crisis. How lenders are likely to act, however, mainly depends on the situation: If it looks as though the company has no way out of its predicament, the majority of lenders will try to withdraw from their commitment as quickly as possible. If, on the other hand, the company has a coherent strategy for resolving the crisis, lenders are in principle willing to adapt their financing in to help. In addition to pure financing, lenders can contribute to resolving a corporate crisis by helping companies choose the appropriate financing structure and by sharing their knowledge of similar situations and the market environment.

A NEW ROLE FOR BANKS?Companies want their lenders to make an individual assessment of their specific situation and thus respond flexibly to a crisis. Conversely, companies have realized that, in the event of a crisis, they must inform their lenders more openly and more comprehensively at an early stage to build trust – a prerequisite for jointly finding a way out of a crisis.

Both companies and banks have “hidden talents” that can help better resolve corporate crises – but often don’t make full use of them. In the eyes of companies, banks have a distinct competitive edge over other lenders in that they can provide greater stability in a crisis and have better capabilities for crisis management and resolution. Banks thus have more leeway to act during a corporate crisis than generally expected. A company, on the other hand, can significantly improve the chances of weathering a crisis by pro-viding and proactively communicating a coherent restructuring strategy to its lenders. Indeed, when the two parties collaborate in the right way, they are not only more likely to resolve crises but prevent them in the first place.

The upside of banks strategically exploiting their competitive advantage when it comes to crisis management – if companies reward their com-mitment commensurately – is the opportunity to considerably expand their portfolio of services and evolve corporate relationships into stronger strategic partnerships.

9

MANAgEMENT SUMMARY

For the present study, more than 100 executives were surveyed in German-speaking countries during the second and third quarter of 2013. The target group consisted of leading experts and decision makers from different types of lenders, as well as from companies in different industries and with different ownership structures. The majority of the participating companies were mid-cap firms, and included both successful companies and companies with high crisis potential.

The study presents not only the results of the expert survey, but also additional analyses and the opinions of Oliver Wyman. Thus, it is not only a purely statistical analysis, but also provides conclusions and hypotheses that suggest how companies and lenders could better collaborate in times of corporate crisis.

STUDY STRUCTURE AND METHODOLOgY

Participant structure % of all interviewees

Lenders61

Companies39

Others22

Process industry 5

Transpor-tation & logistics 5

Component manufacturing 9 Services

9Electronic components 11

Machinery and plant engineering 14

Automotive25

Private equity 9

German commercial bank with an international footprint 68

Other9

Foreign bank 1

Trade credit insurer 4

Purely locally operating bank (savings bank, etc.) 9

Lenders61

Companies39

Others22

Process industry 5





Automotive25

Private equity 9


Other9

Foreign bank 1



Lenders61

Companies39

Others22

Process industry 5





Automotive25

Private equity 9


Other9

Foreign bank 1



Type of lender % of surveyed lenders

Company industries % of surveyed companies

11

COMPANIES ARE CAUTIOUSAfter a major slump in 2009, the German economy recovered more quickly than the rest of Europe. Growth of 4.2 percent in 2010 was, however, immediately followed by a slight weakening of the economy – ending in a sideways trend just above the “zero point.” This was accom-panied by a low in demand for loans.

The current behavior of companies reflects their uncertainty as to how the economy will develop. Efficiency improvement has been right at the top of the corporate agenda this past year. Growth initiatives requiring major investments, e.g., in new markets or M&A, were less important than in 2012, whereas companies attached greater importance to securing financing in 2013.

NEED FOR FINANCINg EXPECTEDEven though companies are cautious about making moves in the current environment, they are optimistic about the future. Whereas the majority of respondents still expected stagnation in 2013, they have a more positive outlook on prospects for the next few years. Some 63 percent of those surveyed expect that the economy will be growing by 2016 – with lenders more optimistic than companies overall. Although both groups surveyed had more or less the same outlook on the future in our previous 2012 study, lenders are even more certain now than companies that the economy will pick up: 58 percent are convinced that there will not be another crisis, and another nine percent expect a rapid “V”-shaped recovery if another crisis were to occur.

WHO PROVIDES THE gEAR?

STUDY

11

Increasing financing needs, 2014-2018 % of surveyed companies

Likely37

Very likely 23

Very unlikely 17

Unlikely 23

12

STUDY

Growth issues will become more important for companies again in the medium term, and will trigger a need for financing. Sixty percent of the companies surveyed expect financing needs to increase in the next ten years – mainly driven by investments in new technology, increases in capacity, and internationalization.

INTERNAL FINANCINg COMES FIRSTdue to the German economy’s quick recovery from the financial crisis and the conservative investment strategy that followed, German companies’ net cash level increased on average by approximately 12 percent. As a result, a large part of projected financing needs will be met through internal financing and (to a lesser extent) the injection of equity capital. This was the response of companies of all sizes. Nevertheless, external financing will continue to be important. In this context, the relative importance of external financing increases with the size of the company surveyed.

Even though external financing remains an important financing source, only part of the potential financing need will actually trigger an additional demand for loans. This is because, at the moment, internal financing plays such an important role.

Reasons for financing needs % of surveyed companies, multiple answers possible

Sources of financing % of surveyed companies, by revenue segment, multiple answers possible

52

Investment in innovation or new technology

41

32

Due dates of larger loans/bonds

27

Acquisition of companies (M&A)

20

Financing of restructuring measures

18

Raise of working capital

11

Compensation for losses

7

Other

Capacity expansion or internationalization

64

45

27

Revenue < €100m

61

56

44

Revenue €100m-€500m

80

737

Revenue > €500m

Internal financingExternal financingInjection of equity

13

PREFERENCE FOR gERMAN COMMERCIAL BANKSGerman companies have a clear favorite when it comes to obtaining borrowed capital: Three quarters of the companies surveyed said that German commercial banks with an international footprint are and will remain their main source for external financing. Companies do however expect that capital market investors will play a larger role as financing partners in the future – this is especially true for small and medium-sized companies.

The shift away from traditional forms of credit is also reflected by the choice of financing tools. The study participants said that, in the future, they want to increasingly work with syndicated loans, project financing, bonds, and factoring. As a result, companies are planning to use today’s most important forms of financing – cash facilities and bilateral loans – less often.

In the current market environment, a growing need for financing doesn’t automatically lead to a growing demand for bank loans. Dr. Tobias Eichner

75

75

German commercial banks with an international footprint

27

30

Foreign banks with a German presence

25

25

Purely locally operated banks (savings banks, etc.)

14

25

Capital market investors

14

11

Private equity, family offices

11

9

Trade credit insurers

7

7

Institutional investors (insurance companies, pension funds, etc.)

0

5

Hedge funds / distressed debt investorsCurrent source

Main source in the future

External financing contacts % of surveyed companies, multiple answers possible

15

WHEN SAFETY BECOMES A HINDRANCE

A DIFFICULT MARKET ENVIRONMENT FOR BANKSIn recent years, banks have been facing much greater challenges in their own market environment. The demand for corporate loans has been declining since 2012. This is because, on the one hand, the economic situation has been leveling out, and on the other, more companies are obtaining financing from other capital sources. Thus while the share of bank financing in Germany was 73 percent in 2008, it had fallen to 67 percent by 2012.

In addition, competition among banks has intensified as more banks have entered the German market. Alongside commercial banks, savings banks, and German state banks, which have traditionally dominated the market, an increasing number of foreign banks are pushing into the market.

REgUL ATION LIMITS OPPORTUNITIESThe regulation of the banking sector, in particular through Basel III, requires banks to do more to protect themselves against default. Thus, depending on the risk category, corporate loans must be backed by a certain amount of equity capital, and minimum liquidity values and ceilings for bank debts must be observed. Consequently, this increases a bank’s loan costs, especially when granting loans to companies with a relatively low credit rating.

Banks cannot pass these higher costs on to their customers – as is clearly reflected by lenders’ responses to regulation. In 2012, as many as 80 percent of all lenders surveyed said that they wanted to raise their interest rates in

Investments by lenders In %, 2008-2012, Germany

73 14 13 2008

71 15 14 2009

68 18 14

69 16 15

67 17 16

2010

2011

2012

BanksPrivate equity, funds, capital market, and othersInstitutional investors (insurance companies, etc.)

16

response to the increase in costs resulting from Basel III – compared to just 52 percent in 2013. The responses to the question on collateralization were similar: in 2012, 53 percent of all lenders demanded higher collateralization from their borrowers, compared to just 35 percent of all respondents in 2013.

Hence, banks primarily concentrate on companies with a good credit rating when granting loans, as these would seem to be less vulnerable to a crisis. This results in stronger competition and thus declining credit spreads among companies with a higher rating. Bank profit margins then shrink, as well as the reserves needed to compensate for loan defaults.

At the same time, lenders are becoming stricter when it comes to trans-parency within the company – probably in response to more unfavorable loan terms and conditions. It is important to note, however, that greater transparency and more restrictive covenants won’t reduce the risk of a borrower crisis – they only make such a crisis visible at an earlier stage.

DECLININg LOAN REQUIREMENTS In general, competition among lenders also eases requirements on granting loans. This is revealed by comparing survey responses for 2012 and 2013. The trend toward more lenient requirements holds true not just for com-panies with good prospects: Lenders also are placing fewer restrictions on companies with poor outlooks. Of the lenders surveyed, nine percent even place fewer demands on companies with poor outlooks than in the past. This is a sign that banks are increasingly working with companies with high

STUDY

2013 2012

58

55

52

41

35

32

30

20

6

42

54

80

32

53

41

42

39

2

Stronger transparency requirements

Stronger requirements for equity capital measures

Increase in interest rates and / or adaptation of terms

More restrictive covenants

Higher collateral demands

More syndicated loans / club deals

More demanding loan approval processes

Companies given fewer loans

No impact

Impact of Basel III on lending: 2012 versus 2013 % of surveyed lenders, multiple answers possible

Regulation encourages banks to grant loans to companies with a high credit rating – consequently, margins are under pressure in this segment. Finja Carolin Kütz

17

crisis potential, without the protection of higher interest rates or collateral. This situation could lead to a growing number of crisis instances in banks’ credit portfolios and force banks to become actively involved in resolving such crises in their own interest.

COMPANIES DISCOVER THE CAPITAL MARKETNevertheless, it is important to note that there is still a distinct difference between the demands placed on companies with good and poor prospects when granting a loan. This is made clear by the companies’ answer to the question of how they rate different financing sources. Companies with poor key performance indicators say that it is much more difficult to obtain bank financing than in the past, whereas companies with high profitability and a high equity ratio find it easier to access bank financing than previously.

It is interesting to see how companies rate accessibility to the capital market. Companies with low profitability in particular feel that debt financing is easier to obtain than bank financing. This clearly shows that debt financing via the capital market is likely to become more important, especially for companies with a low credit rating. This development also could increase corporate risks, however, since in times of crisis it is often more difficult to restructure loans obtained in the capital market than bank financing. This increases the difficulties of resolving the crisis, especially if the capital market should have less liquidity in the future than it does today.

0

2

4

6

8

10

12

14

16

18

’08 ’10 ’11 ’12’09’07’062005

AAA AA BBB High yield

Credit spreads of different credit rating categories In %, yields for corporate bonds, all terms

Higher

47 46 7 2012 90 10 2012

22 62 16 2013 72 19 9 2013

On companies with good prospects On companies with poor prospects

LowerUnchanged

Demands on companies when making loan / investment decisions compared to 2008 % of surveyed lenders

19

CATCH THEM OR LET THEM gO?

A gOOD REL ATIONSHIPBoth companies and lenders mainly see banks and other financiers in a positive light and, in principle, as partners for managing through a corporate crisis. Moreover, only a minority of the respondents from both groups view lenders as simply “cash providers”. Executives of banks and other lenders primarily see themselves in a supporting role. About two-thirds of lenders see themselves as strategic partners – both in good times and bad. Another third perceive themselves as benevolent challengers and advisors.

The companies surveyed share this opinion, but take a more critical stance: As many as 22 percent of the companies believe that banks pose a “constant risk” – a view mainly shared by companies with low profitability. On the other hand, almost 75 percent see lenders as strategic partners or, at least, as benevolent challengers and advisors, which makes for a good foundation for constructive collaboration during a crisis.

A VIABLE CONCEPT IS KEYHow lenders react to a crisis largely depends on how they perceive the crisis and how it can be resolved. If banks consider the crisis to be temporary – e.g., due to an economic slump – companies can count on banks to provide support, primarily by extending credit limits. The same holds true for structural crises, provided the lender believes that the company has a viable turnaround concept. In such cases, banks and other lenders are prepared to provide fresh funds in the form of senior secured loans (71 percent), debt restructuring (70 percent), or even assume some of the entrepreneurial risk by way of equity stakes or participation certificates (36 percent).

If a company in crisis does not have a coherent strategy, the majority of lenders will quickly withdraw from their commitments, cancel credit limits, or pass on loans to the secondary market at a discount. This shows how important it is for companies to have in place a turnaround concept that can address crisis situations, and to convince lenders that it can be implemented successfully.

LENDERS AS “CRISIS SOLVERS” Companies and lenders both believe that lenders can contribute to resolving a crisis in ways beyond just providing pure financing. It is surprising how similarly both groups rate the importance of some individual levers.

67

38

A strategic partner in good and bad times

31

35

A benevolent challengerand advisor

2

0

5

A mere provider of cashat the best possible terms and conditions

22

A constant risk

Lenders Companies

Role of lenders for the company % of surveyed lenders / companies

20

Both lenders and companies consider advice on financing solutions and risk management tools to be an effective contribution by lenders to resolving a crisis, although it comes as somewhat of a surprise that companies will also accept strategic advice from their lenders, e.g., in the form of market expertise, best-practice transfer, or even management coaching.

It appears that companies expect their lenders to provide a new range of services in times of crisis: They want lenders to react flexibly to a crisis by providing a combination of different financing tools as well as management support for strategic, financing, and risk management issues.

The fact that, for companies, the most important contribution lenders can make to resolving a crisis is to take a very close look at the company’s specific situation is clear evidence of this. Lenders consider this to be far less important – an indication that there is room for improvement here on the part of lenders.

NEW PERSPECTIVES ON COOPERATIONAnswers to questions about cooperation between companies and lenders reveal that lenders have a surprising amount of leeway to act during a crisis. Overall it can be seen that, alongside the different forms of pure financing, both management support and knowledge sharing are important contri-butions that lenders can make to resolving a crisis. Market and industry expertise, and the transfer of best practices from other companies to the company in crisis, play a key role in this.

STUDY

Transfer of loans at a discount to the secondary market

Termination of loans (if possible)

Assumption of entrepreneurial risk (debt equity swaps)

Demand for additional collateral

Debt restructuring

Issuance of super-senior loans

Provision of subordinated loans with higher interest rates

Extension of credit lines to cope with higher liquidity needs

Temporary crisise.g., economic downturn

4

2

5

57

27

36

21

71

71

Structural crisiswithout any potential solution

77

9

29

9

2

0

0

Structural crisiswith a viable turnaround concept

4

2

36

59

70

71

39

41

Reaction of lenders to different types of borrower crises % of surveyed lenders, multiple answers possible

21

It thus appears that even in the midst of a serious crisis, there may be new opportunities for both companies and banks. Companies on their part can obtain access to additional financing tools by submitting a coherent restructuring strategy. And banks can generate additional business by offering a broader service portfolio to support their customers during a crisis (provided they are convinced that it can be resolved).

In a structural crisis, a well thought out turnaround concept opens up new opportunities – both for companies and for the banks involved. Dr. Nikolaus Mauerer

Companies' perspective Lenders' perspective

3.7

6.7

5.0

4.1

4.7

4.2

7.6

6.5

5.6

5.2

8.6

3.8

3.6 4.9

Recommendation of qualified advisors for crisis management

Advice on financing alternatives

Advice on risk management tools

Contribution of market and competitor knowledge by bank experts

Taking the specific situation into account in risk assessment

Adoption of role as “challenger” and coach for management

Transfer of other companies’ best practices

Lenders’ tools for resolving a crisis From 0 = unimportant to 10 = very important

23

MORE INTENSE DIALOgUEAs noted, banks have more options for responding to a crisis than they may expect. But they must understand the company’s specific situation and be convinced that it can successfully deal with the crisis. This in turn requires banks to have good market knowledge, closely examine the company’s strategy, be flexible when developing financing solutions and, last but not least, be willing to ride out the difficult times by taking a partnership approach. The companies surveyed believe that it is with regard to these points that their lenders need to improve.

MANAgINg THE CRISIS AS A ROPE TEAM

5.6

6.3

7.0

7.1

4.3

4.2

7.4

4.9

4.2

5.0

6.8

6.4

5.0

4.8

4.8

4.4

3.6

6.8

4.0

3.8

3.2

2.6

2.3

1.6


Bundling of financing parties (complexity reduction)

More highly differentiated assessment models and risk indicators

Closer scrutiny of the company’s strategy

Flexibility and tailored financing solutions

Advice that goes beyond mere financing advice

More profound industry knowledge on the lender side

Willingness to ride out difficult phases together

Stronger support abroad as well

More intense focus by a locally based contact

Broader portfolio of financing options

Reduction of loan costs (interest, fees, etc.)

Lower collateral demands

Improvement potential among lenders From 0 = very low to 10 = very high

24

STUDY

Although lenders believe that, relatively speaking, these topics do reflect room for improvement, they see a much smaller gap than the companies surveyed. Companies obviously require their lenders to have a service profile that comprises much more than just making capital available. In addition, they want cooperation between lenders and companies to be more in the form of a strategic partnership. As yet, lenders still need to fully recognize how important it is to their business to meet these requirements.

NEW OPENNESS OF COMPANIESConversely, it appears that companies understand that they need to inform their lenders more openly and comprehensively, and at an earlier stage, when a crisis is approaching. They rate their need to improve on these issues as highly as their lenders. Companies and lenders especially agree that companies need to greatly improve their proactive communication in the case of a crisis, and to provide well-founded information about their market environment, their strategy, and potential risks. In other words, companies not only want a much more intense dialogue with their lenders regarding their market environment and their own competitive position, they also want be much more open to lenders. This appears to be an entirely new situation, given that immediately after the 2009 financial crisis, not many companies were prepared to talk with their lenders about strategic issues, let alone risks.

Obviously, companies have realized that lenders can only help them manage through a crisis if they are able to fully understand the company’s

Improvement potential among companies From 0 = very low to 10 = very high

7.9

6.6

6.1

7.3

5.9

4.9

5.6

5.5

8.7

7.9

7.9

7.3

7.0

6.7

6.2

6.2


More proactive communication in case of crisis

Higher transparency within the company

Scenario-based planning

Provision of better information about market environment and strategy

Professionalization of the CFO role

More detailed reporting

Better commentaries on financial reports

More frequent provision of information

Today, companies are much more open to their banks than a few years ago. Thomas Kautzsch

25

specific situation and prospects for success. This, in turn, is only possible if companies and lenders discuss these topics in detail, and it seems that companies are now willing to do so.

BANKS ARE THE BEST PROBLEM SOLVERSCompanies expect their lenders to have strong capabilities in crisis resolution. Thus, they need to ask themselves which lenders they believe have the most comprehensive and in-depth capabilities. At the same time, companies need to think about which lenders pose the highest risk to stable financing during a crisis.

As expected, different kinds of lenders have different profiles when it comes to their perceived capabilities for resolving a crisis and their risk potential during a crisis. According to companies, of all lenders, banks are the only group whose capabilities for resolving a crisis outweigh their risk to stable financing. On the other hand, companies believe that foreign banks, hedge funds, and distressed debt investors not only pose a particularly high risk, but also fail to offer good capabilities for resolving a crisis.

Companies also rate the capabilities of capital market investors for resolving a crisis as relatively high, although typical forms of capital market financing such as bonds are often difficult to restructure during times of crisis. This may reflect the fact that many companies do not have much experience in dealing with capital market financing.

German commercial banks with an international footprint

Purely locally operated banks (savings banks, etc.)

Foreign banks with a German presence

Hedge funds / distressed debt investors

Private equity, family offices

Institutional investors (insurance companies, etc.)

Trade credit insurers

Capital market investors

Risk to stability in a crisis Crisis-solving capabilities

4.8

3.3

6,2

7.8

5.2

4.6

6.1

5.3

5.6

5.1

3.8

2.8

5.0

3.7

3.5

3.9

Assessment of lenders’ risk potential and crisis-solving capabilities From 0 = very low to 10 = very high

26

The analysis shows that, from the companies’ perspective, banks have a distinct competitive edge over other lenders. They have the best qualifi-cations for helping companies during a crisis – as a partner – but rarely make use of their capabilities. Many banks can draw on extensive experience and sophisticated tools for managing through a corporate crisis. Moreover, in recent years, many banks have set up groups of experts with proven industry experience. But they often apply these strengths only defensively, i.e., not before the borrower has actually slipped into a crisis. Only a few banks actively, or even strategically, use their capabilities for crisis resolution, e.g., as a marketing tool or for value growth by making a focused commitment during times of crisis.

TIME FOR A NEW FORM OF PARTNERSHIP?The study reveals that companies increasingly want their banks to support them in difficult times. In turn, they are prepared to inform their lenders more comprehensively and proactively about market environment, strategy, and competitive challenges. Compared to other lenders, banks are in a much better position to strike up this form of business relationship with companies – which could lay the foundation for stronger strategic partnerships. For this to happen, banks need to look at a company’s specific situation during a crisis more closely. Companies, on the other hand, must be prepared to reward the effort associated with this and the potentially higher risk to banks by paying appropriate interest and providing the necessary collateral. Cheap money alone does not constitute the basis of a partnership – rather, it increases the risk of unstable financing if a crisis occurs.

STUDY

Banks have the potential to play a much more important role for their customers than that of mere financiers. Dr. Joachim Krotz

27

Companies are expecting to grow in the future and, consequently, to need more financing. An increasing number of companies will meet this need with their own resources or by injecting equity capital, and many also are considering external financing via the capital market, despite the risk this involves and the higher loan costs it might engender. For banks, these trends may reduce the size of their addressable market.

Regulations such as Basel III have led banks to focus on companies with a good credit rating and a positive outlook, causing competition among banks to heat up. Banks have been unable to implement interest rate hikes and other financing terms and conditions as planned. In the search for new business, banks could increasingly become involved in companies with a higher crisis potential. This could lead to an increase in the number of crisis instances in banks’ loan portfolios where they are not protected by high margins or good collateral and where it is thus in their own interest to help the borrower resolve the crisis.

Lenders are failing to take advantage of the leeway they have to resolve corporate crises, including adapting their financing, providing advice, and sharing their knowledge. Companies must present a coherent strategy for resolving a crisis to ensure lender support, however. Companies for their part want lenders to take a closer look at the specific circumstances of the crisis, and they are prepared to inform their lenders more openly, comprehensively, and at an early stage if they slip into a crisis.

Banks have a competitive edge over other lenders because they can provide greater stability in the event of a corporate crisis and have better capabilities for actually resolving a crisis. They are well positioned to provide companies with desired crisis management tools, which could provide an opportunity

MAKINg BETTER USE OF CAPABILITIES

CONCLUSIONS

28

to expand their service profiles and increasingly turn their relationships with customers into stronger, more effective strategic partnerships.

Banks can even go one step further, specifically committing themselves to helping a company in a crisis situation (if, in the bank’s opinion, the company has a viable turnaround concept). Banks could thus actively apply their capabilities for resolving a crisis to achieving value growth and maintaining or expanding customer relationships.

The companies’ response to the core question of the study reveals how urgent it is that banks take action. Only ten percent of the respondents consider banks as “part of the solution” during a crisis, while 28 percent see banks as “part of the problem.” The remainder – 63 percent – do concede the possibility for banks to be one or the other, depending on the situation. This should be a starting point for honing crisis management on both sides – to the benefit of both banks and their corporate clients.

CONCLUSIONS

10

Part of the solution

63

Both – depending on the situation

28

Part of the problem

In times of crisis, banks and other lenders are mostly ... % of companies surveyed

29

FOR COMPANIES AND THEIR SHAREHOLDERS

FOR BANKS AND OTHER LENDERS

1. Make use of the favorable terms and conditions currently available for financing − Identify medium-term financing needs in various scenarios− Make use of the good terms and conditions currently available for financing− Take different financing sources into account

2. Build up a risk-oriented lender portfolio − Build up a core group of financing partners offering high stability and good capabilities in crisis resolution− Be cautious about lenders with high risk potential and poor capabilities for resolving a crisis

3. Communicate with banks as partners − Regularly and proactively inform core banks about trends in the market / competitive environment,

the corporate strategy, and potential risks− In this way, build up a strong basis of trust for times of crisis

4. Equip the company to deal with a crisis− If there are signs of a crisis, develop and communicate a robust concept for resolving the crisis at an early stage,

as this makes it possible to fully exploit the lenders’ crisis management levers

1. Continue to reckon with a difficult market environment− The demand for loans could increase less than expected− Competition among banks and other lenders will tend to grow

2. Look for opportunities to differentiate themselves− In the loan business, a business design that is profitable in the long term needs to distinguish itself

from competitors and other lenders− differentiation factors include a better understanding of the market and competitive environment / companies,

more customer-centric and flexible financing solutions, as well as services related to financing

3. Enhance capabilities for resolving a crisis− Competition in the loan business is making it increasingly mandatory for banks and lenders to become involved

in companies with higher crisis potential− Thus, banks should enhance their capabilities for resolving corporate crises – not just by providing financing –

and apply these early on during such crises

4. Make better use of capabilities for resolving a crisis− Banks have a competitive edge over other lenders in helping to resolve with a corporate crisis− Consequently, supporting companies during a crisis with financing solutions and other services

could be a strategic business design

ACTION RECOMMENDATIONS

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THE OLIVER WYMAN RESTRUCTURINg PRACTICE

Oliver Wyman is a global management consultancy that supports com panies in growing their value. The company offers deep industry expertise, decades of experience in managing and preventing crises, and a com prehensive understanding of the interests of lenders and the restrictions they face. This not only gives Oliver Wyman exceptional access to companies, but enables us to develop sustainable restructuring concepts that take the market and competitive environment, trends, and the individual industry’s specific success factors into account. In addition, Oliver Wyman can function as a moderator in the restructuring process, i.e., as a neutral expert and authority capable of mediating between shareholders, lenders, and other stakeholders.

Restructuring with strong industry knowledge

Global network

Complete service portfolio

Understanding of lenders

Recognized experts in value growth

A single team combines deep industry expertise and extensive restructuring experience

Industry practices provide knowledge about market trends and success factors in global markets

Methodological knowledge beyond restructuring (e.g., strategy, operations, M&A, as well as HR through our sister company, Mercer)

Our Financial Services and Corporate Finance practices have developed working relationships with a network of banks and financial investors

A reputation among industrial companies as industry experts and specialists in sustainable value growth

Value contribution to restructuring projects

Oliver Wyman Restructuring Capabilities

YOUR CONTACTS

– Business plan reviews

– Development of restructuring concepts

– Independent business reviews (IBR) and viability statements

– Implementation support

– Program management and reporting to lenders

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Thomas Kautzsch Partner

Munich +49 89 939 49 460 [email protected]

Dr. Joachim Krotz Partner


Dr. Romed Kelp Partner


Finja Carolin Kütz Partner


Dr. Markus Mentz Principal


Dr. Lutz Jäde Partner


Dr. Tobias Eichner Partner


Dr. Nikolaus Mauerer Partner

Frankfurt +49 69 971 73 511 [email protected]

Dr. Daniel Kronenwett Principal


Wolfgang Weidner Partner


Additional industry experts and partners from international offices are available to you as part of an integrated team.

ABOUT OLIVER WYMANOliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, restructuring, and organization transformation. The firm’s 3,000 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.

[email protected]+49 89 939 49 780+49 89 939 49 501

© 2014 Oliver Wyman. All rights reserved.

of all companies surveyed consider banks - oliver wyman · 2019-04-29 · of all companies surveyed...

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