Resilience Report By Booz & Co.-Taking a Calmer View

Read the Report. Strategy + Business............Taking a Calmer View.

by Klaus-Peter Gushurst, Ivan de Souza, and Vanessa Wallace

10/14/08
The financial sector’s prospects in the wake of crisis may be better than you think.

As the current economic turmoil unfolds, it’s easy to lose sight of the long-term implications. The crisis mind-set in the financial-services sector, in particular, is understandable. Some of the world’s leading banking and insurance institutions are falling by the wayside. It is estimated that more than 100,000 professionals will have lost their jobs by the end of this year. Most ordinary savers around the world have lost significant portions of their pension and retirement savings. Governments are being tested, and leaders are under great pressure to intervene. The “bailouts” and other responses developed so far, however beneficial, will divert treasury and taxpayer money that might otherwise have been used to build infrastructure and support economic growth. Today’s level of market volatility has not been seen since the 1987 stock market crash. The size of the U.S. financial sector, the interconnected nature of financial markets, and the lightning-fast communication of news and rumor around the world have exacerbated the speed and scale of the crisis’s impact.

And yet, this is still a financial crisis, not a broad, fundamental economic meltdown. There is no sign of substantial risk of sovereign default in any of the major strong economies around the world. Moreover, the effects of this crisis will not be uniform. To be sure, many healthy banks and financial institutions are being punished by association; they are suffering from the shortage of credit and of investor confidence. But these effects will subside. As governments and central banks cordon off the problem institutions, a level of relative calm and confidence will return to the markets.

Even now, a number of financial-services organizations are surviving the crisis without major turmoil. They have a historic opportunity to capitalize on the events of the past six months and emerge better positioned than they have ever been before. Their next stage will be to develop new business models and revamp management practices for lasting success in the post-crisis world. The current uncertainty provides a base for their future advantage.

Thus, for those in the financial-services industry, now is not a time for knee-jerk responses. These times call for business and government leaders to take a calm look at the realities — to put in place measures that address economic fundamentals and establish a platform for success in the new era.

Remember, this crisis was not driven by economic or geopolitical fundamentals. It is rooted in the risk management of particular financial-services institutions. In the U.S. and western European banking systems in particular, a combination of incentives and market signals — the rise of asset values, the tax deductibility of mortgage interest, the nonrecourse rules (which prevent lenders from having access to borrowers after foreclosure), and the strong sales commission incentives in real estate — had led to easy consumer credit and inflated purchasing power. Financial institutions, chasing market share in a rising market, had used securitization in ever more complex varieties to fund their lending. Insurers, rating agencies, and regulators had all played an enabling role.

Authorities reacted slowly and, on occasion, acted without the information needed to be effective (for example, the German government in its response to the near-collapse of the Hypo Real Estate holding company). In some cases, structural factors had delayed effective response: U.S. Federal Reserve measures, such as the lowering of fund rates, had been weakened by the amount of money tied up in longer-term instruments, such as fixed-rate mortgages.

As the denouement unfolds, three sets of opportunities are appearing: one for financial institutions in developed economies, one for the banks and financial-services industries in emerging economies (the so-called BRIC markets), and one for government regulators.

Now read the comments on the Report by J.K

Strategy + Business = Formulation + Policy

My Comments on Resilience Report by Booz & Co.


The fact is that some of the FIs and Insurance companies have gone
into grave yard, and some of them are on its direction towards grave
yard, this is besides what is reported as some of them falling by way
side. Once it has fallen in the way side it means its ultimate
destination is grave yard only.-indeed a pathetic state of condition
due to unplanned, unethical and in transparent way of conducting the
affairs of such organizations.

Its absolutely true that over a lakh of professionals are going to
loose their jobs-because of whom? It's just because of lack of
professionalism in their approach and way of functioning- Well there
are options for them in entering into selling fast food and make fast
buck

As reported rightly many are loosing their savings, pension earnings
and other investments, no doubt those governments are being tested
with great pressure- Why not? Leaders having tasted the cause of the
crisis, no harm absolutely, they being tested of its effect.

It is not some thing new for countries to divert its tax payer's money
for other than infrastructure and support developments. How it is
being utilized is a big? mark and this shall remain unanswered for
years to come. Why can't governments make some budgetary provisions
towards meeting such worst scenario situations like creating
contingency funds allocations? It has already happened in the past and
happening presently and might happen in future too. Create a
contingency provision for such financial and economical calamities,
and save tax payers money from utilising for such things .Governments
action to subside the problems to the level of comfort and calm, looks
like a long term process, on the contrary the government should find
ways and means for permanent solution in short span of time keeping in
mind the past bad experiences and keeping in hand the present crisis.

Is it that one has, to learn a good lesson continue to experience
and undergo bad lessons? Why can't experts and professionals find
preventive measure rather than finding to manage risks and crisis as
the good old saying goes "PREVENTION IS BETTER THAN CURE"- Many
Leaders & professionals are under a confused state of mind, that this
saying applies only for Health care and it is a wrong assumption? The
effects as the report says will subside are yet to be desired as I
take the privilege of expressing my opinion it will" subdue" instead
of subside!!

With regard to healthy banks, FIs & Insurance cos, the report contains
"a trend of relative calm and confidence will return to market"- It
sounds to me like a relative term and not a realistic findings. The
report further states that the present crisis is not driven by
economic or geopolitical factors but through the risk management of
particular Financial services institutions- Ok Good and agreed- But is
there any guarantee that this crisis will not spread over and affect
more such Institutions?

All said and done, one has to accept the fact that what happens in US
and Europe in economics, banking and financial systems, undoubtedly
affects the ROW. This we have already experienced in the past and the
status-quo being maintained in the present too.

Analyzing the three opportunities appearing as reported as a measure
to undo the complications of the crisis are somewhat a welcome sign.

Developed economics performing strategy and its after effect looks
rosy. Retail banks and wealth Management Company's position and
prospects will look brighter as indicated in the report. The move for
sound risk & capital management practice by commercial banks and its
innovative operating practice by the insurance companies looks
encouraging and is a welcome concept. The investments banks exposure
check practice is also a good move indeed, keeping in mind its assets,
restructuring of business of Financial Service institutions and its
related actions are a smiling sign. As the report also indicates some
consolidation ahead.

As far as BRIC economies are concerned, the contents of report is
acceptable as very few financial services institutions have suffered
the set back of crisis in a smaller way, keeping in mind their asset
holdings, net worth and carefully planned future programs of growth
and development. The BRIC economies are also geared up for phenomenal
economical growth as per the recent print and visual media reports and
looks like they are ready with BRICKS to use it for their advantages
against certain parts of the globe and will ultimately the economies
of BRIC will emerge as a strong hold for growth and development. To
put it in a nutshell overall position of BRIC economy will emerge as
front leaders pushing aside US and Europe in pits-wait and watch!

Coming to capital markets, it is not only fundamentally changed-its
fundamentals have also stands changed as we see now. Acceleration of
globalization after the crisis, as reported is a thing to watch and
wait-which countries are going to be benefited and which are going to
be otherwise of the balance of trade and economy. New York and London
loosing its pre-eminence is already visible and some parts of the
Europe are not exception to this fact.

The financial systems of the future (which is relatively connected to
economic scenario) changing towards what good- is again a ? mark.... To
wait and watch. The markets as rightly mentioned in the report will be
less profitable and will not assist acceleration of GDP as is now
visible and governments will have to look for alternative tax revenue
(this is already in vogue in some countries) through main sources and
resources. No one can save the weak wall of the street (NYC) from a
major collapse.

The right course of action for the governments would be, to change the
policy makers by replacing with hard core talents and professionals
with right acumen, attitude, approach and expertise and experience in
Finance and economics, who will be in a position to foresee and
forecast economic conditions and keep in good control and aim to set
it under favorable conditions than debating on post crisis issues..
This will automatically take care of prevention of further erosion in
the future and prevent economic crisis-The present policy of US looks
like "ROB PAUL TO PAY PETER"- nasty and stinking policy indeed. And
shall not last long.

Analytical modules and models have no place in the present conditions.
The system has to be practical as well pragmatic and very well placed,
apparently to lead towards economical development and growth and say
bye to crisis and put the crisis to rest, failing which you will have
to face more Lehman Brothers in the country and create cemetery to
laid to rest at the cost of tax payers and common citizens.-The choice
is yours Governments?.

Take care well, of your citizens-Do not let them fall and face
debacles. Remember you are duty bound and you have been elected to
power to perform your duties earnestly, effectively & efficiently.


J.K