Top Five Focus Areas for Troubled Financial Institutions

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In working with banks during this turbulent time, Ernst & Young has identified five key areas of focus and intervention.

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Current conditions have forced banks to re-think their business strategy and operations in ways no one could have predicted

Global banks immersed in the financial crisis are struggling to "right the ship" amidst a sea of industry change and upheaval. Persistent liquidity issues have forced many banks to revise their business models, regulatory scrutiny has intensified, credit remains severely limited, unemployment is rising along with foreclosures and bankruptcies, and bank consolidation is redefining the competitive landscape.

"Current conditions have forced banks to re-think their business strategy and operations in ways no one could have predicted," said Bill Schlich, head of Ernst & Young's Global Banking & Capital Markets Practice. "Ultimately, this crisis is forcing banks to reassess the way they manage risk. An examination of people, processes and technology is an integral piece of creating an effective risk management strategy. Another key part is a risk aware culture, which starts with the tone at the top of an organization and creates an environment in which risk becomes everyone's business."

In working with banks during this turbulent time, Ernst & Young has identified these key areas of focus and intervention:

  • Exposure aggregation and mitigation.

Organizations are struggling with timely exposure aggregation. Actively mitigating exposures through netting, control of cash movement, and identifying, exercising and managing transactional trigger events is critical to loss mitigation.

  • Liquidity/cash flow/working capital analysis.

For most organizations, liquidity management, cash flow forecasting and working capital management needs to be challenged and revised to recognize the current market environment and protect the company.

  • Buy-side and sell-side due diligence/restructuring.

Organizations are actively selling both distressed as well as prized operations to unlock liquidity and survive financial distress. Early planning, tight management of due diligence and effective negotiation are critical under today's short deal deadlines or restructuring events.

  • Overall risk management and governance.

Turbulent market conditions have created a renewed focus on risk management practices and approaches, including investment risk, compliance risk, counter-party risk and overall operational risk. Organizations and their boards understand the need to have an independent assessment and enhance the overall control environment, including third party oversight.

  • Operational requirements.

Many organizations are not able to address critical needs due to resource constraints. Timely loss mitigation is extremely dependent on flawless operational execution. Immediately understanding and addressing all the activities that should be undertaken to exercise early terminations, exercise rights and manage cash movement is critical to maximizing recoverable values.

For additional perspective on the financial crisis, visit EY.com for our newly released risk management report, Navigating the crisis - a survey of the world's largest banks. The annual study was compiled from interviews with 48 senior executives at 36 major banking institutions around the world.

About the Ernst & Young Global Banking & Capital Markets Center

In today's globally competitive and highly regulated environment, managing risk effectively while satisfying an array of divergent stakeholders is a key goal of banks and securities firms. Ernst & Young brings together a worldwide team of professionals to help you achieve your potential - a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately, it enables us to help you meet your goals and compete more effectively. It's how Ernst & Young makes a difference.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Visit http://www.ey.com to learn more.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

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Katie Johnston
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