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The evolving role of corporate development in banking

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A KPMG survey evaluates the changing role of Corporate Development teams in the global banking sector, and evaluates what's new and the changes that lie ahead.

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The evolving role of corporate development in banking

  1. 1. The evolving role of corporate development in banking Fewer deals + more strategic projects = greater fulfilment
  2. 2. 2© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Stuart Robertson Partner KPMG in Switzerland Global Sector Lead for Banking Deal Advisory Authors Julian Pierce Partner KPMG in the UK Timothy Johnson Partner KPMG in the US Rupert Chamberlain Partner KPMG in China We spend about 20 percent of our time evaluating the deal based on strategy and growth potential, and about 80 percent of our time evaluating underlying business, compliance and regulatory risk. – survey respondent “ “
  3. 3. 3© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Surveying the perspective of our global clients Australia Canada China France Germany Singapore South Korea Spain Sweden Switzerland UK US We spoke to senior executives from 26 corporate development teams from some of the world’s largest banking institutions. A vivid picture of a function in the midst of a major transition
  4. 4. 4© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ Corporate development teams’ responsibilities have substantially increased and widened ■ M&A remains a strong focus ■ Banks in China are more likely to pursue growth ■ Vast majority of corporate development teams now report to CFO ■ Team size has increased; skills gap persists ■ Regulatory skills have risen in importance ■ Some corporate development executives relish the broader role ■ Corporate development will not be outsourced anytime soon Highlights
  5. 5. 5© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ Widening focus and increased responsibility for corporate development teams ■ Greater emphasis upon strategy and operational efficiency ■ Fewer deals mean more strategic projects ■ Survey respondents note that: “There is far more demand for support on corporate reorganization projects to simplify advisory (licensing), legal and regulatory setups, while we now have to elevate our level of M&A appraisal.” The impact of the new banking environment
  6. 6. 6© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ Having once been associated exclusively with growth, corporate development teams are now more likely to be involved in virtually any type of strategic initiative. ■ 76 percent of respondents state that they are now involved in identification and management of non-core assets (in contrast to just 48 percent 5 years ago), which is a sign of banks’ desire to reassess their estates and portfolios and concentrate on core competencies. The impact of the new banking environment Corporate development team responsibilities 5 years ago, now, and 5 years ahead Operational excellence 43% 19% 38% 48% 57% 71% 14% 0% 19% 5% 14% 29% 38% 62% 57% 48% 76% 76% 5% 14% 19% 24% 33% 43% 81% 90% 95% 10% 14% 19% 29% 48% 48% Portfolio management Product development and penetration Improving the client experience Communicating strategy to stakeholders Identifying and managing non-core assets (including offshoring and/or disposal) IT strategy Capital adequacy Identifying and initiating new potential acquisitions Dealing with investors Dealing with regulators 5 years ago Now In 5 years Source: The evolving role of corporate development in banking, KPMG International, 2015
  7. 7. 7© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ 48 percent say they now deal with regulators, against just 29 percent 5 years previously. ■ A respondent notes: “We spend about 20 percent of our time evaluating the deal based on strategy and growth potential, and about 80 percent of our time evaluating business, compliance and regulatory risk.” The impact of the new banking environment Changes in daily corporate development team activities compared to 5 years ago More strategic 48% Largely unchanged 19% Bigger workload 33% Less focus on deals 24% More focus on operational efficiency 43% Other 19% 10% Source: The evolving role of corporate development in banking, KPMG International, 2015 Smaller workload
  8. 8. 8© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The role has become more diverse; more challenging ■ More than 60 percent of respondents say that, compared to 5 years ago, their area of focus has expanded and they have more responsibility. ■ It is a reflection of how corporate development has moved from being narrowly associated with growth to involvement with a larger connection with any strategic project ranging from reorganization to IT implementation Size of corporate development teams compared to 5 years ago 47% More 32% Fewer 21% The Same Source: The evolving role of corporate development in banking, KPMG International, 2015
  9. 9. 9© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■Teams are growing in size to ensure they can handle the impact of higher regulatory demands and take on wider responsibilities ■62 percent report that their area of focus has expanded, and 60 percent feel they have more responsibility. These factors, along with a roving brief for special projects, and a relative decline in bureaucratic line responsibilities, arguably make Corporate Development the most dynamic area of the entire bank ■90 percent of respondents feel that outsourcing is either ‘quite’ or ‘very’ unlikely; reluctance that suggests a fear of losing control in the face of growing regulatory scrutiny, plus a desire to maintain absolute confidentiality. The impact of the new banking environment
  10. 10. 10© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ Little evidence of a decline in the overall level of deal activity ■ Respondents suggest that focus has shifted to ‘bolt-ons’ rather than acquisition of new banks A new direction for transactions We have not done any deals that require Fed approval since the recession…Fed approval can drag the process on for months. – survey respondent “ “
  11. 11. 11© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ Only 25 percent report a decline in deal activity. ■ 80 percent of the executives taking part in the survey claim to spend more than half their time on transactions, and 40 percent state that deals take up more than three-quarters of their time. A new direction for transactions Deal activity compared to 5 years ago 20% Stayed the same 30% 25% 10% 15% Decreased slightly Decreased considerably Increased considerably Increased slightly Source: The evolving role of corporate development in banking, KPMG International, 2015
  12. 12. 12© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ One respondent stated the need to ‘…tap into new technology to bring forth the strategic capabilities of the bank.’ ■ Almost three-quarters of respondents say corporate development now reports to the CFO. A new direction for transactions Banking Investment management Insurance Increase in the number of transactions compared to 2013 1,245 Number of deals announced 2014 2013 2012 2011 2010 2009 2008 2007 0 250 500 750 1000 1250 1500 1750 10% 1,136 1,135 1,158 1,245 1,110 1,281 1,573 313211721 240645 641 689 790 713 749 973 254 198 266 195 239 271 251 240 271 229 202 293 329 Value of deals announced (US$ billion) 2014 2013 2012 2011 2010 2009 2008 2007 0 100 200 300 400 500 600 700 20%Increase in the total disclosed value of transactions compared to 2013 143 127 194 193 140 215 450 435 29 56 26 37 30 64 26 42 88 56 36 37 79 51 59 86 US$227 bn US$190 bn US$288 bn US$261 bn US$284 bn US$289 bn US$581 bn US$580 bn Source: Merger Market; KPMG analysis Other sources show similar trends on deal activity
  13. 13. 13© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. New demands bring new skills and reporting lines ■ Greater involvement of the CFO brings more financial scrutiny over deals and other activities – and places corporate development teams center stage ■ Corporate development teams need to build skills in risk, strategy and portfolio management – to more accurately assess the value of portfolios
  14. 14. 14© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ In 2010, less than half of respondents say they reported to the CFO, whereas today that figure has leapt to almost three-quarters ■ All the Chinese banks taking part in the survey say that their corporate development functions report to the Board, emphasizing the strategic nature of their work ■ Building the strategic skill set could give the team a bigger role in strategic decision-making and engage with key stakeholders New demands bring new skills and reporting lines Strategy has become more important across the firm. All business lines consider strategy, which they did not do that much pre-crisis. – survey respondent “ “
  15. 15. 15© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. New demands bring new skills and reporting lines Source: The evolving role of corporate development in banking, KPMG International, 2015 Who did corporate development report to 5 years ago? Who does corporate development report to now? 5% COO 16% CEO 53% CFO 26% Other 0% COO 10% CEO 71% CFO 19% Other
  16. 16. 16© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ The survey shows that most, if not all, corporate development professionals expect significant changes to their roles in the coming years ■ There is likely to be a far greater emphasis upon strategic skills, enhanced with newly emerging knowledge in customer relationship management and outsourcing New demands bring new skills and reporting lines Source: The evolving role of corporate development in banking, KPMG International, 2015 Other 0% 10% 20% 30% 40% 50% IT Outsourcing/offshoring Management of non-core assets Portfolio management Customer relationship management Operations Strategy 48% 33% 14% 43% 29% 14% 14% 19% New skills needed by corporate development teams over the next few years
  17. 17. 17© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ The trend for CDOs to report to the CFO is a strong indication of the latter’s desire to gain greater oversight of and control over corporate financial matters – and also to make better use of the skills and experience of corporate development teams by involving them in a wider range of projects. ■ CFOs are also seeking to maximize operational efficiencies; something that more and more corporate development teams are involved with. CDOs and their teams must therefore be aware of the CFO agenda and be prepared to up the level of transparency during the deal process and beyond, to ensure that financial goals are being tracked and achieved. Transactions under the spotlight
  18. 18. 18© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. ■ As banks’ business models continue to evolve, the role of M&A and corporate development must adapt accordingly. ■ Although deals remain a core part of the function’s mission, this is now just one of a widening range of tasks entrusted to teams. 2020: a new era and a new corporate development function
  19. 19. 19© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 2020: a new era and a new corporate development function Banks are also expecting corporate development teams to help identify new customer channels, enhance the client experience and improve internal efficiency – to name a few.
  20. 20. 20© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Looking ahead What would a Head of Corporate Development’s job profile look like in 2020? In a highly competitive financial services marketplace, banks expect corporate development teams to do more ■ help identify new customer channels ■ enhance the client experience ■ improve internal efficiency What are the implications for the CDO job description of the future?
  21. 21. 21© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. How KPMG can help ■ Deal advisory: Delivering real results KPMG’s integrated team of member firm specialists works at deal speed to help you find, secure and drive value throughout your business transformation transaction lifecycle. By thinking like an investor, M&A specialists can support you – whether you are on the buy side or the sell side – to see beyond immediate challenges to drive strategic change. For more details on our services click here ■ To find out how we can help, contact Stuart Robertson
  22. 22. kpmg.com/socialmedia kpmg.com/app © 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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