Exploring options for tomorrow

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Exploring options for tomorrow—assess early and shape the future

Against the backdrop of low interest rates and tightening regulation, German savings banks are facing huge challenges. Increasing capital requirements and dramatically declining net interest incomes are key issues. Numerous institutions are therefore assessing possible measures and their effects, but also alternative future options such as mergers.

In 2015, Sparkasse Rietberg as a smaller savings bank with average total assets of approx. EUR 400 million faced the questions of how to evaluate mid-term profit planning, whether and what measures can lead to a stabilization of the (so far still) satisfactory basic situation and whether continuing the strategy of independence should be reconsidered. The objective was to maintain the good basic situation and to provide stimuli for action at an early stage so as to continue to actively shape the future even in difficult times.

For this purpose, the savings bank initiated the projectwith the following guidelines:

  • Objective impact analysis of the low interest rate phase and regulations as well as cost and income potentials
  • Transparent presentation of mid-term profit and capital planning
  • Illustration of alternatives for action and consequences
  • Intensive discussions with the board of directors ensuring their commitment

zeb’s task was to support the savings bank as an experienced advisor across all phases (see figure), to help design the strategic alternatives for action and to ensure the close involvement of the relevant bodies.

1. Systematic:
implementation

The project contained three main stages:

  • Exploration of future options
  • Support for exploratory discussions
  • Active preparations for the merger with Sparkasse Gütersloh

In the first stage, the option of continued independence of Sparkasse Rietberg was evaluated. In this context, the current KPIs and the equity situation as well as the savings bank’s mid-term planning were reviewed. Based on a potentials analysis and best practice approaches, cost and income potentials were determined. In addition, using the integrated performance and risk management simulation tool zeb.gbs, scenario-based profit and capital planning was conducted and potential profit gaps were quantified. Furthermore, the alternative scenario of a merger was analyzed, assessed and finally determined to be the most sensible option for Sparkasse Rietberg.

The stage of exploration with potential partners was designed as an open process which was transparent for all parties involved. The characterizing features of this stage were fairness, a professional attitude and an atmosphere of respect. The openness of the meetings was decisive for their progress and success.

At the end of the exploratory stage, the board of directors decided to enter concrete merger discussions with Sparkasse Gütersloh as the preferred partner.

The third phase of merger initiation was about the concrete negotiation and preparation of the merger as well as the development of a merger concept in accordance with MaRisk. zeb supported the negotiation committee, which consisted of delegations from the supervisory boards and the management boards, as a moderator and expert advisor. Here, 14 political cornerstones, e.g. ownership structure, name and composition of boards, were negotiated.

In four management board workshops, major strategic guidelines for the merged institution were defined:

  • Strategic orientation
  • Strategic targets and target system
  • Sales strategy, channels and locations
  • Organizational structure of the merged institution, incl. FTEs
  • Basic principles of risk management

In addition, joint mid-term profit and capital planning was conducted and the expected benefit of the merger quantified.

The core result document of the merger preparation is the 80-page merger concept in compliance with MaRisk which, aside from the guidelines and key figures for the merged institution, contains the agreed political cornerstones. Both supervisory boards agreed on the concepts in so-called hearing decisions.

Subsequently, zeb supported the political decision-making process in council meetings and on district assembly level. At the end of an intensive and constructive discussion phase with the founding authorities and in close alignment with the municipal administrations, it was possible to make clear decisions for the merger into Sparkasse Gütersloh Rietberg. The clarity of the decisions was a strong signal and an instruction for the board of directors of the joint savings bank, the executives and the employees.

2. Effective:
results

One of the key success factors for a sustainable transformation was an open, fair and transparent process for everybody concerned right from the beginning as well as an attitude of respect and trust on the part of all stakeholders.

The savings bank chose to act early on in this transformation process and took an active lead. In this phase, a successful profit path was developed for the merged institution which makes it viable for the future. The successful implementation of the calculated benefit of the merger has already been proven in numerous mergers of savings banks. In the current phase of implementing the merger, the corresponding course is being set for the merged institution.

 

Merger phases

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3. Future-proof:
outlook and conclusion

Having taken the initial steps towards structural changes in 2015, it was possible for the preparations and decision for the merger into Sparkasse Gütersloh-Rietberg to take place in 2016. In a joint effort, the board of directors, executives and specialist employees of the savings bank managed to structure the merged savings bank in a MaRisk-compliant way by December 31, 2016. In 2017, the merger will now be implemented based on a milestone plan comprising 4,000 individual tasks. Aside from the technical and organizational merger and an alignment towards future-ready structures and processes, it will be especially important to integrate the employees into one workforce.

zeb will be at the side of the new Sparkasse Gütersloh-Rietberg during this implementation phase and continue to support the board of directors in achieving the objectives of the merger as a trusted partner.

Feel free to contact us

 

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Andreas Polensky
Senior Manager