Eddielogic

– Thoughts on Strategy and Management

January 12, 2008
by Oliver
1 Comment

Banks are likely to face further cumulative value adjustments

Due to the so called subprime crisis a large number of banks had to make heavy cumulative value adjustments in the third quarter 2007. The ultimate cause for this crisis was credit default related problems with sub-prime loans for house financing (mortgages) in the US.

New stresses and strains seem to be occurring for the fourth financial quarter 2007. The crisis within financial markets increased in the last quarter; now it affects securities that have less or even no link to the US house financing business. Due to new validations of certain financial products (e.g. structured finance) new value adjustments will be needed. If you ask me point-blank: Some financial players did obviously have real problems to identify the risk size that they had taken into account. Today Citigroup announced that it looks to secure further 14 billion USD in new capital. That is another new example that demonstrates the depth of the problems faced by large banks which suffered heavy losses in the US subprime mortgage crisis.

What can be expected? Today we can just guess like everyone else. In order to get a better overview the following table summarizes all cumulative value adjustments that have been made in the third quarter 2007: Continue Reading →

January 10, 2008
by Dagmar
1 Comment

Really good times for restructuring experts

My morning reading of the German newspaper FAZ really gave me a happy start into the day. I read an article about the weak stock quotes of the large investment firms like Blackstone or Fortress. There I found this sentence “In the view of increasing defaults of corporate loans, a new heyday is expected for the restructuring business”.

This is not really a surprising revelation today. However, I remembered that I wrote a post about good times for restructuring experts on this blog some time ago and it turned out that I made a very similar prediction about nine months earlier.

OK, this is personal. However, it is a nice feeling to realize that you have seen something earlier than most others – especially if you have written proof of it.

January 9, 2008
by Oliver
2 Comments

Sony takes it all

DVD business is one the biggest profit makers in Hollywood. Taking this issue into consideration it easy to see why movie makers of the big media companies (e.g. Time Warner, News Corp., and NBC Universal) can be very happy now. The long term “format war” between blu-ray and HD DVD has come to an end. Warner Bros. decision, the major Hollywood movie maker (Lord of the rings, Harry Potter) to prefer Blue ray discs was the driver. Sony with its blu-ray technology is the winner. The announcement of blu-ray supporters to increase the number of movies distributed on blu-ray format will change the face of this business and is likely to kill the HD-DVD.

Microsoft and Toshiba are the potential losers. Their video format HD is only accepted (or seen as the future format) by two large Hollywood studios. “Paramount’s current plan is to continue to support the HD DVD format,” said Brenda Ciccone, a spokeswoman for Paramount.

From a strategic point of view Sony was winner two times. Very early Sony anticipated that technical details will decide to battle for future. Consumers are confronted and confused with a huge number of technical gimmicks; hence technology might only influence his preferences. Instead the decision for a certain technology will consider available content for this format. Content is still king or even THE king in this century. Sony anticipated this development better that Toshiba or Microsoft. The content business is one of Sony’s core competencies. Sony is the only foreign company that runs its own movie studio in Hollywood (e.g. blockbuster Spiderman).

Hence Sony is the winner: It has the content and the right technology.

So what’s next? Microsoft could consider blu-ray support for Xbox. How about this: “Within a few years, the entire format war could be irrelevant anyway”, since customer will be used to download their movies (see this site). I don’t believe the latter one. The reason is simple – for the next decade there will be dozens of nations left, where high speed internet access is still expensive. Don’t focus only on Europe and Northamerica….the world is larger that these parts!

January 8, 2008
by Oliver
2 Comments

The ultimate guide to frustrate your staff members

According to various management journals, management speeches, and scientific studies we know that employees can be one important source for innovation, corporate value and competitive advantages. Hence it is very easy to find a number of publications “how to motivate” and “how to manage” (your staff). Well I won’t discuss the question whether it is really possible to motivate your people. You should have in mind, there is one famous guy and bestselling author from Germany (Reinhard K. Sprenger), who argues that is not possible to motivate people; instead you can only stop demotivation.

But I will not wander from the subject. There is a huge number of articles, books and trainings related to motivation. But how about the opposite matter? (at the time of writing – Google hits for demotivation: 81.400 – Google hits for motivation: 7.360.000. That is a huge difference! ) What do you do if you have to stop or to slow down your staff members? For this situation we can offer some advice – our ultimate guide to frustrate your staff members. We have collected a wide variety of approaches to create frustration. Of course each of these items can be mixed up with other items in order to use their full potentials. To give a little bit more structure I have divided them into their objects: tasks, communication, and change management and intelligence related issues. Continue Reading →

January 6, 2008
by Oliver
1 Comment

The world’s largest companies

Taking into account market capitalization Chinese and European companies have gained more importance. Opposite to this development the importance of North American companies as well as Japanese Companies declined. Among the top 100 most valuable companies firms from China were able to more than double their market value (+123 per cent). American companies had to face a decline of 10 per cent.

Within the list of top 100 world’s largest companies three countries head the list: United States, UK, and China. This list represents an example of the increasing importance of emerging markets (countries), in particular China. (Note: Another example for the importance of emerging market countries were recent measures by sovereign wealth funds (see this post)). Of course, it cannot be for granted that the enormous market capitalization of Chinese companies will be stable for the future. But it illustrates very well that the importance of US companies have been declined. In addition the weak USD, the subprime crisis and the weak economic development did influence the position of US companies in that list. Due to the stronger EURO companies from Europe were able to achieve a better position.

But see for yourself in the following to tables. Table A contains the world’s largest companies in terms of their turnover; table B contains the world’s most valuable companies in terms of market capitalization.

Continue Reading →

January 5, 2008
by Oliver
1 Comment

Firms do without patents

In a competitive and dynamic environment it is crucial to stay ahead of your competitors. To achieve this position your organization has to focus on certain aspects like innovation, quality leadership and branding to create some kind of advantage. If your competitive advantage is established primarily on technology and innovation, patents seem to be an appropriate way to protect your position. This is right; isn’t it?

Opposite to this “standard approach” the number of German engineering firms that do without patents has increased. Going this way these firms want to avoid that their patent descriptions will be misused for product counterfeiting. Sometimes patent descriptions represented a rich source for product counterfeiters. For example SMS group (steel works engineering) reduced its number of patents registered. According them in particular Chinese product counterfeiters would misuse patent descriptions for copying.

The approach not to register patents seems to be strange at first sight. Both advantages and disadvantages are linked with this step to stop or at least to slow your competitors. So let us start with the pro’s:

  • According to the “German Patent and Brand Office” the patent description is available for 18 months after patent registration and has enough valuable information for external experts.
  • The required technical and scientific knowledge to understand disclosed information is available in China.
  • According to the Association of German engineering firms (VDMA) the legal process to protect patent rights at law it not so far developed that it actually should be.

However this approach has some major disadvantages, too:

Continue Reading →

January 3, 2008
by Oliver
Comments Off on CFO’s first hundred days

CFO’s first hundred days

Recently McKinsey announced the survey results concerning the first 100 days of new CFOs. According to available data McKinsey considered 164 responses from a representative sample of CFOs. The article that contains the findings displays participants’ views about their first hundred days as CFO.

Major findings:

  • CFO may not be spending their time where it’s most needed during the first hundred days.
  • Many CFOs said they received guidance and mentorship from the CEO, who generally wants the CFO to be a full partner in the leadership team and a contributor to company strategy.
  • CFOs also told that they communicate with the core finance team and finance staff primarily in person.
  • Planning, budgeting, management reporting and analysis have been described as major activities.
  • Opposite to this CFOs would prefer to spend their time on corporate wide strategic initiatives

One can read and/or download this article for “CFO’s first hundred days” as pdf-file here. The site does not require an login.

January 1, 2008
by Oliver
Comments Off on Strategic planning in practice

Strategic planning in practice

Oliver ReckliesAs we know from several studies and own observations strategic planning can be a very hard business. In the literature a large number of ideas are available; some of them are very helpful. Others might be appropriate for a specific industry or even a specific organization. Sometimes it can be helpful to look beyond one’s own nose and to compare the way you do strategic planning in your organization with the processes in different organizations. During my PhD-dissertation project I was given the opportunity to summarize the strategic planning approaches within the German Retail Banking business and to present my findings in a paper. My paper “Practice of strategic planning in German retail banks” first appeared in: Ekonomika i Organizacja Przedsiebiorstwa (Economics and Organization of Enterprise), number: 3 (686), pages: 39-46 and is now available online. Some of my findings will be interesting in particular for small and medium size companies.

My paper analyses the practice of strategic planning of two major player groups within retail banking business in Germany. Both types of banks face a set of burdens to organize their strategic planning processes. To discuss strategic planning approaches within these organizations I used a three step framework of (1) strategic analysis, (2) strategy finding and (3) strategy assessment. I also identified the key factors that influence the planning processes. For each element of the framework I discussed tools and methods which are employed by bank managers to overcome existing barriers. For strategy assessment two benchmarking approaches are analyzed.

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December 25, 2007
by Oliver
Comments Off on Happy Holiday season

Happy Holiday season

We wish you all a happy holiday season and all the best for the New Year!

Dagmar Recklies        Oliver Recklies

and Eddie

Winter 2007

December 23, 2007
by Oliver
3 Comments

Update: Sovereign wealth funds focus on banks

A better option for sovereign wealth funds to invest in major financial players is very hard to imagine. Equities of banks offer a discount of 20 % in their share price and represent the rear light on Wall Street. To be more exactly: This year the share price of financial institutions has declined about 22 %, representing the worst segment of S&P 500. The fear of further write-offs due to the so called subprime crises has decreased share prices heavily.

A couple of days ago I posted about the last deals of sovereign wealth funds and the activities related to banks (see this post). Now two new deals have been announced. The US investment bank Morgan Stanley had to announce new major cumulative value adjustments. 9.4 billion USD cumulative value adjustments had to be made related to credit derivatives. Hence the last quarter of 2007 faces a loss of 3.59 billion USD. To stabilize the situation in financial terms, CIC (China Investment Corp.) will invest around 5 billion USD (equal to a 9.9 % stake in Morgan Stanley). Instrument to do so is a convertible bond (9 % interest rate) that can be converted into an equity stake of 9.9 % later.

According to the Wall Street Journal the investment bank Merrill Lynch is in negotiations with Termasek Holdings (Singapore) about an investment of 5 billion USD. The share price of Merrill Lynch declined nearly 40 % this year. In the case that the negotiations would be successful, Termasek would have the option to get an equity stake over 10 %.

Continue Reading →