Bankers Take Business into Their Own Hands

Given the duration of the crisis, debt restructuring is becoming the most important activity for banks operating in the corporate sector, both in defensive terms and in proactive ways to create new businesses. The restructuring of liabilities translates into a reduction in leverage and intervention by lenders who, given the contractions in sales and margins, and the resulting depreciation of assets, have now to face the same level of risk as shareholders. The first step in restructuring is thus drafting a new statement of assets and liabilities which corresponds of the actual valorization of all stakeholders. This requires coordinated action and precise choices in terms of finance, governance, and capital outlays. As the demand for financial restructuring grows, and debt restructuring agreements need to be renegotiated due to worsening economic conditions, there needs to be a new approach that focuses on management and business issues and goes beyond the mere application of bankruptcy law. In this regard, two aspects merit further discussion. The first issue is that of equity. Many banks now have the need to convert debt into equity and thus take a substantial role in the governance of companies. This is a recurrent fact in recessionary historical phases and requires adjustments in terms of intervention and management. The creation of private equity task forces within banks to deal with business crises could be the appropriate choice. However, if the aim is to have private equity which is more attentive to the construction of long-term comparative advantage, rather than short-term value, mechanisms of corporate oversight and incentives of industrial strategy must be devised in proportion to the amount capital absorbed.
Agreements on corporate restructuring necessarily entail the definition of long-term business plans. The worsening of economic conditions or the occurrence of unforeseen events puts banks and firms in the condition of having to do a new round of restructuring which could well jeopardize the money invested by banks and the prosecution of business activity. As operational praxis (also at the regulatory level) it would be best to establish a check-up method of the restructuring plan, so that it can respond in timely fashion to market evolutions. This can enable the bank to avoid dealing a second time with complex changes to internal management processes.

Bankers are thus facing a different and more complex challenge with respect to the last few years of the crisis. But it is an ancient challenge: having to deal with the property and future of companies.