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CIBC Mellon Managing A Cross Border Joint Venture Case Solution
With low-risk, custodial business, JV should move away from the riskier corporate trust business. The combined scale gives JV strong position in Canadian asset service market where it is relatively harder for new entrants to compete in the segment, consolidating the JV’s position as one of the major market players. The improved scale of the operations will strengthen JV’s financial position without exposing it to further risk.
Following questions are answered in this case study solution
Given the changing landscape of the financial sector in the wake of the financial crisis, how would you define the focus of the JV and otherwise strengthen it?
Would this refined focus eliminate the utility of continuing to function as a joint venture? In other words, from the perspective of a board member from either parent company, which is your preferred option for the JV: try and buy out your partner, try and sell out to your partner, or stay the course with the JV? Write a short memo succinctly and clearly stating your recommendations. Integrating across the two areas, the memo should provide CIBC Mellon's management team with strategic guidance on how to proceed with the alliance.
Case Analysis for CIBC Mellon Managing A Cross Border Joint Venture
1. Given the changing landscape of the financial sector in the wake of the financial crisis, how would you define the focus of the JV and otherwise strengthen it?
In the wake of the precarious imminent financial downturn, the CIBC Mellon needs to revisit its ongoing strategy to come off as more risk averse positioning. The first and foremost important stepare to ensure that JV’s avoid any possible operational mismoves to maintain its solvent clients and circumvent possible asset flights. Moreover, the media speculations are spreading misinformation and fear amongst clients, which can be detrimental to JV’s reputation. The media’s portrayal of an imminent meltdown of the financial system has a little truth to it. As, the spillover effect from the epicenter of the crisis – USA – will have little impact on the majority of the clientele of JV is Canada based.
The situation calls for the VJ’s Relationship Management Department to formulate an effective strategy to counter the panic caused by media’s misinformation. The reputation risk can trigger otherwise loyal clients to withdraw their funds. Therefore, an effective communications strategy needs to be tailored on a proactive basis which could dispel the misinformation and inform clients about the actual status of their assets; JV’s relatively safer position to withstand the crisis relative to other financial institutions. JV position of not being engaged in proprietary trading and only undertook many conservative transactions, which made the JV low risk business than both the parent institutions: CIBC and Mellon.
JV should tailor its governance processes to make suitable decisions regarding financial intuitions during the crisis period. JV’s Asset and Liability Committee (ALCO) needs to maintain stricter regulations to ensure the viable asset investment policies and risk management policies. An evaluation of JV’s clients is necessary to gauge the level of risk and long-term strategic interest. JV should remain true to its philosophy of low risk business and therefore avoid the ABCP by investing treasury funds. Rather, JV should maintain its focus on the asset servicing and disinvest from corporate trust business. JV should focus on increasing the scale in custodial business in future years, where JV’s actual expertise lie.
Finally, both partners need to have a sense that they can grow trust among the partners. Both CIBC and BNY Mellon were unambiguous regarding their desire to grow custodial market share in Canada, but both acknowledged that the significant cost and challenges associated with going it alone would make it difficult to justify from a return on investment perspective. The JV operated separately from either parent and both parents were unequivocal in expressing that their principle motivation was to communally grow market share and generate profits. Further, both parents were roughly equivalent in size (in terms of market capitalization) and both were very clear in disclosing their appetite for risk. The JV formed the ALCO committee, which oversaw and enforced a low-risk mandate, with both firms concluding that it was in the best interests of this joint venture to retain all risk within the parents themselves. Through efforts to structure the JV both operationally and legally (i.e. non-compete agreements, permitted use of intellectual property agreements, etc.), both CIBC and BNY Mellon positioned themselves to provide access to each other's capabilities without having to be concerned with learning races and the unintended acquisition of each other's capabilities.
Two of the principle ways in which the partners were able to build and sustain trust in this JV was to promote open, regular communication among the partners and the JV's executive management team; and to agree on a 50/50 vote on all issues pertaining to the operation of the JV. The aggressive promotion of open communication has been driven from the top (Tom MacMillan) to the point that executives from both BNY Mellon and CIBC agree that the culture of open communication drives down and penetrates into the JV's relationships with its customers.
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