Divestitures are a key, but often overlooked, component of the active management of business portfolios in banking Axis Corporate speaks to Consultancy UK
Retail banks have typically only divested reactively – when faced with a problem or external pressure that renders action unavoidable (e.g. the divestment of TSB from Lloyds Banking Group, or the forced sale of Williams and Glynn by RBS), preferring instead to passively hold on to businesses due to the cash flows associated with them or the relationships with customers that they provide.
Their reluctance to divest has reflected a belief among retail banks that, whilst acquisitions are considered a strong, growth orientated action, a divestiture is the mark of a failing firm. This belief is self-perpetuating – postponing a divestiture until a business is obviously failing essentially guarantees that the move is seen as an act of desperation, further compounding the negative connotations associated with them and making retail banks even more reluctant to pursue them, particularly in an environment of low consumer trust and confidence in banks.
Companies that actively manage their business portfolios create substantially more shareholder value than those that passively hold their business. Moving from reactive to proactive divestiture is not easy, but holding on to business units for too long without proactive moves has associated costs of its own, as retail banks have found out to their detriment:
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