Risk Management Paper 1 "Research on Financial Risk Management of Cross-border M&A Based on Cases"
This paper takes the financial risk management in cross-border M&A in China as the research object, and on the basis of analyzing the present situation of cross-border M&A in China, analyzes in detail the enlightenment brought by the financial risks in Geely's acquisition of Volvo Cars, China Ping An's acquisition of Fortis Group and Lenovo's acquisition of IBM. Finally, combined with relevant cases, this paper makes in-depth thinking on the avoidance of cross-border M&A financial risks from the aspects of comprehensive and systematic M&A strategy design, full and meticulous due diligence and flexible transaction structure design.
Keywords: cross-border mergers and acquisitions; Financial risk; Case study; risk management
I. Status of Cross-border M&A in China
With the continuous advancement of global economic integration and the deepening of China's opening-up policy, the reform and opening-up policy was implemented at the beginning? Bring it in? On the basis of strategy, the state actively encourages enterprises to realize? Go out? Strategy [1], that is, through M&A (including M&A) and other active capital operation activities, the advanced experience of enterprises in developed countries in technology, management and marketing can be obtained concisely, and the competitiveness of enterprises in China and the sustained and healthy development of economy can be promoted through the acquisition of the above key competitive factors.
Looking at the main process of cross-border mergers and acquisitions in China, it can be roughly divided into three main stages: the first stage (1979? 2002) is a period of rapid development of overseas mergers and acquisitions in China, represented by the joint acquisition of Hong Kong Li Kang Investment Co., Ltd. by BOC Group and China Resources Group; The second stage (2003? In 2008), China's overseas M&A was a period of shock and promotion. At this stage, BOE successfully acquired South Korean Hynix Semiconductor Company to set foot in the international high-end display field, and China Offshore Oil Company also failed to acquire Unocal Company of the United States because of political power and public relations problems. The third stage (2008? Up to now) is the rational regression period of cross-border M&A in China, that is, the adjustment period after the international financial crisis in 2008. The impact of the financial crisis on the world economy has lowered the valuation of many internationally renowned enterprises, and also provided a rare opportunity for China enterprises to go abroad for M&A.. China enterprises have many successful cases in the fields of energy, automobile and machinery. While actively promoting cross-border mergers and acquisitions, at this stage, corporate mergers and acquisitions tend to be rational and simple thinking? Go out? Gradually? What is the meaning of M&A? 、? Where is the resultant force of M&A? 、? How to implement cross-cultural management after merger and acquisition? And other practical problems in cross-border mergers and acquisitions.
M&A is a double-edged sword, which not only provides rare opportunities for enterprise development, but also forms a series of potential crises in the process of enterprise development. On the positive side, the significance of M&A to enterprise development is mainly reflected in the following aspects: First, the accelerating process of world economic integration has expanded the scope of the market and brought about the globalization of competition. Through M&A, enterprises can set foot in the international market as soon as possible and realize global distribution, which is also the only way for enterprises to cope with economic development and changes; Second, through M&A, key competitive factors such as advanced technology, management experience, brand effect, sales network and R&D team of the target enterprise can be obtained, which can prolong the industrial chain of the acquired enterprise, shorten the time for the enterprise to cultivate the above-mentioned capabilities and enhance the market competitiveness of the enterprise as soon as possible; Third, through cross-border mergers and acquisitions, you can have the ownership of overseas resources, thus laying a solid foundation for the subsequent sustainable development of enterprises. However, while actively promoting the development of enterprises, excessive mergers and acquisitions are also dangerous. According to statistics, 70% of cross-border M&A cases in China ended in failure. Although the causes of failure can be attributed to different forms such as policy risk, technology risk, intellectual property risk, foreign exchange risk and human resource integration risk, financial risk is always the key to the successful implementation of transnational M&A. Effectively identifying the financial risks in transnational M&A and forming a complete financial risk management system are the key to the success of transnational M&A.. This paper intends to reveal the main financial risk points of transnational mergers and acquisitions through typical transnational financial risks and their management cases, and then put forward some thoughts on avoiding risks.
Two. A typical case study on financial risks of overseas mergers and acquisitions
In the process of transnational M&A of China enterprises, typical M&A processes such as Geely's acquisition of Volvo Cars, China Ping An's acquisition of Fortis Group and Lenovo's acquisition of IBM are also financial risks and their countermeasures. Reviewing the above M&A cases can help us better understand the financial risks in the M&A process:
(1) Geely buys Volvo
Sweden, a small Nordic country, owns Volvo cars which are famous for their safety. 1999, Ford, an American car in its heyday, bought Volvo for $6.45 billion. In 2008, affected by the global financial crisis, Ford planned to sell its Volvo shares. At that time, it was1October 28th, 2009, 10, and Geely Automobile, a private enterprise from China, became the preferred bidder of Volvo. Geely Automobile, which is positioned in the low-end market in China, tries to successfully operate Volvo, a world-famous brand, through cross-border mergers and acquisitions. Due to the huge differences in enterprise matching, this cross-border marriage is not optimistic by the industry. According to the design of the transaction structure, the price of Geely's acquisition of Volvo is $654.38+$800 million, and the subsequent working capital investment is about $900 million, while Geely's free capital only accounts for about 25% of the whole transaction. In order to successfully implement the merger, Geely used five times leverage financing. This merger and acquisition brought huge financial risks to Geely, in which the total liabilities of Geely Group surged from 8.6 billion yuan in 2008 and 654.38+06 billion yuan in 2009 to more than 70 billion yuan in 2065.438+00. Compared with the annual net profit level of Geely Group of about 654.38+0.5 billion yuan, the financial burden and risks brought by this transnational marriage to Geely Group can be imagined. Renault Nissan merger? The second successful case after this case needs time to verify [2].
(2) China Ping An acquired Fortis Group.
On June 29th, 2007, China Ping An Life Insurance Company of China Insurance Company, a subsidiary of China Ping An Insurance (Group) Co., Ltd., decided to start the equity acquisition of Fortis Group, which focuses on banking and insurance business, in order to realize the global distribution of its business and learn from the successful experience of developed countries in the world. However, due to the drastic changes in the world economic situation and the intervention of Dutch and Belgian governments in the equity disposal and asset splitting of Fortis Group, China Ping An Life Insurance Company of China Insurance Company's initial idea of realizing its global distribution and business complementarity in asset management, insurance and other business fields ended in failure. Although the failure of China's equity acquisition of China Ping An Life Insurance Company of China Insurance Company can be attributed to the deterioration of the economic and financial situation such as the subprime mortgage crisis in the United States, or the intervention of political forces in the process of M&A, the hasty due diligence in the decision-making process of M&A may be the fundamental reason for the failure of China Ping An Life Insurance Company of China Insurance Company M&A. In the process of due diligence before M&A, China Ping An Life Insurance Company of China Insurance Company only analyzes the feasibility of M&A through the data published by the target company, which is the key information in the M&A of Fortis Group. This practice also led Fortis Group to successfully conceal its debt-guaranteed bonds of up to 5.7 billion euros. Therefore, the biggest lesson of the failure of China Ping An Life Insurance Company of China Insurance Company M&A is the lack of detailed due diligence, which can not identify the financial risks of the target enterprise in a limited way, thus leading to the wrong M&A decision. (3) Lenovo's acquisition of IBM.
Lenovo Group is the largest IT service provider in China, and IBM is a world-renowned information service provider. As IBM's PC division continues to lose money, IBM plans to sell its PC division at a fixed price In order to gain an advantage in the competition with Dell and Hewlett-Packard and gain the brand effect and technical strength of IBM, Lenovo Group decided to acquire IBM's personal business department. The successful enlightenment of Lenovo's merger and acquisition of IBM in financial risk management lies in: first, in the overall design and due diligence stage of the merger strategy, Lenovo hired McKinsey as its strategic consultant, Goldman Sachs as its merger consultant, Ernst & Young and PricewaterhouseCoopers as its financial and investment bank consultants; Second, in order to avoid M&A's financing risk, Lenovo Group adopted the form of mixed payment, and effectively solved the possible financial risks caused by high debt ratio by introducing transatlantic and other financial groups. Thirdly, in order to avoid M&A's payment risk, Lenovo Group adopted a combination of cash payment and equity payment. By determining the reasonable proportion of cash and equity payment, the risk of cash flow caused by over-reliance on cash payment and the risk of control dilution caused by over-reliance on equity payment are avoided [3].
3. Strategic thinking on avoiding financial risks of cross-border mergers and acquisitions
Through the analysis of the main financial risks in the above-mentioned cross-border M&A process, it is not difficult to find that comprehensively identifying and effectively preventing the financial risks of cross-border M&A is the key to the success of M&A activities, and the financial risk management capability is also actively implemented by China enterprises? Go out? One of the core competencies that need to be improved urgently in the process. Combined with the success of this study, this paper puts forward the following strategic thinking to avoid financial risks in the process of cross-border mergers and acquisitions:
(1) Comprehensive and systematic M&A strategic design. Our government actively encourages enterprises to actively implement it? Go out? The ultimate goal of the strategy is not to become a shareholder of the target enterprise through the acquisition of control rights, but to master the advanced technology, management, brand and channel resources of developed countries through successful mergers and acquisitions. So, all enterprises in China are practicing? Go out? In the process of strategy, we should first design the strategy of M&A, carefully analyze the strategic synergy effect of M&A, and formulate the integrated operation plan of M&A in detail. The significance of comprehensive and systematic M&A strategic design lies in: First, the strategic design of transnational M&A is an important basis for choosing M&A methods. Generally speaking, transnational M&A can take the main forms of asset merger, equity merger and enterprise merger, and different forms of M&A bring different tax burdens and joint liabilities to the acquirer. For example, M&A's strategic design based on key technology acquisition can choose the way of asset acquisition, and M&A's strategic design based on resource acquisition or industry integration can choose the way of equity acquisition. Therefore, the acquirer needs to make clear the ultimate goal of M&A in advance, so as to choose a reasonable M&A model and avoid the financial burden caused by improper M&A methods; Second, the strategic design of cross-border mergers and acquisitions is an important basis for determining financing arrangements. Due to the high transaction target, it is often difficult for modern M&A to meet the transaction demand only by its own funds. Therefore, the acquirer usually raises funds through investment banks, private equity investment funds and other forms. The way and amount of financing need to be completely matched with the strategic design of M&A. In M&A financing, both the target amount of the transaction and the fund arrangement after M&A strategy should be considered, so as to fully evaluate the matching between borrowing capacity and M&A strategy and prevent M&A from failing in the follow-up integration stage after M&A success.
(2) Full and detailed due diligence. Due diligence refers to the independent, objective and fair evaluation of the financial data, operating conditions and legal disputes of the target enterprise by financial intermediary service institutions such as law, accounting, asset evaluation and investment banking with the assistance of the target enterprise, and on this basis, the comprehensive evaluation of the current technical ability, management ability and profitability of the target enterprise is carried out to predict the expected profitability of the enterprise, so as to make decisions on cross-border mergers and acquisitions, design the transaction structure of mergers and acquisitions, and design the key terms of relevant agreements on mergers and acquisitions. Due diligence is an important link to understand the real situation of the target enterprise, and it is also the key to avoid financial risks. In the cross-border M&A case of China Ping An's acquisition of Fortis Group, it is precisely because of the lack of due diligence that China Ping An needs to bear a huge financial burden for the hasty M&A decision. In order to effectively avoid the financial risks of cross-border M&A, due diligence should first pay attention to the asset integrity, real profitability, asset mortgage and pledge within the target enterprise, so as to provide a basis for determining a reasonable transaction price; Secondly, due diligence needs to pay attention to the laws and regulations closely related to the operation of the target country, such as labor relations law, pension law, tax law, environmental protection law, etc., and fully estimate the capital demand that may be caused by the subsequent operation mode; Finally, financial due diligence needs to be closely linked with technical evaluation, effectively identify potential contingent liabilities of enterprises, and implement financial arrangements in advance.
(3) Flexible and diverse transaction structure design. The design of transaction structure includes the determination of transaction target, the design of key terms of transaction, and the determination of transaction payment method. Reasonable transaction structure design is the key to effectively avoid financial risks in the process of cross-border mergers and acquisitions. In the decision-making process of the transaction target, China usually determines the transaction consideration according to the asset evaluation value. In the process of cross-border M&A, the transaction consideration is usually determined according to the target enterprise's earnings before interest and tax and reasonable P/E ratio. Due to the differences in understanding of P/E ratio, valuation adjustment technology (or? Gambling agreement? ) is a common countermeasure to solve the value difference of mergers and acquisitions. In order to reduce the financial risk of M&A, the acquirer can make some concessions on the initial transaction consideration, and adjust the initial investment by setting more stringent valuation adjustment schemes such as enterprise profit index, market share index and enterprise profit growth rate index to prevent the financial risk caused by excessive transaction consideration. In the determination of transaction payment method, we can consider designing key nodes of transaction payment to match the step-by-step payment of target consideration with the strategic significance of M&A, so as to appropriately extend the payment period of transaction consideration, and further present the real situation of the target enterprise through the design of payment period, thus reducing the financial risk of the acquirer; In the design of key terms of the transaction, in order to reduce the responsibilities and obligations of directly becoming a shareholder of the target enterprise, we can design a transaction structure such as debt-to-equity swap, and give the acquirer the right to choose whether to become a shareholder of the target enterprise after a certain period of creditor arrangement, so as to further reduce the degree of information asymmetry in the process of mergers and acquisitions and reduce the financial risk of creditors to understand and inspect the target enterprise after mergers and acquisitions. (Author: School of Management, Xi 'an University of Engineering)
refer to
[1] Lan Tian, Guo Youqin, Financial Risk Analysis and Prevention of Overseas Mergers and Acquisitions of China Enterprises [J]. Modern Finance and Economics, 2009, 12: 82-86
[2] Yang Ling, Ye Ni, the financial risks of mergers and acquisitions? Take Geely's acquisition of Volvo as an example [J]. Accounting newsletter, 2013,3:121-122.
[3] Lin, financial risks and management of enterprise mergers and acquisitions [J]. Knowledge economy, 20 12,19:124-124
Risk Management Paper II "Credit Risk Management of China Commercial Bank"
I. Introduction
Commercial banks are financial institutions whose business is operational risk, and risk runs through the whole process of its emergence and development. In essence, commercial banks themselves are based on? Business risk? As a special type of business unit, use? Business risk? For the purpose of profit, there is no risk, and commercial banks cannot make profits. The ability and willingness of commercial banks to take risks and the ability to control and manage risks will determine the success or failure of commercial banks.
Two, China's commercial banks credit risk management status and existing problems
(A) China's commercial banks credit risk management status
By the end of 20 14, the total assets of China's banking financial institutions were 172.3 trillion yuan, up by 13.9% year-on-year, and the total liabilities were 160.0 trillion yuan, up by 13.3% year-on-year. The balance of non-performing loans was 1.43 trillion yuan, and the NPL ratio was 1.60%. By the end of 20 14, the capital adequacy ratio of commercial banks was 13. 18%, up by 0.99 percentage points from the beginning of the year. Judging from the overall credit situation, the quality of credit assets of commercial banks in China is not high. For example, the non-performing loans of China Commercial Bank in 20 13 years are shown in Table 1 and Table 2.
According to the analysis of table 1, the NPL ratio of 20 13 increased slightly in the first quarter and increased significantly in the third and fourth quarters compared with the first and second quarters. Generally speaking, this has a certain impact on the quality of credit funds of commercial banks.
The amount of non-performing loans of large commercial banks (including the four major state-owned banks), joint-stock commercial banks and city commercial banks increased gradually in each quarter of 20 13. Only the proportion of non-performing loans of rural commercial banks decreased slightly, but the non-performing loans also increased gradually in the fourth quarter. Among all kinds of commercial banks, large commercial banks have the highest proportion of non-performing assets, which has always been a hidden danger for the stable operation of the financial industry and the national economy. Non-performing loans with losses are on the rise, which shows that improving the quality of credit assets of commercial banks can not be ignored.
(B) Analysis of the problems existing in the credit risk management of commercial banks in China
1. The criteria for judging credit risk are quite different. At present, state-owned commercial banks and county branches of small and medium-sized branches have mastered the corresponding loan approval authority. Hundreds of loan approval decision-making institutions, according to different risk judgment standards, nearly a thousand people are too decentralized in loan approval and decision-making power. At the same time, the head office lacks experience and skills in credit analysis of various industries, regions and customers. The information they need is not enough to make a decision. Due to information asymmetry, the credit decisions made by the branches of the same bank are very different, which leads to greater differences in different fields. It is difficult to form a unified internal risk assessment standard and risk management concept.
2. Weak credit rating foundation. In China, the reasons why commercial banks lack a good credit rating foundation are complicated. On the one hand, the authenticity of customer financial data needs to be improved, and the credit rating of enterprises is difficult to truly reflect; On the other hand, because the core credit rating results did not affect the loan decision and loan pricing; In addition, front-line personnel did not fully realize the importance of the credit rating system, which eventually led to inaccurate and incomplete financial data of the rating system, making it difficult to correctly reflect the credit risk.
3. Insufficient accumulation of customer information and financial data. On the one hand, the data sources of the most basic financial information of loan customers are insufficient. For example, the information acquisition channels of balance sheet, income statement and cash flow statement are not smooth, which leads to the restriction of the bank's analysis of customer rating and credit line determination, and the analysis is not deep enough; On the other hand, the standards of qualitative information collection channels and methods such as customers' non-financial information and non-financial information collection are not perfect enough, and there is a lack of standard procedures for implementation.
Third, western commercial banks credit risk management experience for reference
(A) the credit business emphasizes personal responsibility.
In order to clarify the responsibility and credit responsibility and risk commitment to individuals, foreign commercial banks innovatively adopt the practice of authorizing the decision-making power of credit approval to individuals. At the same time, give individuals corresponding responsibilities. Power must be responsible, and right corresponds to responsibility? This method is helpful to clarify the responsibility, realize the unity of power and responsibility, and realize the integration of power and responsibility. Business risk? With what? Personal risk? Linkage, to achieve risk responsibility to people, greatly reduce the degree of risk concentration, enhance personal risk awareness, is conducive to risk dispersion and control.
(2) Implementing classified authorization management.
The management methods of classified authorization of foreign commercial banks are worth learning. Domestic commercial banks should fully investigate the financial market and economic environment, their own asset scale, profitability, asset quality and the risk management and control ability of each branch when authorizing, and then make informed adjustments to the authorization authority of each branch and reflect it in the process. Classification management? The principle of. In the process of setting the branch's authorization authority, dynamically adjust the authorization authority with reference to the branch's performance appraisal and risk monitoring results.
(C) establish a clear risk management objectives
The risk management committees of western commercial banks have defined the objectives of risk management and guided business development. Market positioning, business planning and risk management objectives should be closely related to the bank's long-term development strategy. All relevant departments and branches should decompose, refine, clarify and implement, give play to the function of risk policy review and evaluation, and avoid things that are fragmented, ambiguous or even shirk their responsibilities.
Fourth, strengthen the credit risk management of commercial banks in China.
(A) to speed up the construction of bank risk management information system
The establishment of risk management information system is the basis of risk management of commercial banks. Without risk management information system, it is impossible to scientifically identify, measure, warn and prevent risks, let alone establish a perfect credit risk management mechanism. In order to establish a long-term mechanism of credit risk management, we must first design a qualified risk management information system. According to the present situation of risk management and risk management information system design in China, a complete risk database should be established, which should include not only the existing data of commercial banks, but also the relevant data of loans, finance companies, retail and credit businesses, and all kinds of financial institutions should also include all subsystems or branches, as well as the risk management of commercial banks related to the whole data; Secondly, we should also establish related risk database query and related technologies, such as early warning and analysis tools. Only in this way can we improve the risk management information system and provide data support for further risk management.
(B) Quantitative credit risk management
The rationality of quantitative analysis technology in credit risk management of commercial banks in China is flawed. The key to improve the credit risk identification and measurement technology of commercial banks in China is to apply the credit risk measurement model. In addition to learning from the credit risk measurement model suitable for China's commercial banks, China should gradually develop a credit risk measurement model with China characteristics and improve the supporting measures for credit risk management.
(C) credit risk early warning mechanism
Based on the data that affect the borrower's macroeconomic status, micro-subject's financial status and non-financial status, the risk early warning model is established by using relevant measurement and statistical methods. To establish a perfect credit risk early warning mechanism, we must start with the establishment of a perfect early warning database. This database includes three levels of information: first, macroeconomic information, such as macroeconomic development, consumption, import and export trade policy information; Second, meso-level economic information, such as natural resources, social resources, industrial structure, investment and economic development data; Third, micro-level information, such as financial information of loan enterprises, market supply and demand information of products under cash flow conditions, etc. The fourth is the credit rating information of commercial banks, such as the industry in which they are located and the stock data of credit assets after their changes. After perfecting the early warning database, we can use the analysis model to carry out technical analysis and corresponding early warning analysis according to the relevant data in the database.
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