Restructuring Strategies

Patrick McConnell

This chapter discusses the risks encountered in strategies that are attempting to restructure the assets of an organisation. At one extreme of such a restructuring strategy is that of General Electric, which in 2015 took the decision to divest itself of the vast bulk of its GE Capital Finance arm, a complex undertaking that would involve divesting itself of some US$350 billion of assets. The second case looks at the strategy of the board of Deutsche Bank to “divide” its assets into “core” and “non-core”, and to manage the non-core portfolio to wind down risks. A smaller but not insignificant restructuring of JPMorgan’s balance sheet led to what became known as the London Whale scandal, with a loss of some US$6 billion, as a result of faulty execution of the bank’s perfectly reasonable capital restructuring strategy.

RESTRUCTURING STRATEGY

Chapter 4 described four main types of strategy, which are used to actively position a firm within the context of a generic strategy (Porter 1980), one of which was a so-called restructuring strategy. Such a strategy aims to radically change the structure of a firm’s assets and its value proposition (Johnson and Scholes 2002), through: