Alex Fopiano

The Considerations and Challenges with Asset and Liability Management

Financial institutions utilize asset and liability management (ALM) to minimize monetary risks from incorrectly matched assets and liabilities. Changing circumstances can affect investments, bringing different long-term risks to the forefront.

The practice involves everything from strategic asset allocation to adjustment of capital frameworks to risk mitigation. Richard Spanton has noted that by expertly pairing assets against related liabilities, institutions get a surplus to actively manage, maximizing their investment returns and improving profitability.

Getting to Grips with Asset and Liability Management

Essentially, ALM is all about addressing risks resulting from improperly matched assets and liabilities. Usually, mismatches occur due to the ever-changing financial landscape, including liquidity requirements or see-sawing interest rates.

A properly implemented asset and liability management framework focuses on long-term profitability and stability by managing the quality of credit, maintaining liquidity needs, and ensuring sufficient operating capital.

Traditional risk management practices used by financial institutions involved regarding risks separately, depending on their type. But as the economic outlook has evolved, such principles are considered outdated.

Therefore, firms now favor ALM, an ongoing, coordinated process using a framework to oversee balance sheets and make sure liabilities are mitigated and assets are optimally invested. Continuously monitoring risks will always be beneficial, as it allows organizations to keep up with altering tolerances and regulatory necessities.

ALM’s Benefits

ALM frameworks provide positive results for many financial institutions, as it’s imperative that organizations gain deep insights into their assets and liabilities.

One of the main benefits of utilizing ALM principles is that entities can improve strategic management to better prepare for unprecedented futures.

On top of that, it promotes easier recognition and quantification of the risks presented on the balance sheet, allowing organizations to reduce any risks from mismatched variables.

Overall, Angelo Dellomo of Mays Landing notes this forward-thinking approach achieves boosted efficiency and profitability while decreasing risks.

Alex Fopiano Massachusetts

ALM’s Considerations and Challenges

The disadvantages of ALM are associated with the hardships involved in creating and implementing a beneficial framework.

Since all organizations are different, no general frameworks exist that apply to every entity. Thus, companies are forced to design a unique protocol to compile specific risk levels, objectives, and regulatory requirements.

These strategies are long-term, necessitating forward-looking datasets and projections. Such information may not be easily accessible or available to all institutions. So, they would need to spend time, effort, and resources transforming relevant data into quantifiable units.

Not only is asset and liability management an ongoing process, but it’s also a coordinated one that oversees an entity’s total balance sheet. Coordinating accurately and effectively between different departments can be challenging (especially initially) and time-consuming.

ALM In Practice

While ALM frameworks differ massively, they tend to involve mitigating common risks, including interest rate and liquidity risk.

Finance experts like Cory Grandel have noted the former risks are related to changing interest rates and how they could affect cash flow in the future. Generally speaking, firms hold assets and liabilities that are affected by inflating interest.

The latter focuses on an entity’s ability to fulfill current and future cash-flow obligations. ALM procedures are implemented to settle obligations from liabilities.

Alex Fopiano

Recent Merger and Acquisition News Roundup

The end of October 2022 has been a whirlwind for mergers and acquisitions. But that’s really no surprise considering the erratic status of the economy.

From increasing global mergers and acquisitions to Goldman Sachs appointing new M&A co-heads, Alex Fopiano of Massachusetts reports that there’s a lot to catch up on as November begins.

The US Dollar Is Set to Increase Worldwide Mergers and Acquisitions

Reports state the relative strength of the United States dollar is projected to continue as the Federal Reserve strikes to tackle inflation by restricting monetary policy.

The strength has caused US multinational corporations major headaches, as the money they make overseas is worth less following conversion.

However, this relationship has created interesting opportunities for US companies looking to acquire businesses — those abroad are wonderfully cheap.

The dollar has risen:

  • 20% against the British pound
  • 16% against the euro; and
  • Almost 30% against the Japanese yen

So, acquisitions in these markets are unexpectedly discounted in the latter half of this year.

Simon & Schuster Acquisition Falls Through Thanks to The Court

Bertelsmann/Penguin Random House attempted to acquire Simon & Schuster for $2.175 billion, but Judge Florence Pan blocked the acquisition.

However, this didn’t come as a shock to those in the American publishing industry. Since the August trial, they’ve expected Judge Florence Pan’s decision since they believed the proposed merger to be ill-defended.

Simon & Schuster, the 98-year-old revered publishing house, is deeply honored within the community. Thus, the situation has left a great deal of consternation surrounding its fate.

When Judge Pan wrote the (decidedly brief) order, she stated that the proposed merger might be mainly to reduce competition in the market for US publishing rights to anticipated bestsellers. Therefore, she ruled in favor of the plaintiff and voided any possibility of the acquisition.

To follow on from Judge Pan’s verdict, Jonathan Kanter, the assistant attorney general, stated the merger would’ve decreased competition, lowered author compensation, and reduced the diversity, breadth, and depth of the country’s stories.

Alex Fopiano Massachusetts

Goldman Sachs Appoints New M&A Co-Heads

Several weeks after Goldman Sachs Chief Executive David Solomon revealed a massive transformation of the Wall Street bank’s ranks, Goldman Sachs appointed two bankers to head its mergers and acquisitions team in the Americas.

The bank elevated Brian Haufrect and Avinash Mehrotra, two company veterans, to the brand-new co-heads of the Americas M&A, as per a memo seen by Reuters and confirmation from a Goldman spokesperson.

Currently, Mehrotra is the head of global activism and takeover defense, while Haufrect is the global head of natural resources M&A. And it appears they will both continue holding these positions while taking on co-head responsibilities.

The decision to appoint them came after the bank combined their investment banking and trading into one department and merged asset management and wealth management.

The shake-up of the bank’s departments seems to come at a good time, as worldwide mergers and acquisitions are set to increase.