Middle Market Secured Lender
Industry:Banking & Finance
Company:$500MM Division of a $13BN Finance Company
The Division, which had been in existence for over 10 years, was losing money. While historically growth had been limited, a new management team introduced the company to new products, and the division grew rapidly. Unfortunately, the new product lines were less profitable and held unanticipated risk. Making matters worse, as the profitability contracted the new management team was also expanding the operations and expenses grew.
The customer needed an assessment of the true risk in the portfolio, as well as a long term remediation plan to return the division to profitability.
- The initial phase consisted of an assessment of the portfolio and management team. Where necessary, specific reserves were established and the leadership team was replaced.
- The second phase consisted of exiting the unprofitable product lines and performing a full operational assessment.
- Over 50% of the portfolio was turned over and replaced with smaller more profitable product lines.
- The operational structure was also changed and made more streamlined to improve efficiency.
- Lastly, the overall portfolio management philosophy was changed to be more proactive in dealing with negative trends and where appropriate, to focus on fee income opportunities.
Over the first full year, the division was returned to profitability. Fee income increased by 105% and expenses were reduced by 27%. This combined with focusing on more profitable product lines the division’s ROE was increased by 36%.