Background Information

ABUS is the world’s leading provider of retail banking services and one of the largest asset managers globally. ABUS boasts:

• Market capitalization of more than $100 billion

• Invested assets of more than $5 trillion

• More than 100,000 employees worldwide

ABUS has a longstanding presence in Asia that reflects its awareness of the unlimited opportunities in this dynamic region. As a premier global financial services institution, ABUS has been a true believer in the Asian success story and over the years has grown hand-in-hand with many Asian clients. They were one of the first Swiss banks to establish a physical presence in Asia. ABUS currently has a significant retail banking presence in the Asia pacific region with full-service branches in Hong Kong, Singapore, and Taiwan.

ABUS currently uses its elaborate network of systems that allows clients to access specialists who are known for providing the highest quality services in this region of the world. ABUS plans to leverage its systems to expand the role of these client advisors who provide one-on-one financial advice and account oversight. ABUS consistently wins awards for its exceptional customer service, as well as for the range of products and services provided to its retail customer base. Management believes that creating the right framework and culture would expand its growth even further within the Asian region. They want to double the number of their clients yearly for the next three years by becoming one of the premier retail support structures and customer service providers anywhere in the world. To do this, they want to develop a multi-prong approach that combines an extensive branch network with a completely integrated online banking system that includes all financial services and products under a single-access login.

To date, the retail side of the organization has been focused on attracting new banking customers and growing organically by targeting specific cities and other geographic areas of the world with the largest concentration of wealthy populations, thus helping augment this online product and service offering.

To that end, large retail acquisitions are currently under negotiation and are planned to be announced simultaneously with the name change. Additional acquisition targets will be evaluated for their potential to provide high-quality retail products and services, with the goal of increasing their branch network fivefold and the online customer base tenfold over the next two years. Management has identified Asia as a potential region for retail acquisitions. This is driven by the growth in population, which has increased the demand for basic account services related to checking accounts, credit cards, advanced ATM services, and financial advice, as well as for wealth management services. Management understands that this will cause an immediate change in the corporate culture.

As noted in the organization profile above, the expansion of the Asian operations is significant to the success of the growth-related change initiatives and achievement of the organization’s long-term strategic objectives. Currently, the CEO is planning to bid on a number of banks in China to gain market share, as well as establish a local retail banking network and infrastructure.

Management has identified key performance attributes and criteria that have led to their successful expansion of retail operations in China and the Asian market. These criteria include:

• Management that is experienced in retail banking operations.

• Employees who are focused on customer satisfaction.

• Operating controls that are effective and efficient.

• Business model that is supportive of corporate financial performance metrics.

• Work environment that ensures regulatory compliance.

• Ethical culture that is focused on doing the right thing for customers and employees.

Management believes they can replicate the success of their organic growth by looking for similar attributes and criteria in the banks they are targeting for acquisition. Management has developed a list of banks that they are interested in acquiring if due diligence efforts indicate they meet management’s criteria. Banks acquired will be key to the successful implementation of ABUS’s expansion into China and the Asian market. Acquisition of the wrong banks will be devastating to ABUS’s expansion efforts.

The internal audit function has been asked to facilitate the development of a due diligence checklist to evaluate the acquisition candidates management has identified. The CEO would also like the internal audit function to assist during the due diligence reviews at each of the target banks to advise on the effectiveness of this checklist and assess whether the due diligence team has comprehensively followed the checklist. Management believes the results of the due diligence reviews will provide invaluable input and information in making a decision whether to move forward with acquiring banks targeted for acquisition. The CEO’s objective is to quickly and smoothly integrate banks acquired while maintaining high-quality customer service. The internal audit function’s involvement will help him achieve this goal.

Assignment Requirements

If you were facilitating the preparation of a due diligence checklist with members of management who are experienced in evaluating acquisition candidates, what types of topics would you expect them to identify as belonging on such a checklist? What are some high level questions that the due diligence team might ask during the due diligence process at each bank targeted for acquisition?