How a financial services firm built resilience amid geopolitical flux

The GBG team assigned to the project carried out some initial research to identify different ways in which the geopolitical relationship between the US and China might evolve. They then carried out interviews with professionals experienced in the subject matter, both inside and outside the EY-Parthenon organization, as well as further desk research, looking at historical cases that might inform how financial markets would react to a particular situation, and how that would impact the client’s liquidity and financing.
 

“Scenario development is primarily a qualitative methodology, not a quantitative one,” explains Courtney Rickert McCaffrey, EY-Parthenon Global GBG Insights Leader. “But we like to say we each have a sophisticated algorithm in our heads, from having collectively done this kind of work for several decades.”
 

She also notes that on this engagement, the team reached out to colleagues in the wider global EY organization in areas such as financial markets, financial risk and business continuity, who were able to recommend actions the client could take to mitigate some of the potential risks.
 

One challenge with this kind of consultancy is that the geopolitical landscape is constantly evolving. It was during the initial research phase that the war in Ukraine rapidly escalated, an event which added a new urgency to the work. While the conflict was not directly related to the US-China tensions that were the focus of the research, there were certain parallels between the two situations that needed to be borne in mind.
 

Analyzing the risks

The result of this intensive research, completed in just a few weeks, was the development of five potential scenarios, three of which the client asked EY-Parthenon teams to explore in detail. For each of these three key potential scenarios, they set out what might happen, the key drivers and signposts of the scenario, likely international responses, the financial and capital impact, and the likelihood of the scenario materializing.
 

The next step for the EY-Parthenon team was to run two workshops with the senior leadership team at the financial services firm. The purpose of these was to explain the scenarios they had developed from the geopolitical perspective, jointly explore the broad global financial market implications, and stress-test those conclusions.
 

“EY-Parthenon teams then worked with them to talk through what this would mean for their business,” explains Douglas Bell, EY Global Trade Policy Leader. “What risks might they face? And then EY-Parthenon teams helped them to start thinking it through in detail; given those risks, what could they do today to position themselves differently? How could they change the way they were doing business in certain ways so as to be more resilient if one of these shocks did occur?”