The American International Bank Case

Topics: Bank, Foreign exchange market, Currency Pages: 6 (2013 words) Published: April 25, 2012
* Summary of the Situation
Tamara Long sat in her office reflecting on the tough past 6 weeks. She was the head of the international department at the American International Bank (AIB). Six weeks ago, the Chairman of the bank had called Tamara into his office. A bulletin had just come over the bank's wire indicating that a military coup had taken place in Portugal. The bulletin also reported that the new military dictator had frozen all foreign assets in Portugal and had imposed strict currency controls to keep capital from fleeing the country. When the Chairman heard about this, he asked Tamara a perfectly logical question: What was the bank's exposure in Portugal?

It had taken Tamara over a month to get the information, and even then she had to admit that it was not very accurate. AIB did not have an integrated information system in the international department. Each overseas branch had its own small computer keep track of its customers and handle the daily operations of the bank. Tamara had to call people in each branch and ask them to manually search their records for loans to businesses based in Portugal, loans denominated in Portuguese escudos, loans backed or guaranteed by assets in Portugal, and other deposits or foreign exchange exposures. Since the branch records were by customer rather than by county of risk or by currency, the branches had to manually check each customer account to determine whether any loans met the search criteria. It had taken several weeks to compile this list and recheck it for accuracy. Tamara seemed to recall a monthly report which presented exposure by country and currency, but when she asked her data processing department about the report, she was told that it had been discontinued over six months earlier when no one expressed interest in it. In Tamara's opinion, and demonstrated by the current situation, these reports should have been retained. They were of vital concern in reviewing the international loan portfolio. In checking with his people on why they were not used, she was told that because they were never reconciled with the department's manual records, their accuracy was always suspect. Furthermore, the reports were always one calendar quarter behind: the March first-quarter report was for information collected as of December 31. Tamara had asked for a meeting with the director of data processing, Pamela Lawrence, to see what could be done. * Background

The American International Bank is a money center bank specializing in wholesale banking. It has a small but prestigious client list. AIB concentrates on meeting the needs of the American multinational company abroad by providing the full range of banking and investment banking services. The special relationship built between the bank and its clients was based on close personal ties between bank management and client management. Each branch manager and account representative met with officers of client companies monthly to discuss business conditions and banking requirements. When the coup d' etat took place in Portugal, all the bank's clients doing business in Portugal were visited by AIB officers who personally briefed them on the coup and discussed its potential impact on their business. This type of personal relationship had worked effectively for the bank, making it one of the larger and more profitable wholesale banks in the country. Because the bank's success was built on personalized service to its clients, branch managers had almost total autonomy to manage their branches in the manner that would be most satisfactory to their clients, considering local customs, services expected, and government regulations in the host country. AIB headquarters issued policy statements and kept control of credit policies, foreign exchange trading policies, currency exposures, and the general credit worthiness of its clients. Each branch manager had the authority to operate within these...
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