WELLFLEET BANK CASE
Que 1. Given its strategy, what kinds of risks does Wellfleet Bank face? Ans1. Wellfleet Bank was founded in London in the year 1847. The Strategy of the Bank was to pursue transformational deals through its corporate Banking segment. The group had a decision making forum consisting of three members namely the group chief credit officer, deputy group chief risk officer & group head of client relationships The Mantra of the Bank was “If a billion dollar deal went wrong it could sink the ship.” As the deals pursued by the bank were of large scale in nature, these large scale credit applications itself counted as a mega risk facing Wellfleet Bank. The risks faced by the Bank are- Operational Risk: There was no Risk Appetite Statement which defines the tolerance level- The Group Credit Committee has the powers to approve deals of any size (upper limit for Group Credit Committee authority not defined). The CEO/Board of Directors only reviews the corporate loan portfolio and do not have any direct involvement with the process. The Board has delegated responsibility for management of credit risk to the Group Credit Committee and hence do not control their decision. Further, if the deputy group chief risk officer & group head of client relationships disagreed over a proposal then the Chief Credit Officer would take the ultimate decision. There lies a degree of operational risk in view of granting someone this kind of an ultimate authority. Credit Risk: The bank had identified leveraged loans and syndicated loans as the future growth segments. However as leveraged loans are provided to borrowers with existing high debt the risk of default is high which could affect the bank significantly. Concentration Risk: The bank has a very high concentration on its Corporate Banking Group. Wellfleet corporate banking group constituted 58% of profit...
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