Risk Management at Wellfleet Bank
1. Given its strategy, what kind of risks does Wellfleet Bank face?
Credit Risk: The article states that “Wellfleets management had identified both syndicated and leveraged loans to large corporate clients” (Mikes p.3) and “Leveraged loans were extended to companies that already had considerable amounts of debt” (Mikes p.3), so syndicated loans and leveraged loans will cause high risk of default.
Operational Risk: As presented in the article that “The Group Credit Committees authority was unlimited—it could approve deals of any size within the banks regulatory limits.” (Mikes p.1), it is obvious that Wellfleet is facing an operational risk.
Concentration Risk: Wellfleet has two core business, one is corporate banking and another one is consumer banking. But Wellfleet concentrates too much on corporate banking, which responses 58% of pre-tax profits and 72% of assets.
Wellfleet Bank also faces regulatory risk, mega risk, reputational risk, market risk, compliance risk and business risk.
Challenges for the risk culture of organization, and style of risk management.
As the article tells us, the Group Credit Committee operated along with seven other risk committees, but “market risk, operational risk, compliance risk, country risk, reputational risk, and business risks” (Mikes p.5) are all interrelated to each other. So it is a challenge that Wellfleet has eight independent committees to review many interrelated risks.
Also it faces alpine-pass challenge. Wellfleet Bank offers their proposals through credit relationship manager. When the credit relationship manager and chief risk officer disagree over the proposal, then they will pass the proposal to the Group Credit Committee. This kind of process makes the relationship manager have to wait longer time because the Group Credit Committee require sign-off from regional and senior credit officer. We say it is alpine pass.
Our decision regarding the two credit proposals.
After close investigation and examining of two proposals different aspect of both companies financial statements and Financial Risk phenomenal we unanimously a pprove the first proposal to extend the credit to Asher for acquisition of Zellmont SA. We support our propose according to following facts, please note that supporting data and further analysis is included in excel attached file with this project.
First of all the Asher had positive net income over last 4 years, on the other hand the GGC wasnt be able to generate positive net income, which jeopardizes the GGC ability to pay back its debt. Moreover, almost all of the GGC profitability ratios are negative which backs our first stand. The capital structure on the Equity site both companies almost have same ratios;