Canada Wide Savings, Loan and Trust Company Harvard Case Solution & Analysis

Summary

Adam Williams, who is the chief executive officer of Canada Wide Savings, a Canadian financial institution is looking forward to decide about the investment in a $3 million loan proposal for Carling, Geoffrion and Seymour which is an Ottawa based firm. A $2 got $1 loan has been stated with interest only and no margin call condition. The analysis that we have performed shows that there are many risks and positive factors associated with this loan application such as the credit risks attached to the borrower, currency risk of the Canadian dollars and the market risk of the planned investment program and the positive factors are the quoted rates, insurance against default, excellent prior experience with the firm and healthy competition. Moreover, the returns on investment and IRR for this loan with 3-year maturity period and quarterly interest terms is high. This is a good and feasible investment for Canada Wide, therefore, they should grant this loan request under the above terms and conditions.

Problem Diagnosis

The chief executive officer of Canada Wide Savings, Adam Williams needs to make a final decision about whether to grant the $3 million loan to Chris Seymour, the owners of Carling, Geoffrion and Seymour, which is an Ottawa based firm. The firm is a mutual fund investor and this financial institution makes loans for every $2 for $1 that has been invested by the firms in the mutual funds to the qualified investors(Shaw, 2012).

The main problem or the central issue in this case is whether the risks associated with the loan application justify the loan itself and should Canada Wide Savings make this investment. If the loan is granted to the firm, then those funds would be invested into three different mutual funds in different proportion as follows:

  • Global equities, which will include North America, Asia and Europe (34%).
  • Standard and Poor’s 500 – US Stocks (33%).
  • Canadian Bond Fund (33%).

We would be highlighting all the positive and negative factors associated with this loan application. We would also be performing the analysis of the loan application based on the details of the loan, the prevailing interest rates of the loan, different payment terms and finally, the return to Canada Wide Savings for investing in this loan.

Canada Wide Savings, Loan and Trust Company Harvard Case Solution & Analysis

Case Analysis

We first begin our analysis by identifying the risks associated with the loan application. These are discussed as follows:

Risks Associated with Loan Application

There are a number of risks that are associated with the loan application and these are discussed as follows:

Lowest Interest Rates

The debt markets in Canada were offering some of the lowest interest rates on loan in 2012. For instance, the yield on 3-5 years’ loan in 2012 is 1.2% as compared to 3.89% in 2007. This shows a decline in the interest rates and a lower interest rate of T-bills means that debt has become cheaper and this might impact negatively on the investments of Canada Wide Savings and this is a risk for the loan application as Canada Wide Savings’ owners might not approve this high risk loan.................

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