Risk Management at Wellfleet Bank: Deciding about “Megadeals Harvard Case Solution & Analysis

Question 1
Given its strategy, what kind of risks does Wellfleet Bank face?
There are a number of risks that are faced by the Wellfleet Bank as a result of its current strategy. The bank has always strategically intended to pursue the large transformational deals through their corporate banking segment. Therefore, the risks faced by the Wellfleet Bank are discussed as follows:
Operational Risk:This is the first possible risk that is faced by Wellfleet Bank. The case states that the chief credit officer has the authority to make the final decision and this authority is unlimited as long it is within the limits of the bank’s regulation. Furthermore, the CEO and the board of directors does not oversee the process and just looks at the corporate loan portfolio. If there is a conflict over a decision between the group head of client relationship and the deputy group chief risk officer, then the chief credit officer has the final authority to make the final decision. Therefore, since this industry has higher human interaction, the operational risk is said to be high. Lastly, Wellfleet Bank has also provided syndicated and leveraged loans to those borrowers that have a very high default risk and this can impact on the operations of the bank in the future.
Regulatory Risk: This risk is faced by Wellfleet Bank as a result of its compliance with the credit risks and Basel II standards. Capital should be managed and should be set aside to deal with this risk. This risk could impact on the business if there is a material change in the regulation or law that impacts on the market, sector, business or security.

Risk Management at Wellfleet Bank Deciding about “Megadeals Harvard Case Solution & Analysis

Concentration Risk:Wellfleet Bank has a high concentration over the Corporate Banking Group leading towards the concentration risk. The corporate banking group had contributed to around 58% of the profit and 72% of the total assets of the bank in 2007 while the other portion had been contributed by the consumer banking group. The probability of loss might increase if the bank depends heavily on the heavy lopsided exposure that is presented by the corporate banking group.
Reputation Risk:Wellfleet Bank has currently two proposals that need to be reviewed and the money concerned with both of these proposals is huge and is around $ 2 million. Therefore, if the proposals are rejected then the bank might have negative impact on its credibility and trustworthiness.
Country Risk: The bank also faces country risk because of its investments in the foreign countries. This combines several risks such as economic risk, political risk, exchange rate risk etc.
Question 2
What is your decision regarding the two credit proposals?
The decisions regarding the two credit proposals are as follows:
Proposal 1: Decision on Ashar-Zellmont Acquisition
This acquisition would maintain the largest global position of Zellmont as the largest steel producer for leading the competition. The streams are also diversified and it allows the company to pull growth from the number of different competitive markets that include Europe and North America. The sales from these markets are 33% and 40% respectively...........

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