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Wellfleet bank has two core business that is corporate banking and consumer

Wellfleet bank focus more on the syndicated and leverage loan segment.
The dilemma of this bank is the CEO Alastair Dawes wonder how to best evaluate
the quality and riskiness of mega-deals.
Given its strategy, what kind of risks does Wellfleet Bank face?
Credit risk
This is because this bank having more to syndicated loan and leverage loan.
as mention in the case, Wellfleet bank does not have investment bank but it
expanded its business by corporate banking. Thru this corporate banking
Wellfleet bank generate of 58 % of PAT
This two loan provided high return to the bank but it also has a high risk which
could effect bank position.
Given Wellfleets new focus on large corporate deals and its need to
recruit relationship managers from investment banks, what are the challenges
the risk culture of the organisation, and its style of risk management in
Firstly Wellfleet will offer their proposal through credit relationship manager.
In this case the credit relationship manager and chief risk officer disagree over
the proposal, then they will pass the proposal to the group credit commitee.
This is make the relationship manager have to wait longer because the group
credit committee require sign-off from regional and senior credit officer, this also
known as alpine-pass
Operational risk
In the case it is mention that the chief credit officer can make the final decision.
The authority of this chief credit officer was unlimited as long as it is within the
bank regulatory limits.
If the deputy group chief risk officer(GCRO) and group head of client
relationships(GHCR) disagreed over a proposal then the chief credit officer can
make the final decision.
Industries with higher human interaction are likely to have higher operational
Regulatory risk
International regulatory rules ( Basel II accord and guide line).
Wellfleet bank should to set aside and manage capital reserve to be balance with
the riskiness of their activity.
The risk that a change in laws and regulations will materially impact a security,
business, sector or market. A change in laws or regulations made by the

government or a regulatory body can increase the costs of operating a business

Concentration risk
Wellfleet bank has two core business that is corporate banking and consumer
Wellfleet bank is too concentrate to corporate banking group. 58 % of PAT and
72% of banks asset in 2007 come from corporate banking. For consumer banking
they only have 42% of PAT and 28% of banks asset.
If the bank concentrated to much on corporate bank, the probability of loss
arising from heavy lopsided exposure.
Reputational risk
As mention in the case, Wellfleet bank has two proposal to be review. This two
proposal consist of big amount of money that is around 2 billion.
Reputational risk is the possible loss of the bank reputational capital.
For this bank if the bank reject or say no to this proposal this big company the
trustworthiness of this bank will drop.
Market Risk
Market risk also called systematic risk. It cannot be eliminated thru
For this bank, market risk will effect the interest rate. If the economic recession
occur it will effect to loan that the bank give to company for example Ashar
industry or GGC.
Risk appetite
Risk appetite is the risk avoidance. Risk is avoided by establishing restriction
As for Wellfleet bank. The loan for corporate bank is less tolerance. The authority
to approve the loan is on chief credit officer.
If the loan request exceeded the credit officer limit, he or she was obliged to pass
it further up the approval chain to a regional credit officer.
What is your decision regarding the two credit proposals?
If we work at Wellfleet bank we will approved the credit proposal from Ashar
Advantages of Abshar industries:
World largest steel producer and their turnover rise in 2005 $28.1 billion from
$5.4 billion in 2001.
Stable income statement, high figure regarding their revenue, EBIT, and net
Ashar corporation is really diversifed company.
Ashar industries credit grade is 5A
production across developed market(the sale is 40 % from north America, 33 %

Even the company have a long term debt, this steel company need to acquire a
lot of fixed cost in order to grow and maximize their profit.
This is family business it is something that they should take a good care of the
Disadvantages of Gatwick Gold Corporation(GGC)

41 % in South africa, this mean that this business will be under control of political
risk in Africa in the future.
Total debt to EBITDA was 800% in 2007 ( up from 200 % in 2006 ; 130 % in
2003 )
Mining cost is rapidly growing.
Credit grade is 5B
Balance sheet and income statement is bad.
Calculate the Expected Loss, Economic Revenue and Economic Profit for both
Analyse the risk management process at Wellfleet Bank. What suggestions might
you make to the CEO about improving the process

In the case wellfleet bank has alpine pass. This alpine pass can be reduce by:
Giving the relationship bankers more responsibility within small credit or lower
As mention in the case CEO has not involving directly in the system. I suggest
that CEO, Alastair Dawes should involve in the system as the bank involve in
high profitable credit business.
In the case also mention that the risk function cant be so powerful that the bank
will never do anything because they dont like the risk. I think that wellfleet bank
should rearrange their limit and risk-weighted.
As for the group chief credit officer, they have ultimate decision and I think the
three member in the Group Credit commitee should discuss for a better option in
such proposal as GGC and Ashar industry than only relying on one party.