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Risk Management at Wellfleet Bank: All That Glitters Is Not Gold.

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Assignment 1
Case Analysis – Risk Management at Wellfleet Bank: All That Glitters Is Not Gold.

1. Given its strategy, what kind of risks does Wellfleet Bank face?

The first possible risk would be the operation risk. Refer to Wellfleet Bank, the Group Credit Committee has a unlimited level of authority. They could approve loans of any size within the bank’s regulatory limits which means there is no supervisory group can stop the group’s decision. Furthermore, to preserve the independence of the credit-approval process, the “Alpha Pass” did not involve the most senior executive management (e.g., business CEOs) in the deal flow. Under the current operation procedure, if a billion dollar deal went wrong it could sink the ship.

The second possible risk is the regulatory risk. It is related to the compliance with the Basel II Standards and Credit Risks. The cost of operation will increase and the attractiveness of investment in Wellfleet Bank will decrease when the government amends or changes the law on banking regulations (e.g. more restriction).

Thirdly, Wellfleet is also facing is the concentration risk. Refer to the case, Wellfleet has a pretty much higher concentration on its Corporate Banking Group. The group contributes around 60% of profit before taxes and 70% of bank assets in the last financial year (2007). As a result, the bank may suffer a huge loss if the business on corporate banking goes downwards.

Last but not least, there are also many minor risks that Wellfleet is facing at the moment. For instance, it is facing a reputation risk as they are facing a mega deal towards GGC. If the bank rejects the proposal, the reputation of the bank may drop by the bad words from GGC.

2. Given Wellfleet’s new focus of large corporate deals and its need to recruit relationship managers from investment banks, what are the additional risks you…...

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