Risk Management at Wellfleet Bank: All That Glitters Is Not Gold – Case Solution

Wellfleet Bank is a London-based global bank focused on corporate lending. Thanks to efficient risk management, the company survived the 2008 financial crisis. Recently, however, growth and demand have stretched Wellfleet’s Group Credit Committee thin, and the bank’s first-world compliance standards, internal controls, and risk management systems — which have historically served as a key competitive advantage — are being threatened. CEO Alastair Dawes needs to decide if the current credit application process can support growing demands on the business. Is the Group Credit Committee comprehensive enough to support mega-risk credit decisions?

​Anette Mikes
Harvard Business Review (110011-PDF-ENG)
July 13, 2009

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Case answers for Risk Management at Wellfleet Bank: All That Glitters Is Not Gold

Identification of Issues – Risk Management at Wellfleet Bank:

Wellfleet Bank is a London-based global bank focused on corporate lending. Thanks to efficient risk management, the company survived the 2008 financial crisis and was one of the few European banks that did not expect to report losses to their shareholders in 2008. Wellfleet used various levels of check and balances and decisions were ultimately left to the Group Credit Committee.

Recently, however, growth and demand have stretched Wellfleet’s Group Credit Committee thin, and the bank’s first-world compliance standards, internal controls, and risk management systems — which have historically served as a key competitive advantage — are being threatened. CEO Alastair Dawes needs to decide if the current credit application process can support growing demands on the business. , Is the Group Credit Committee comprehensive enough to support mega-risk credit decisions?

Stakeholder Perspectives:

• Group Credit Committee: Wellfleet’s demands have outpaced the risk-management division’s capacity. This can have negative effects on the credit approval process, which could result in an increase in strategic risk or failure to capitalize on the bank’s opportunities.
• CEO Alastair Dawes: Wants a credit application that is comprehensive enough to support the committee’s decision and eliminate the possibility of risk-management failure.
• CRO Patricia Cromwell: Wants an independent risk function that will keep the bank balanced during its time of growth.

Analysis and Evaluation:

Wellfleet Bank is experiencing massive growth and demand. One of the drivers of the demand and a great opportunity for the bank’s growth are the large-scale deals that the bank has been aggressively pursuing. However, like most great opportunities, the risk the bank faces when choosing to invest in these large-scale deals increases dramatically.

Unlike other international banks, Wellfleet’s management has not made the decision to expand their business by opening an investment banking arm, which is usually responsible for handling these large-scale loans. The core corporate banking business has been responsible for expanding into these market segments and the results are beginning to become clear.

Wellfleet Bank must reduce their risk exposure, which is high due to the growth and information management variables. In order to do so, the bank must expand the Corporate Banking Group’s risk management function by establishing a Group Credit Sub-committee that can help prepare credit application analysis, speed up processing times, and communicate with credit officers who are in the branches.

This can be accomplished by…