Magyar Bank - IIII'H IESE International Graduate School of...

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Unformatted text preview: IIII'H IESE International Graduate School of Management I, University of Navarra Barcelona-Madrid " 0,493-045 FH-634-E MAGYAR BANK Magyar Bank was one of three banks resulting from the 1991 division of Hungary's Central Bank. It had 29 offices located throughout the country, 15 of which were in Budapest. its main offices were housed in a prominent building on a centrally located street in that city, with a branch on the ground floor as well as four floors of offices. In January 1996, Magyar Bank was acquired by American Capital. In March of that year, American Capital 5th Andrew Klein, 21 financial analyst from the main New York office. to take charge of Magyar Bank‘s transactions. Klein had worked for four years at American Capital after completing his MBA at a prestigious business school in Los Angeles. California and had been chosen for his abilities in financialanalysis as well as his familiarity with the company’s operations. Klein's mission was to introduce procedures employed at American Capital at Magyar Bank in order to enhance the Hungarian bank’s profitability and confront the coiuntry’s newly competitive environment. He was assisted by the former president of Magyar Bank, lone Lovey, who remained there as assistant to the president. Within "two months of his arrival, Klein became aware that the quality of the bank's loans was unsatisfactory. He therefore introduced a central risks department to analyze loans of more than five million forints (approximately $26,000). To manage this department, Klein hired a young American who had worked in Hungary for two years at a multinational financial services firm. Together they drafted a letter explaining the restmcturing. addressed to the lending officer of each branch. which read as follows: ProfessOr Pablo Catriona prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. October 2001. The names of the Companies, as well as some of the figures. have been changed to preserve anonymity. Copyright © 2001, [ESE To order copies or request permission to reproduce materials, call 34 932 536 558 send a fax to 34 932 534 49?. write [ESE PUBLISHING, Ave. Pearson 21. 08034 Barcelona Spain, or go to W No part of this publication may be reproduced, stored' in a retrieval system used in a spreadsheet. or transmitted in any form or by any means -electronic, mechanical, photocopying, recording. or otherwise. Last edition: 313/02 LESE . 2 498-045 University of Navarra FH~63¢E Dear manager: Due to the growing complexity of the financial markets. and to relieve the branch offices of non-commercial tasks. the bank‘s management has decided to create a central department of risks. This department will analyze those projects requiring loans greater than five million forints‘ as well as other projects of special interest to the bank. In the future, so as to gain the approval of such loans by the risk committee. this department’s opinion should be requested. Insofar as is possible, this department will attend to the branches‘ requests for advice and financial analysis. In addition. the department will prepare economic and financial information of interest to be distributed to all branches. The bank hopes that this new department will prove a valuable aid for the branch offices in their effort to achieve the demanding goals of this period. and that it will foster improved coordination in loan management on a national level. Sincerely, Andrew Klein The bank’s management committee unanimously approved the restructuring, despite the fact that Lovey. had suggested that Klein inform the branch managers to first discuss the prqjcgtwithtthem. Klein was quite satisfied with the acceptance of his idea. and sent the letter to the branch offices the following day. The letter was Well received: the branch officers sent replies expressing their gratitude for the new policy. During the following months, Klein paid very close attention to the new projects that arrived at the risks department. In October 1996. Klein prepared the succeeding phases of the bank’s restructuring. Although the number of loans requiring approval by the risks committee had drastically declined, Klein was satisfied: quality indicators had taken a substantial upturn since the central risks department’s incorporation. Klein believed that he ought to reinforce the commercial network. given that accounts with the bank were not increasing as predicted, especially in the branches located outside of the capital. El ...
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