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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.
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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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- Winter '15