Purchase Solution

THE AMERICAN INTERNATIONAL BANK CASE

Not what you're looking for?

Ask Custom Question

THE AMERICAN INTERNATIONAL BANK CASE
* Summary of the Situation

Tamara Long sat in her office reflecting on the tough past 6 weeks. She was the head of the international department at the American International Bank (AIB). Six weeks ago, the Chairman of the bank had called Tamara into his office. A bulletin had just come over the bank's wire indicating that a military coup had taken place in Portugal.

The bulletin also reported that the new military dictator had frozen all foreign assets in Portugal and had imposed strict currency controls to keep capital from fleeing the country. When the Chairman heard about this, he asked Tamara a perfectly logical question:
What was the bank's exposure in Portugal?

It had taken Tamara over a month to get the information, and even then she had to admit that it was not very accurate. AIB did not have an integrated information system in the international department. Each overseas branch had its own small computer keep track of its customers and handle the daily operations of the bank.

Tamara had to call people in each branch and ask them to manually search their records for loans to businesses based in Portugal, loans denominated in Portuguese escudos, loans backed or guaranteed by assets in Portugal, and other deposits or foreign exchange exposures. Since the branch records were by customer rather than by county of risk or by currency, the branches had to manually check each customer account to determine whether any loans met the search criteria. It had taken several weeks to compile this list and recheck it for accuracy.

Tamara seemed to recall a monthly report which presented exposure by country and currency, but when she asked her data processing department about the report, she was told that it had been discontinued over six months earlier when no one expressed interest in it. In Tamara's opinion, and demonstrated by the current situation, these reports should have been retained. They were of vital concern in reviewing the international loan portfolio.
In checking with his people on why they were not used, she was told that because they were never reconciled with the department's manual records, their accuracy was always suspect. Furthermore, the reports were always one calendar quarter behind: the March first-quarter report was for information collected as of December 31. Tamara had asked for a meeting with the director of data processing, Pamela Lawrence, to see what could be done.

* Background
The American International Bank is a money center bank specializing in wholesale banking. It has a small but prestigious client list. AIB concentrates on meeting the needs of the American multinational company abroad by providing the full range of banking and investment banking services. The special relationship built between the bank and its clients was based on close personal ties between bank management and client management. Each branch manager and account representative met with officers of client companies monthly to discuss business conditions and banking requirements.
When the coup d' etat took place in Portugal, all the bank's clients doing business in Portugal were visited by AIB officers who personally briefed them on the coup and discussed its potential impact on their business. This type of personal relationship had worked effectively for the bank, making it one of the larger and more profitable wholesale banks in the country.

Because the bank's success was built on personalized service to its clients, branch managers had almost total autonomy to manage their branches in the manner that would be most satisfactory to their clients, considering local customs, services expected, and government regulations in the host country. AIB headquarters issued policy statements and kept control of credit policies, foreign exchange trading policies, currency exposures, and the general credit worthiness of its clients.

Each branch manager had the authority to operate within these policy guidelines. The 11 overseas branches reported directly to Tamara Long. The relationships between Tamara and her branch managers were excellent. She had complete confidence in their judgment and was kept informed through monthly reports as well as phone conversations on any major transactions. Tamara made semiannual visits to all the branches and quite often would accompany the CEOs of major clients when they went abroad to arrange for mergers or acquisitions.

During these trips, Tamara made sure that the local branch manager accompanied her on all client visits. Once every quarter, each branch manager visited headquarters in New York to review clients, discuss plans, and exchange ideas. Tamara would try to schedule these meetings so that as many managers as possible would be in New York at the same time. This afforded a chance for the managers to meet and to exchange information about mutual clients. All in all, the working environment at AIB was competitive but cordial, and there was a feeling of trust and mutual respect among management personnel.

Each of the branches had a computer. These ranged in size from an IBM 4300 system at the London office to minicomputers in all the other offices. London was the most automated of the overseas offices; it was the largest, and it also had a thriving trust operation and a merchant banking business (securities transactions). The other offices used their computers to maintain branch financial records, bank ledgers, and information needed to prepare government regulatory reports. Other than monthly statements, client records were kept by each individual account officer on a manual basis.
All software development was done by people from the head office data processing staff, with the exception of the London branch. Analysts and programmers would go to the branches, help them define requirements, and design and program the systems for them. One person in the local office was designated to operate the minicomputer and maintain the system. This involved collecting input from the originating department, supervising the data entry clerk(s), running the program, checking the results, and distributing the reports. If problems arose, New York was called for help.
This arrangement had worked well until recently. The local office people did not have to worry about systems development or operations; they got to say what they wanted, and technical personnel were sent from New York to implement a system for them. The costs were all absorbed in New York. The data processing people in New York were happy because they got to design individual systems in Europe and the Far East; they had few restrictions as to how the system was to be designed, and they could be as creative as possible. Moreover, since the work was done on site, the technicians lived on expenses, vacationed in the glamorous cities of the world, and enjoyed first-class travel. The London office had its own staff of analysts and programmers.

Starting in 1980, AIB's competition started to offer computerized banking services to clients. Corporate cash management service, debit card services, and computerized financial management services were offered by competitors to lure accounts away from AIB. Initially, AIB used the approach of "personalized services" to offset the "impersonal machine services" offered by competitors.

But branch managers could see the day when they would need to make greater use of the computer as a competitive tool. This had been the subject of discussion at several quarterly meetings, but nothing was done because no single branch wanted to be the first to automate fully.
Additionally, all the managers knew that automation would require a significant capital investment, which would affect the bank's bottom line and consequently, their bonuses. Most of the branch managers believed that AIB's strength was in the personal relationships built up with its clients over the years. Managers knew what was going on with their clients and could anticipate their financial needs through monthly visits, so they felt they did not need to review computer listings. The pressure to automate was not there.

* A New Problem
An incident took place when the branches were compiling their report to Tamara on their exposure to Portuguese businesses that changed the managers' complacent feelings about automation and "shook up" the head office. AIB had long been the lead bank for one of Europe's major automobile manufacturers. The manufacturer had recently arranged a new line of credit for $50 million with the bank. Each branch was notified of the new line, which was $25 million more than the old.

The auto company went to each of the six European branches and drew down $20 million at each branch. Since the company was a good client of the bank, none of the branch managers had reason to question the transactions. Individually, each transaction was well within the $50 million line of credit.
The automobile company had a plant in Portugal, so the requested manual search resulted in each branch reporting to the head office what the branch exposure was. This was when the head office noticed that the automobile company had borrowed in excess of its $50 million line of credit. Each branch reported the $20 million draw down. The bank had loaned a total of $120 million, which was $70 million in excess of the credit authorization. Not only was this an embarrassment to the bank, it also created an awkward situation with the client.

How could this have happened? It happened because of the autonomous nature of each branch. There was no coordination of all activities for any one client. When the automobile company went to each branch and drew down $20 million, the branches had no way to know that this transaction was being repeated at each of the other European branches. Eventually, when New York compiled the monthly loan reports, the situation would be recognized, but not until then.

This affair, coming shortly after executives realized how difficult it was to get exposure information by customer, created a crisis atmosphere at the board of directors level. Several directors immediately demanded that the bank take immediate action to get more up-to-date and accurate information to monitor and control its overseas transactions.

* Arriving at a Solution
When Pamela arrived in Tamara's office, Tamara had already decided to seek her advice on how to automate customer information in the overseas branches. Tamara wanted to be able to pull up an electronic file on each customer and be able to determine that customer's current account balances, loans outstanding, foreign exchange positions, and other data. Furthermore, she wanted to be able to do it at any branch office anywhere in Europe and, eventually, anywhere around the world.

This information would enable the banks' officers in Europe to know which of the bank's products to push. It would also give them more complete information to use to assess a customer's creditworthiness. Amazingly, tracking a total relationship with a client was not possible at the present time.
With this proposed new system, Tamara wanted each branch to have access to the total relationship with a client, regardless of where the client did business. Better controls would prevent clients from overdrawing their lines of credit. And, since foreign currency trading accounted for a large part of the bank's operating income, Tamara wanted to be able to electronically track each trader's buy-and-sell positions by currency. This would enable the head trader at each branch to instantly detect unauthorized trades and spot when an individual exceeded a specific limit.
"Can we do all this, Pam?" Tamara asked.

"Sure," she replied, "but we'll need to do some planning first. In a sense, we're lucky. We have a minimal investment in systems in Europe. Each branch has its own system; they will all need upgrading, both from technical and user perspectives, and we have been thinking about how to approach you in developing an integrated information system for our international operations."

"It sounds like you might have some ideas on how to go about doing this. What information do you need to get started?" asked Tamara.
"There are some basic decisions the bank has to make before we can start planning how to develop the system you want," Pamela answered. They then began to draw up an action plan.

1. Analyze the bank's current business model, and provide a high-level solution to their problem(s). Provide a management plan for addressing the problem(s).
2. Write an analysis aimed at upper level managers that explain the benefits of using improved IT systems at AIB. Consider the various notions of "value", and where value applies in the business, in this analysis.
3. Identify the business problem(s).
4. Articulate a strategy and tactics to address it.
5. Identify and discuss the business and technology solution(s) that will address the problem(s).
6. Explain specific benefits of your proposed solution.

Purchase this Solution

Solution Summary

This response presents a brilliant discussion on Information Systems Management.

Solution Preview

1. Analyze the bank's current business model, and provide a high-level solution to their problem(s). Provide a management plan for addressing the problem(s).
The current business model of the bank is to receive deposits in different types of accounts from persons and firms and lend the money to corporate and individual customers. The bank provides a full range of banking and investment banking services. The bank has been successful because it has depended on the personal relationships between the bank management and client. The close relationship between the client and the bank made the business profitable. The bank offered personalized service instead of impersonalized services.
Even though the business model of the bank was sound, the lack of proper information technology has made it problematic for the company to access region-wise information or even customer-wise information. This problem can be solved by setting up an integrated banking system.
The problem can be addressed by setting up an integrated computerized system. This system will centralize channel management, provide universal platform to integrate bank product systems, offer single customer product and payment ...

Solution provided by:
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
Recent Feedback
  • "I read your comments, and thank you for this feedback. Do I need to find other studies that applied this methodology Ive used? That's where I'm stuck at."
  • "Thank you kindly sir. "
  • "Excellent and well explained. --Thank you kindly. "
  • "Awesome notes. I appreciate you."
  • "I have the follow-up project and I will assign that to you very soon. "
Purchase this Solution


Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Introduction to Finance

This quiz test introductory finance topics.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.