Banking

Of course, the chase bank can offer you notarizing service. However, the fees may be different depending on the bank. You can call the closest branch of the chase and ask about the charges. Some of them can even offer free notarizing.

Resources and capabilities of capitec bank:

• What resources and capabilities made Capitec successful?

Capabilities- The individuals who came together to start Capitec came from a strong financial and micro-lending background; they had a very good understanding of the banking systems. They started this business well equipped.

Resources – Capitec was originally capitalized with R350 million was worth R2.2 billion and the results which were released in September 2006 showed a 23% return on equity, its profitability increased by 71%, and the bank itself had grown by almost 50%. Their business model was built on 4 pillars, Accessibility, Affordability, Simplicity and Personal Service. They used less space, and resources for example cashless transactions, security but not installing a bullet proof glass and less risk of robberies, Cost were saved buy only having 1 ATM at each branch, location played a very important part in Capitec’s Business Model, they went were the mass were, and had working hours that were accommodating to its customers. Capitec also made alliances with retailer’s i.e. Shoprite ect which people can withdraw cash. Capitec’s aim was to change its customer perception from thinking it was only a micro-lender.

Another opinion:

• Intangible
• Reputation of banks increases competitive advantage. The more ‘popular’ the bank the more it is supported by the community. Capitec succeeded in being reputable, by looking at the interest of client first and its profits for its shareholders second and offering simple, understandable and low cost products (Cameron, 2011).
• Culture: the generalised perception of banks is that they are expensive, slow, offer complicated products and the services require large amounts of paperwork (Townsend and Mosala, 2006) by applying its business model, Capitec managed to change this perception.
• Human
• Skills and knowledge: Employees must be trained with adequate skills and knowledge to deal with their clients queries. This contributes strongly to the competitive advantage of the industry, because an unhappy client is said to be ‘bad’ for business.
• Communication: Communication skills are a very important resource. Each employee must be able to communicate with the client in a manner that the client understands.
• Key success factors
• Affordability: Clients that fall in the low-income earning bracket, focus on saving where possible. The big four banks serve mostly clients in the medium to high-income earning bracket, by saving R1-R2 here and there would not benefit them, whereas it will benefit the low-income earning client.

In order to serve its target market, Capitec reduced its banking fees, “Slash by half the banking fees of its competitors.” (Townsend and Mosala, 2006). Capitec saved cost by cutting out paperwork and the administrative work associated with it. Branches operated on a cashless basis, cash was only obtainable from ATM’s and at retailers (Shoprite and Pick n Pay). Capitec also encouraged its market to save by offering 10% interest on deposits up to R10 000(Townsend and Mosala, 2006).

Affordability is a strong key success factor for high competitive advantage and the demand for affordability in the low-income banking market is high. Therefore Capitec has a strong competitive advantage for this target market.

• Accessibility: The geographic positioning of the bank must be convenient and easily accessible for all its clients; the big four banks are generally situated in larger shopping complexes that are mostly frequented by the medium to high-income earning client. Clients that are targeted by Capitec generally commute daily via public transport, therefore Capitec located its branches at “train stations, taxi ranks and or shopping malls”, their operating hours 08h00 to 17h00 or 07h00 to 19h00 benefited those clients that can only visit the bank before or after work (Townsend and Mosala, 2006).
• Simplicity: The below-average client is not equipped with the knowledge to understand products that are highly complex. As long as they can obtain their money without being charged large amounts, they are content. Capitec has strong competitive advantage in this respect as it offers a simplified and focused product, which benefits its target market. The big four for example have a range of products with complex terms and conditions.
• Personal Service: Every client must be made to feel important. Staff must be able to connect with their clients and understand their needs. In line with this and to increase its competitive advantage within the industry Capitec “recruited staff from the areas surrounding its branches and trained them in the required skills.” (Townsend and Mosala, 2006).
• Technology: In a technology driven world, it is important that banks in the industry ‘move with the time’. With respect to the big four, these banks have now introduced internet and cell phone banking as well as banking from the ATM; making the industry highly competitive. This technology aims to make banking for the client simple and accessible from anywhere. This new technology is aimed, once again, at the medium to high-income earning clients, who have access to these technologies.

Capitec approached technology driven services to the low-income earners in a different way (Haladjian, 2006).

Paperless and cashless branches.

Making use of the magnetic strip and electronic smart cards, which can only be used in Capitec’s, own ATM’s, and Maestro linked machines.

Cash withdrawals for retailers such as Shoprite and Pick ‘n Pay.

This technology driven business model is the right approach to serve the low-income earning population, but in comparison to the big four Capitec has a long way to go for example the introduction of internet banking.

Marketing: Marketing is a very important factor for competitive advantage of the industry. There are various ways in which a firm can market their products for example television, bill board advertisements, radio. Good marketing techniques of a product which targets the right sector of the population will promote the firm tremendously therefore increasing sales.

The market is deemed sustainable relative to the competitiveness of the industry. For Capitec to remain profitable and continue to grow its clientele they need to be aware of the competition within the industry.

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CONTENTS INTRODUCTION DEFINITION_ OF COMMERCIAL BANK_ *“Banks and other deposit taking institutions are financial intermediaries whose assets consist overwhelmingly of loans to a wide variety of borrowers and whose liabilities consist overwhelmingly of deposits. ” THE ECONOMICS OF MONEY BANKING AND FINANCE 3rd* Edition PETER HOWELLS & KEITH BAIN Pg 32 A sound system of banking is very important for any economy. Commercial banks are directly related to the payment system of the economy. Generally most commercial banks are controlled by the central bank of that particular country.

The central bank can never allow the banking system to fail because if banks start to fail the payment system will fail. They may allow some banks to fail but the government will never allow big banks or the whole payment system to collapse. This is very evident from the recent where government have pumped in huge amount of money to save the so called “too big to fail” banks. Banks helps in the payment services through various kinds of deposits, debit cards and credit cards ANALYSIS OF COMMERCIAL BANK BALANCE SHEET For my assignment I have picked up Lloyds TSB as my bank. Lloyds TSB is one of the four biggest bank in the UK.

I have taken 2007 annual report as the group has published only the 2008 interim report. The second item which we see in Lloyds TSB balance sheet is loan and advances to banks. It reflects the interbank relationship. This figure has fallen for most of the commercial bank and also for Lloyds TSB there is an decrease of 16. 50%. This is due to the financial crisis which has hit banking sector very badly and many banks have failed as a result. Llyods TSB gives loans to customer just like any other commercial bank and bank charge an interest for giving loans which is higher than the interest on deposit.

But there is always a default risk attached with the loan which the bank gives. Commercial Banks gives different kinds of loans starting from mortgage, education loan, overdraft facility etc. In case of Lloyds TSB mortgage comes out to be 48. 4% of loans to customer. And thing we should bear in mind is that mortgage are long term loan and it can be for 30 years as well. Customer Accounts got an increase of 11% and there is an increase of 11% from 2006 to 2007. LIABILITIES OF LLOYDS TSB Lloyds TSB is also having some fixed deposit like Certificates of deposit.

In these deposits customers cannot withdraw there money before a specified time and they also receive some interest as well. Second are the commercial papers which are unsecured promissory notes to meet short term obligations. Certificate of Deposit comes to around 14,995 million GBP and commercial paper is 17,388 million GBP for Lloyds TSB. Lloyds TSB is also having reserves after paying reserves. This reserve can be used in case of emergency or any unexpected risks The main risks that commercial banks face due to their exposure to different kinds of assets and liabilities are liquidity risks, market risk and credit risk.

Lloyds TSB faces liquidity risk because of deposit in central bank. They have a deposit of 4330 million GBP. This means that they cannot give this amount as loans because it’s stuck with the central bank. This amount has increased considerably from 2006 to 2007. The bank faces liquidity risk because of their mismatch in assets and liabilities side. The group liquidity risk exposure is 33,185 million GBP. The main sources of liquidity risk for the bank are deposits from banks and customer accounts. As we seen above the assets of Lloyds TSB are long term whereas the liabilities are short term.

The commercial bank is the main source of payment service in any economy. Whenever bank gives loan they are exposed to default risk. Default risk arises whenever a company or individual is unable to meets its obligation on interest or principle payment of the loan. The bank faces asymmetric information problem as well. Though the bank does proper due diligence before giving out any loans but asymmetric information problem cannot be ruled out with any banks at all. Due to asymmetric information we have adverse selection and moral hazard problem.

Adverse selection problem comes to picture before entering into the transaction. In short the bank has to filter the good borrowers and the bad borrowers. Sometimes the bank may give loan to the bad borrowers and may suffer of this. Though banks have put checks like credit history before making out the loan but adverse selection problem cannot be neglected completely. The other problem which is created because of asymmetric information is moral hazard problem. The moral hazard problem starts after the bank has sanctioned the loan. Borrowers may get into undesirable activities.

The main objective for which the loan was sanctioned may never get fulfilled. The other side of moral hazard problem is the conflict of interest between the borrower and the bank. Borrowers may try to act on their interest rather than the interest of the bank. Banks like Lloyds TSB can overcome the problems of adverse selection and moral hazards if they have proper check and control on their customers but rarely any bank achieves 100% success in these problems. These are two most important risks which any financial intermediary faces in order to serve their most important duty i. e. ayment services to the economy. Just like any other financial institution the group also faces credit risk. {text:bookmark-start} “Credit risk {text:bookmark-end} is risk due to uncertainty in a counterparty’s (also called an {text:bookmark-start} obligor {text:bookmark-end} ‘s or {text:bookmark-start} credit’s {text:bookmark-end} ) ability to meet its obligations. Because there are many types of counterparties—from individuals to sovereign governments—and many different types of obligations—from auto loans to derivatives transactions—credit risk takes many forms. ” (www. riskglossary. om). After the group’s acquisition of Halifax of Scotland, the credit rating of the bank has come down. In order to counter credit risk credit rating plays a very important role. The group exposure to credit risk is 356,860 million GBP. PART 2 Asset Liability Management “The ALM group within a bank has been concerned with control of interest rate risk on the balance sheet. For some bank it may be equally important to manage interest rate risk arising from off balance sheet, but it is instructive to look at the traditional methods and progress to the relatively new procedures. (HEFFERNAN, SHELAGH A. 2005) Moreover banks have mismatch in maturity of their asset and liability. Banks use asset liability management to manage interest rate risk, market risk and credit risk. Let’s take an example where all deposits are on fixed rate of interest but all loans are made on floating rate of interest. Commercial banks mainly use three types of markets to cover these risks. These are money market, capital market and derivative market. Capital Market is generally used by large companies or governments to raise funds for the long period.

Capital market can be of two types like primary market, securities are traded for the first time and secondary market, and in this securities are traded after they are traded in the primary market. Another subdivision of capital market is bond market and stock market. There are various stock market around the world like London Stock Exchange, whereas bond market includes different kinds of bonds like government bonds (US Treasury bills), foreign bonds etc. One of the most important changes in this market is the development of asset backed securities. text:bookmark-start} “Securitization {text:bookmark-end} is a financial transaction in which assets are pooled and securities representing interests in the pool are issued”. (http://www. riskglossary. com/) When securitization is backed by any assets such as student loan, mortgages this becomes asset backed security. Lloyds TSB also securitizes its assets in order to overcome its liquidity problem. The process of securitization has become quite complex with the introduction of Collateralized Debt Obligation, Collateralized Loan Obligation etc.

And these complex securities are the heart of the financial crisis. Lloyds TSB is not having much exposure to these complex securities. Banks get into off balance sheet activities to get more profit. It helps the bank to get fee income. One more advantage of off balance sheet activity is that it does not appear into the balance sheet of the bank. The derivative market is also used by the bank to hedge their risks. “By their nature, derivatives instruments can be used for hedging different types of risks.

Owing to this, banks and insurance companies use derivatives in the management of their Asset Liability Management” (Cornelius Nandyal, 2001). The derivative market is going through lot of new changes. Regulators are trying to put lot of new regulations in order to bring transparency. Banks use interest rate swaps, credit default swaps, total return swap, credit linked notes etc. But different people have different views on derivatives. According to Warren Buffet derivatives are weapon of mass destruction and can act as time bombs in the future.

Whereas Alan Greenp says “Derivatives have permitted the unbundling of financial risks. Because risks can be unbundled, individual financial instruments now can be analyzed in terms of their common underlying risk factors, and risks can be managed on a portfolio basis”. Banks have also used money market for asset liability management. The most important organ of the money market is the interbank market. In interbank market banks with surplus lend to bank with deficit. This market is severely hit by the recent financial crisis.

Banks don’t know about the financial soundness of the bank to which they are lending. This has increased the liquidity problem of the bank. Other types of market are the gilt repo, commercial paper market and the certificate of deposit market. As we have seen above Lloyds TSB invest in commercial paper and certificate of deposit. Securitization and the Global Financial Crisis DIAGRAMATIC EXPLANATION OF SECURITIZATION: {draw:frame} Source: http://www. usbancortrusteeservices. com/images/ygpa7_chart_offering_structure_ptnm. pg The recent crisis started because of the sub prime mortgage loans that originated in the USA. But these loans were repackaged and sold all round the world, so this crisis which began in USA became a worldwide crisis. Securitization gives banks lot more leverage. The seeds of the recent crisis were sown in when the Federal Reserve made interest rates around 1% and the economy was pumped with lot of cash. Banks started giving these loans as mortgage to the sub prime customers, without any credit check and at very easy terms and condition.

Once interest rate started to increase in 2004, borrowers started to default on their loans. With the increase of interest rates house prices started to come down. Credit rating agencies who gave these securities AAA rating made these securities junk. The assumption on which these rating agencies were working was that house prices will keep raisingin the future as well. “The combination of low capital requirements imposed on AAA-rated assets and a commonly held perception that they were “safe,” allowed banks to hold on to any senior tranches that were not sold to investors.

But when the structured finance market collapsed in late 2007, the investment banks found themselves holding hundreds of billions of dollars of low-quality asset pools, many of which consisted of leveraged buy-outs loans, subprime mortgages, and bonds from CDO’s in process-that is, where the tranches had not yet been sold to other investors. ” (Coval et al, 2008) No one knows the worth of these complex securities which the banks are holding. Banks have stopped lending to each other because no one is sure of how much the other bank is holding. So interbank market is almost closed.

Northern Rock

1. Discuss your understanding of the way in which Northern rock had been managed prior and during its crisis. Draw upon relevant management theories and assess what lessons can be learned to manage Northern Rock better.

The management of Northern Rock is having a problem with regards to how they will handle international issue of the sub-prime mortgages. The management of the company has been able to handle the situation by initiating some strategies like having a partnership with other banks like the Bank of England. In addition, they also attempt to manage it through the use of international management approach where they try to use what other banks in the global market use.

Northern Rock will be analyzed internally, through the use of SWOT Analysis. SWOT Analysis stands for Strengths, Weaknesses, Opportunities and Threats that an organization has in order to maintain being at the top of other competitors. One of the strengths of the company is with it comes to engaging themselves to international aspects to provide the needs of their target market, especially in housing. However, their strength has also lead them to their weakness as they are not able to intercept probable problems that occur which lead them to the crisis. The threat for the company is when a new bank occurs that provides the needs of the target market and the threat of being acquired by the bank of England and lastly, their opportunities is to have a new management approach to that will handle their current situation and help them achieve competitive position despite of the issues they faced.

2. Critically evaluate the argument presented by the management of Northern Rock that events were `unforeseeable` and could not have been avoided. Illustrate your answer in light of your understanding of a strategic analysis of the business environment.

Northern Rock Plc formerly known as Northern Rock Building Society is a UK bank which is currently owned by the government. The NRBC was established in 1965 as an outcome of the merger of the Northern Counties Permanent Building Society which is established in 1850 and the Rock Building Society which has been established in 1865. In the 30 years of the company, the Northern Rock has expanded through the acquisition of 53 smaller building societies which include the North of England Building Society in 1994. Along with many other British building societies in the 90s, the Northern Rock opted to float and demutualise on the stock exchange so as to expand their business portfolio.

The Northern Bank was formerly established in 1997 when the UK society floated on the London Stock Exchange distributing portfolio shares to their members who held mortgages and saving accounts. The bank has joined the stock exchange being a minor bank and was expected to be taken over by its considered larger competitors; however, Northern Rock has still remained independent. The company has gained their promotion in 2000 to the FTSE 100 index. However, because of some reasons, they have been demoted back to the FTSE 250 in December 2007 (BBC, 2008) and on the following months, Northern Rock has been suspended from the LSE because of the nationalisation of the bank. On September 14, 2007, Northern Rock sought and has received a liquidity support facilities from the Bank of England (Bank of England, 2008), following issues in the credit markets which is caused by the US sub-prime mortgage financial crisis. It has been said that this crisis has brought enormous impacts to the bank and their organisational performance.

Because of the unexpected and unforeseeable situation in the international market, especially in the sub-prime Market, management of Northern Rock have argued that the issues faced by the company is very unpredictable. The arguments of the management of Northern Rock emerged because of the compounded problems that they experience since the institution have received most of its fund in large values from institutional lenders rather than small depositors which are more stable source of fund than others (Lim, 2008). According to some sources, Northern Rock’s account holders have withdrawn about £1 billion or more than $2 billion in 2007 after Northern Rock turned to the Bank of England for an emergent credit line. However, this issue still remains unconfirmed (IHT, 2008).

Although the reasons for this apparent shortage of liquidity are not known, Northern Rock management would have needed sufficient liquidity to adjust with a withdrawal of wholesale funding for more than a month so as to avoid needing assistance or help from the Bank of England. It is not likely that a change to liquidity regulation would help the banking institution.

Some scholars have drawn attention to the sorts of transformation which would prevent banking and financial institutions to be affected by runs (King, 2007); In line with the Northern Rock, many of its account holders withdrew their deposits to deposit it to other banks. For the most part, these depositors did not ask for cash. If Northern Rock has been insured with other banks, then the insurance policies might have allowed the banks to make long-term loans, to provide them with enough funds which they need to adjust with the loss of account deposits. In this regard, liquidity insurance in effect would attempt to recycle deposits from the other banks to the institution which is Northern Rock. With this, these insurance contracts would force the other banks to do what they did in times of the sub-prime crisis, to lend money wholesale for the Northern Rock.

In order for the system to presumably operate the entire banks, these institutions must be obliged to insure each other. It is unlikely that banking institutions could insure with bodies external of the banking system since non-banks do not usually have the liquidity needed to give the resources needed in a banking run. If banking institutions pay each other insurance premia, then, unless some industries can be recognised as more expose to liquidity issues than others, the profit earned by each industry from giving insurance to other banks, might be expected more or less to suit what the bank pays for its own insurance. This is the outcome that liquidity insurance has become a mutual aid arrangement which is an agreement between banks to assist each other in financial aspects when the interbank market ahs continue to dry up.

It is noted that the arguments the management of Northern Rock were also triggered by the announcement of Bank of England in providing aids for the bank. It is noted that the market Abused Directive limits the Bank from giving aid disjointedly because the banking institutions was a publicly traded industry. With this there are separate rules to be considered and these include the Exchange Rules which requires Northern rock would require making public that they had received help. In this regard, one of the solutions for the Bank of England is to nationalise Northern Rock. The Northern rock nationalisation and the proposal for supporting other distressed banking institutions are said to be based upon the claims that such would safeguard the interests of employees and depositors. However, even this solution has challenge the bank since depositors have withdrawn their accounts.

2. Finally summarise Northern rocks strategic situation. Based upon your understanding, propose some recommendations for the Northern Rock board of directors to consider (with justifications for your choices).

Northern Rock faces issues and challenges which affects its performance in the market. The sub-prime crisis have affect the company and become critical and detrimental to the profit-generating prospects of the company especially during economic fluctuations in the regional as well as the local social, economic, and political situations of the locations where the branches of the bank are situated. As such currency rates, foreign exchanges, as well as the unexpected changes in the trends that characterize the volatile nature of the international market will post issues and problems that the management of the bank should address immediately.

The possibility that Northern Rock might not be able to meet its current and future payment obligations in full or in time, particularly in the business organization’s international deals, wherein the bank would need to settle its liabilities through refinancing when the company is at higher market rates or liquidating assets at a discount to the market risks, increases the company’s responsibility of handling risks.

Inconsistencies in the operation system of the company due to lapses in the communication structure and the ineffective and inefficient flow of relevant information for the immediate needs of the management to provide aggressive solution to the problems related to the organization’s operations, post as a hindrance to the development and growth of the bank. The fact that the bank is in the international business wherein operations are made complicated by the needs for preparation and other documentation processes to complete a transaction as well as to monitor the workflow and performances of the branches increases the risk of the Northern Rock.

Strategically implementing management measures to ensure that the interests of the bank is secured and the company’s need to conceptualize and design effective business plans are of primary consideration due to the complex structure of the organization and ever-changing economic environment of the international banking industry. Compliance with international business principles and regulations calls for necessary means of adapting the policies and laws within the company to complement with the outside provisions of the industry.

Careful allocation of the business organization’s resources should be realized in the company’s quest to achieve productivity and profitability amidst the competitive international banking industry. Identifying the priorities and immediate needs of the bank should be immediately recognized and laid out to facilitate and conduct necessary actions that will adhere to the goals of the company. Although the sub-prime issue is still ongoing, Northern rock should continue to think of possible ways to limit or totally eliminate the effects of this issue with their organisation. It can be concluded that the issue of sub-prime has affected the organisational performance of different banks in the global market. The inclusion of Northern Rock with this issue should be solved by the management without affecting how they perform in the British market.

All in all, it can be said that the Northern Rock crisis is just a part of a much huge crisis in the international financial system. This issue for the banking and financial markets as well as ordinary people is that nobody knows where the next break in the system will be. In addition, it can be said that if sub-prime issues would not be able to solve immediately, this would create extreme chaos for banking and financial institutions which would lead to various bankruptcies in the banking sector leading to turmoil in the international financial system.

Reference
Bank of England (2008). Online available http://www.bankofengland.co.uk/publications/news/2007/090.htm. Retrieve August 15, 2008.

Barr, A. (2007). Subprime woes infect commercial paper market: KKR Financial, Thornburg, Coventree among firms reporting disruptions. Online available http://www.marketwatch.com/news/story/subprime-mortgage-woes-infect-commercial/story.aspx?guid=%7B1989DE0D-9031-46A1-B3C5-8E07436CF37C%7D. Retrieve August 15, 2008.

BBC (2008). Northern Rock drops from FTSE 100. Online available http://news.bbc.co.uk/1/hi/business/7139241.stm. Retrieve August 15, 2008.

Bernanke, BS (2007). The Recent Financial Turmoil and its Economic and Policy Consequences, Online available http://www.federalreserve.gov/newsevents/speech/bernanke20071015a.htm Retrieve August 15, 2008.

Bernanke, BS (2007). The Subprime Mortgage Market., Online available http://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm Retrieve August 15, 2008.

Bernanke, BS (2008). Financial Markets, the Economic Outlook, and Monetary Policy, Online available http://www.federalreserve.gov/newsevents/speech/bernanke20070517a.htm Retrieve August 15, 2008.

Gross, D (2008). The Mark-to-Market Melee: Did an obscure accounting rule cause the credit crunch? Online available http://www.newsweek.com/id/130029. Retrieve August 15, 2008.

International Herald Tribune (2008). Crisis deepens for Northern Rock. Online available http://www.iht.com/articles/2007/09/17/asia/17northern.php. Retrieve August 15, 2008.

King, M. (2007), ‘Evidence to the Treasury Select Committee’, http://www.publications.parliament.uk/pa/cm200607/cmselect/ cmtreasy/uc999-i/uc99902.htm. Q90. Retrieve August 15, 2008.

Lahart, J (2008). Egg Cracks Differ In Housing, Finance Shells. Online available http://online.wsj.com/article/SB119845906460548071.html?mod=googlenews_wsj. Retrieve August 15, 2008.

Lim, M. (2008). Subprime mortgage meltdown: Roots of the crisis. Online available http://opinion.inquirer.net/inquireropinion/talkofthetown/view_article.php?article_id=101568. Retrieve August 15, 2008.

Moyers, B (2008). Online available http://www.pbs.org/moyers/journal/06292007/transcript5.html. Retrieve August 15, 2008.

MSNBC (2007). Will subprime mess ripple through economy? Q&A: Looking at the impact of the mortgage meltdown. Online available http://www.msnbc.msn.com/id/17584725 Retrieve August 15, 2008.

Unmack, N (2007). Rhinebridge Commercial Paper SIV May Not Repay Debt (Update1). Online available http://www.bloomberg.com/apps/news?pid=20601087&sid=aEacPeg9pmLg&refer=home. Retrieve August 15, 2008.

For a business to run successfully on a daily basis it needs finances. Success comes when a business expands, reinvests and uses human recourses to run. Bentalls need money to run their business effectively and successfully. It needs finance for its daily running of the business for example, paying staff wages, paying bills for electricity and rent, paying taxes on time and ordering stock regularly.

For a long term goal, Bentalls would need the finance to expand their business, franchise, buy new equipment and or buy new buildings around the current building to expand the area and possible generate more sales with new renting for high street retailers. Bentalls can acquire finance from two possible directions. These are internal and external sources of finance. Internal sources: Internal sources of finance are money that can be generated within the business itself. There are many methods to gain money from within a business itself.

One of these is Owner’s savings which the owner of Bentalls can provide if Bentalls cannot find other ways to gather finance. This is usually if the bank is unwilling to lend for any reason such as bad repayment history. There are good and bad points about using the Owner’s savings. One of the good points is that the company doesn’t have to repay anyone back. The bad thing about this is that it may not be enough to efficiently run the business and or be a good investment. Most savings are not as large as assumed and so it may not be as helpful as a bank loan.

Another method is retained profit. Retained profit is an amount of profit which is kept aside for reinvestments for the business. It is an important and significant source of finance for an established profitable business. Retained profit does not need to be repaid back because it is all owned by the business. Not all businesses have the luxury to take out a retained profit as they only have enough profit to run the business, pay wages as well as bills. Other organisations such as charities and or non-profit organisations cannot route for this direction.

Bentalls however can take this procedure very effectively as they are a well-established and profitable business that can take out a large retained profit to reinvest into their businesses. Bentalls could use this investment to expand their business as well as gain a larger market by attracting new customers. Fixed assets are another way to convert assets into cash. Any equipment or items such as computers, TV, furniture and vehicles can be converted to cash by selling them. This procedure may be appropriate for as small business to gain quick cash.

For Bentalls this procedure may take longer and the amount may not be large enough to invest in. Bentalls is a large business and a large investment is needed to expand the business. Trade credit is a way of short borrowing and or delaying payments to suppliers so that the business cycle for Bentalls can run smoothly. Delaying payments for as long as possible can ruin the relationship between the supplier and the business. This may also affect the sales and discounts that the supplier may offer in the future. For Bentalls this may not be a bad procedure because Bentalls is a large business and its cash cycle can take a while to go around.

It is always good to pay the full amount within a month of purchase to avoid bad supplies and offers from suppliers in the future. Renting more space can generate cash for Bentalls. If they decided to allow more stores into their centre then it can generate more income for them. Also increasing rent is another way to generate extra income. Share issues occurs when a business sells its shares to its employees in order tom generate more finance however the business are losing control and power at the same time. Bentalls is a private limited company and so it can sell its shares to employees.

The share may not be large but a small percentage. This way Bentalls also know that the shareholders are trusted because they are already working for them and not outsides that may change many decisions for them. Venture Capital is very similar to Share issues but shares are not sold to employees but some individuals who get together to provide finance for existing businesses as well as new, in return of share percentages. They do this because they hope at some point the business will grow and expand and generate enough profit to gain back their investment.

External sources: External sources of finance are funds that are obtained by a business from an individual or organisation. This involves the business repaying the creditor over a long or short period of time depending on the terms of agreement established by both parties. Bentalls are likely to borrow funds from external sources because larger amounts can be transferred, however the interest rates of which terms have been agreed upon of repayment can vary and are usually set very high.

Bentalls can pay their debts back slowly for a long period of time and most lenders will lend money to big businesses because they know that they are able to repay their debt back with interests. Not all lenders are willing to give large amounts of funds to organisations purely because of lack of trust or faith of repayment. However if the business is well known like Bentalls, then it is easier to obtain a larger loan. A bank loan would be the first option for Bentalls to obtain a loan to fund their business.

It is the quickest and convenient way to borrow money. Interest rates are variable and depending on the loan size, its repayment method and period of repayment over time. There are many types of bank loans that the bank provides. Bentalls would have to get the commercial mortgage that is specifically designed for profit making businesses. This type of loan is secure in favour of the banks. The banks will hold legal rights over any buildings or properties and valuable assets until the repayment is over.

This is so that if Bentalls were to go out of business and are unable to repay their debt, then the banks have legal right to keep their properties, buildings and valuable assets. Leasing is another option for Bentalls to acquire equipment’s for their business. Leasing is borrowing equipment such as a vehicle and then paying over a period of time to which both businesses have agreed upon. Leasing equipment can be repaired if it is in the contract for no extra charge. At the end of the lease, the business does not own the equipment.

If Bentalls took out a Hire purchase, they can own the equipment at the end of their hire and final payment. Hire purchase is more expensive over the long term, but it can be better for some businesses that don’t want to pay a full large amount at once. Bentalls can lease out for new computers and get new models when they are released so that they are updated on their software and technology. This way they don’t have to pay full amounts at once and pay small amounts every month and still get new models when they arrive.

If they paid full amounts for new PCs, they would need to also take out some form of insurance and after 5 years the PCs will get old and slow down and most insurances won’t replace old PCs because they depreciate after 5 years and so the value goes down. Building societies is also another external source of finance that involves long term mortgages with security. It works similarly to a bank but is more specialised in mortgages that involves purchasing properties and buildings and both bank and building societies offer loans and mortgages.

The loan will have a fixed interest rate and or variable depending on the contract given which can depend on a month’s profit figures and also the amount borrowed. Bentalls could opt to borrow from the building society because they are more experienced and can supply more amount of money. In conclusion, looking at both internal and external sources of finance, there are far more options to choose from externally than internally and that external sources offer better security and effectiveness that can benefit both lenders and Bentalls. I think Bentalls can perform well if they obtain finance from an external source.

The Dodd-Frank represents the most comprehensive financial regulatory reform measures taken since the Great Depression; in simplest arms the Dodd-Frank Act is a law that places major regulations on the financial industry. Dodd-Frank grew out of the Great Recession with the intention of preventing another collapse of major financial institutions in the U. S. The Dodd- Frank also enforces the consumer protect act which is put in place to protect borrowers from abusive barrowing and puts regulations on banks that practice these bad habits. Why did the Dodd-Frank Act come about?

In 2008 the economy suffered a great recession and Dodd-Frank was suppose to be the answer, the tool to fix the financial problems in the U. S. If you will. Dodd-Frank put financial regulations that were said would turn the recession around and help prevent a recurrence on financial institutions. There are said to be many reasons why the economy started to plummet some say the housing market was the reason for the downward spiral of the economy and others say the banking system had a huge hand in the recession as well along with credit reporting agencies that falsely reported scores.

There are many contributing factors that could have been the reason for the financial downturn of the U. S. And the Dodd-Frank Act is supposed to be the answer for regulating banks ND implementing consumer protection. In 2010 President Barack Obama signed the Dodd-Frank Act in to Law to help secure the future economy of the U. S. I am personally all for the Dodd-Frank law, I feel that it will benefit the U. S. Economy to have stricter laws preventing it from completely failing again. Some research shows that there has been as many as 47 recessions in the U. S. O something was not right and we needed a change. In my opinion there is no way that we should have experienced recession in 2009, we are supposed to be a advance country, now I understand that things happen and that’s exactly why I’m all for resolutions and changes and that’s why I feel it is important that the Dodd-Frank and embraced and hopefully used properly. We as the United States need to tighten our laws and restrictions and work more at being proactive rather then reactive when things go wrong and now our entire economy is at risk because of one large financial institution.

As you read further in the paper you will see some of the provisions like many that stuck out to me and being some of the most important while also explaining why I am in favor of the Dodd-Frank law. One of the Dodd-Frank Act’s main goals is to regulate banks, which means that banks will be subjected to a series of regulations and if any of the banks are determined to be too big to fail then there is a possibility that the bank can be broken up.

In order to be able to focus so much on banks and making sure the banks are complaint with the regulations the bill created the Financial Stability Oversight Council. The Treasury Secretary chairs the Council and has nine members including the Federal Reserve, the Securities and Exchange Commission and the new Consumer Financial Protection Bureau or CAP. It also oversees non-bank financial firms like hedge funds. The Financial Stability Oversight Council (OFFS) will monitor the markets for asset price bubbles and the build up of systemic risks.

In addition, it would designate which financial firms are the systemically important. These firms would be subject to additional regulations by the Federal Reserve, which would include higher capital standards and stricter liquidity requirements, as well as requirements that they draw up a “living will”, that is a plan for the orderly liquidation if the firm gets into financial difficulties. Manikins,Snakeskin 2012 peg. 449) Some like that under Dodd-Frank banks are also required to have plans for a quick and orderly shutdown in the event that the bank becomes insolvent.

In accordance with the OFFS there were other regulations that the banks would have to comply with eventually. This regulation is called the Blocker Rule, this prohibits banks from investing in or owning hedge funds at all. The Blocker Rule stopped private equity funds and proprietress trading for the banks own profit and the banks would only be allowed to own a small percentage of the hedge and private equity funds. The Blocker rule came about because Paul Blocker was against banks using the funds the bank received from benefits deposits insurance for risky trading.

The Blocker Rule does allow some trading when it’s necessary for the bank to run its business. , so if the bank needs to trade currency to offset their own holdings in a foreign currency they would be allowed to do so. The Blocker Rule was not in effect when The Dodd-Frank was sign and began implementation, it was a future regulation that later was added and implemented. Derivatives are a huge part of the Dodd-Frank; derivatives played a part in the nonfatal of GIG.

Alga had to be bailed out after extensive use of derivatives, and the Dodd-Frank has placed regulations to prevent this in the future. Derivatives are financial instruments whose payoffs are linked to previously issued securities, such as credit default. In order to try and get a handle on this issue Dodd-Frank requires that the risky derivatives are regulated by the SEC or the commodity futures trading commission while the more transparent derivatives are put in a clearinghouse. The clearinghouse is going to act similar to the stock exchange; this is a way to trade the reparative biblically.

Not all derivatives will be subject to the law, The Securities and Exchange Commission and the Commodity Futures Trading Commission approved a rule that would exempt some energy companies, hedge funds and banks from derivative oversight. (CNN, 2013) Insurance companies and credit rating agencies are some of the other financial institutions that Dodd-Franks effect. The Federal Insurance office was created which operates under the Treasury Department to help identify insurance companies that could pose a risk to the entire system.

Dodd-Frank created this regulation because of the damage that GIG caused, so this regulation will be more proactive in avoiding the same problem again. Also in the interest of the consumers, the Federal Insurance office will collect information about the insurance industry and make sure affordable health insurance is provided for minorities. Some credit rating companies were criticized for providing scores that were not correct and there for allowing consumers to get loans they could not afford.

This was saw as misleading along with over rating derivatives and mortgage-backed securities Ђ?and saying the investment tools were worth more than their actual value. Dodd- Frank made it so as apart of the new rules, the SEC can require agencies to submit their rating systems for review, and can De-certify an agency that gives misleading ratings. The new rule should put a stop to the issue of approving loans and mortgages that the consumers could not afford. The law requires that the consumers provide proof of income, credit, and Job history which only makes sense to make sure the consumer can afford to repay what they have barrowed.

One of the gig reasons I agree with the law is the Consumer Protection, Dodd-Frank legislation created a new Consumer Financial Protection Bureau (CUFF) that is funded and housed with in the Federal Reserve. This regulation was to protect consumers from immoral business practices by banks. The CUFF consolidated a number of existing consumer protection responsibilities in other government agencies. The CUFF has the authority to examine and enforce regulations for all businesses engaged in issuing mortgage products that have more then $10 billion in assets. Manikins Snakeskin, 2012 peg. 448) The CUFF is also able to examine other financial products marketed toward poor people in efforts to keep our economy from falling apart again from this. The law also works with the regulators in large banks to stop transactions that hurt consumers, such as risky lending. Which also bans payments to brokers for pushing borrowers into higher-priced loans, as well as giving the state attorney general power to enforce certain rules issued by the legislation on the stricter consumer protection laws on National Banks.

This allows for it to ban brokers from pushing consumers into higher ricer loans. In addition to the above-mentioned perks I also appreciate that consumers have access to information made plain for anyone to be able to understand, and there is a 24-hour hotlist to report issues with any financial services. In accordance with helping consumers stay away from faulty loans the CUFF also monitor the debit card use, credit care and pay day loan use, this seems to be a good idea to me because it can kind of hold you back from doing something the will eventually put you in the negative.

Although the government always had some ability to seize failing financial institutions and slowly close them down, the government did not have total resolution over authority over the largest financial institutions. This was the issue when it came t the government saving Lehman Brothers and the there was not resolutions to be offered so the company filed for bankruptcy. Dodd-Frank now provides the government with this authority for financial firms that are deemed systemic, and also gives regulators the right to levy fees on financial institutions with more than $50 billion in assets to recoup losses. (Manikins Snakeskin, Peggy 2012)

DBS CEO, Jackson Tai, needed to formulate a strategy to arrest the negative consumer sentiment brought about by the merger between DBS and Singapore’s Post Office Savings Bank (POSB) and from attempts to remove the identity of POSB from the market while, at the same time, keeping the bank competitive both locally and internationally.

The Situation and Analysis Jackson Tai had just become the CEO of the Development Bank of Singapore (DBS), the largest bank in Singapore and Southeast Asia. Between 1998 and 2001, DBS had acquired six financial institutions around the region. Incidentally, this was also the time when the bank has seen a change in leadership three times in a p of only three years.

Singapore is known throughout the world as an economic powerhouse despite its small size. Likewise, its banking sector is known to be robust, well regulated and competently managed. In 1999, the government liberalized the banking sector and instituted reforms to free up entry to domestic wholesale banking, enhance competition in retail banking, and place safeguards needed for the industry. Foreign banks could now own more than 40% of domestic banks and were allowed to expand operations to compete with local banks. Local banks, on the other hand, were encouraged to consolidate their businesses to meet the challenges of international competition and global expansion.

DBS played a key role in the government’s strategy to expand abroad as Singapore’s home market for retail banking has reached saturation. Following a series of mergers and acquisitions initiated by reforms, the country’s local banks have moved up the Asian ranking lists although still falling below their counterparts in the region. Despite regional expansion, Singaporean banks remained relatively small.

There is pressure, therefore, for the local banks to compete with international banks. This forced banks to scrutinize their operations to improve the bottom line.

DBS is strong in short-term banking facilities, trade financing and working capital financing. It also provides services related to investment banking, portfolio management, and custodian services. It is also known to have substantial banking presence in countries around the region, as well as offices in the US, UK and Japan. The bank’s objective in its acquisitions was to seek out opportunities to grow its business and broaden its reach.

On the downside, however, DBS has also been perceived to be bureaucratic and slow to respond. Being recognized as the de facto bank of the Singaporean government does not help in its image as it is not seen to be customer friendly, cold, inflexible and less innovative.

Furthermore, the rapid changes in leadership in DBS within a very short p of time has casted doubt on whether the bank can actually compete on the world stage. Part of the major acquisitions made by DBS was that of the Post Office Savings Bank (POSB). POSB was modeled after the Japanese banking system as a convenient and friendly bank – quite the opposite portrayed by the image of DBS. It has even been called “the people’s bank” gaining the trust of Singaporean depositors with most of them opening an account at an early age. It never discriminated customers based on the size of their bank accounts. It also rewarded loyal depositors, and the staff were always friendly, courteous and helpful.

In 1998, POSB then became a fully commercial after its acquisition by DBS with the bottom being paramount.

Despite initially seen as favorable move to strengthen DBS’ market leadership, there were a number of changes introduced in POSB that did not sit quite well with the depositors. DBS imposed a fee on accounts that feel below the minimum S$500 maintaining balance, some branches were closed making it difficult for customers to travel to further-located and more crowded banks. There was even some fears that DBS was planning to phase out the POSB brand entirely as managers argued that it was confusing to retain both brands.

Nonetheless, some argued that it would benefit DBS to keep the POSB brand for the following reasons: 1. DBS can compete globally without having to sacrifice servicing the local market. 2. It would not cost much for DBS to maintain POSB for the small account holders. 3. DBS might stand to lose their patronage to other banks should they drop POSB.

A major shift was therefore put in motion to gain back the trust of customers. First, DBS admitted its mistakes and acknowledged that they were operating on purely logic rather than balancing it with emotion which customers were looking for in a bank.

DBS then launched “The Great Customer Experience”, an initiative that placed the customer at the forefront of its activities with the following key initiatives: 1. There was a clear customer segmentation to enhance both the DBS and POSB brands under the “two brands, one bank” concept. a. DBS reasserted the POSB brand giving it a refreshed and revitalized image complete with a new branch layout and an aggressive advertising campaign. b. DBS turned POSB’s ATM and credit/debit cards into discount cards and introduced a loyalty rewards program for POSB customers. c. It also went back to schools, a trademark of the old POSB, to again encourage a culture of thrift among young students. d. Other banking conveniences were introduced such as reducing customer waiting time, replacing old ATM machines, installing automated cash-acceptance machines and hired specialized staff to further speed up transactions. 2. Investments in database marketing and customer relationship management systems were made to gather more information from customers. 3. DBS introduced innovative products and services enhanced by partnerships through alliances and mergers.