Wellfleet Bank, established in London in 1847, has grown to hold $329 billion in assets and operates in 78 countries after multiple acquisitions. The bank's main focus is on corporate and consumer banking, particularly in syndicated and leveraged loans, but it faces significant risks including default, regulatory challenges, and high concentration in its corporate banking segment. Notable proposals include a $850 million facility for Ashar Industries and refinancing a $1 billion convertible bond for Gatwick Gold Corporation, both presenting various credit and operational risks.

1. R I S K M A N A G E M E N T AT W E L L F L E E T B A N K :
“ M E G A D E A L S ”
M.C.B GROUP 1
CASE PRESENTATION
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109 Ghanshyam Gupta
301 Balagopal Padmakumar
302 Harbir Singh Banga
402 Rishi Bajaj
503 Anirwan Bhattacharya

2. WELLFLEET BANK
• Founded in London in 1847
• Expanded over the years
• In 2007: Presence in 55 countries, Total Assets of $329
billion and market cap of $51 billion
• The bank had presence in about 78 nations by 2008 on
account of several acquisitions it had undertaken.
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3. • Wellfleet main competitor was Global Bank.
• Corporate Banking (58% of PAT) and Consumer Banking
(42% of PAT) were the two main businesses
• The bank focused more on the syndicated and leveraged
loans segment.
• Syndicated loans were provided to a borrower through
combined activities of several banks
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4. • Members in consortium could reduce their overall
exposure, each bearing only a part of any loss
• Syndicated loans help small banks to participate in large
transactions
• Leveraged loans were extended to companies that
already had considerable amount of debt
• As these loans carry a higher risk of default, the lender
usually charged a higher interest rate
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5. • Corporate Banking division worked as an Investment
Bank
• Hired several employees from IBs
• Provided a risk perspective to Wellfleet
• Between 2004 and 2006, the bank took around 40 deals
in range of $500 - $750.
• Net profit in 2006 – $2278m
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6. QUESTION 1
What kind of risk does Wellfleet Bank face?
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7. WELLFLEET BANK ORGANIZATIONAL
STRUCTURE
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8. KEY RISK FOR WELLFLEET BANK
• Wellfleet Bank strategic intent was to pursue large scale
transformational deals through its corporate banking segment.
“If a billion dollar deal went wrong it could sink the ship”
• Group Credit Committee - Group Chief Credit Officer, Deputy
Group Chief Risk Officer & Group Head of Client
Relationships
• There is no Risk Appetite Statement which defines the
tolerance level
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9. KEY RISK FOR WELLFLEET BANK
• Risk of Default in case of leveraged loans which is
aggressively pursued by the bank
• It is mentioned in the case that if the deputy group chief risk
officer & group head of client relationships disagreed over a
proposal then the Chief Credit Officer would take the ultimate
decision. (Operational Risk)
• The bank is facing the regulatory risk, credit risk, increasing
competition as well as the risk from acquisitions.
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10. KEY RISK FOR WELLFLEET BANK
• Concentration Risk - The bank has a very high
concentration on its Corporate Banking Group.
• Other important aspect is that the bank has
compartmentalized risk greatly.
• The bank had its own internal credit risk assessment model
summarized as
EL ($) = Probability of Default x Loss Given Default (%) x
Exposure at Default ($)
Risk of over-reliance upon the model.
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11. AS H A R I N D U S T R I E S U S $ 8 5 0 M I L L I O N
FAC I L I T Y
PROPOSAL 1
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12. BACKGROUND OF ASHAR INDUSTRIES
• Worlds largest steel producer (6% market share by
volume)
• Specialized in low-end commodity steel
• Production across developed & developed markets
• North America 40% (25% US auto)
• Western Europe 33%
• Eastern Europe, Ukraine, South Africa, Kazakhstan
• Controlled by Amit Ashar and family
• Have several JVs (like telmak steel)
• Turnover increase from $5.4bn (2001) to $28.1bn (2005)
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13. REQUIREMENTS DETAILS
• Underwriting upto $850m of EUR 8bn facility
• Wellfleet bank as sub-underwriter
• Syndication awarded to Bentleys, Cramer and
Dougherty, MetGen (Book runner) joined by Rein Bank,
Clouseau Brothers, Global Bank (Non-book runners)
• Challenges:
• Integration risk
• Need for streamlining complex debt structure of the firm
• Possible failure of hostile take over
• Political risk high of Zellmont SA
CREDIT ANALYSIS
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14. CREDIT ANALYSIS (CONT.)
• Strength
• World’s largest steel maker (know-how of industry)
• Diversified revenue stream
• High level of raw material integration
• High EBITDA and FCF generations
• Rating
Agency Rating
Wellfleet Bank 5A
Moody Baa3/ review for downgrade
S&P BBB+/ watch negative
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15. RETURN TO BANK
• Explicit Return
• In 1st year: Interest charge of 52.5bps which is $4.46mn
• Additional 20bps of underwriting fee (10bps on agreement,
10bps on closure of syndication) which is $3.4mn
• Drop dead fees of 10bps
Future Scope
• Total possible earning in medium term $1,050,000
comprising of :
• Foreign Exchange Wallet $250,000
• Interest Rate Derivative Wallet $300,000
• Commodities Wallet $250,000-500,000
• Other opportunities for Project Finance, M&A advisory and
Structured finance
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16. BROADER PICTURE
• Company integration track record good
• Company claimed to have no unconsolidated debt
• Good track record of turning around underperforming assets
• Clean audit reports
• Strong record of leveraging to acquire and then de-
leveraging
• Deal: 25% Debt - 75% Equity
• Wellfleet Reputational Risk Committee cleared name
• Industry aspects:
• Steel companies sensitive to product price movement
• Supply demand match for last 10years
• Future growth: Expansion of China and India
• Pricing supported by China’s consumption
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17. R E F I N A N C E F O R G AT W I C K G O L D C O R P O R AT I O N
O F $ 1 B I L L I O N - C O N V E R T I B L E B O N D
PROPOSAL 2
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18. A DETAILED ANALYSIS
About Gatwick GC
• GCC was world’s third largest
gold producer, accounting for
about 7% of global gold
production.
• It operates in 21 mining
operations in 10 countries
across the globe and
conducted extensive
exploration.
• 41% of its production came
from the deep-level hard rock
operations in South Africa.
Ratings
Agency Rating
Wellfleet Grade 5B
Moody NA
S&P NA
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19. CREDIT ANALYSIS
Credit Challenges
• Need to refinance $ 1 billion
convertible bond due to
expire on 27th February
2009.
• Total Debt to EBITDA was
800% in 2007.
• Debt protection: EBITDA to
interest expense was -3.1%
in 2007, showing a
diminishing curve since
2003.
Credit Strengths
• The world’s 3rd largest
gold producer with 7% of
global gold production.
• Diversified production
base.
• Low-cost producer( in the
lower 50% of global cost
curves on average across
all their mines)

20. BROADER ISSUES
Commodity Prices/Hedging
• The single largest risk for GGC
in the long term would be
sustained fall in the gold price.
The risk trigger is gold price
under $ 650/oz. During the
recent commodity price
turmoil, the gold price has only
been below $700 on one day.
• Low prices would make some
of its mines uneconomic and
would impact investment
capex and exploration.
Mining-Cost Inflation
• Electricity: Mines are heavy users of
electricity. Electricity costs will increase
in line with the energy-price increases.
• Labour: Labour costs in South Africa
are increasing by around 12% PA
• Equipment: Industry demand for new
equipment was very strong from 2004-
2007, with sharp price increase, but
the pressure is now starting to ease
with Capex cutbacks across the
industry.
• Cost inflation in GGC’s operations over
the past 21 months has been appox.
21% in $ terms. The rate is likely to
slow down with the depreciation of the
ZAR, fall in disel prices, and fall in
demand for mining equipment.
Productivity investment will begin to
pay dividends.
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21. BROADER ISSUES
Political Risk
• Around 72% of current
production is in Sub-
Saharain Africa. Gold is a
key export and cash
generator for all 6 African
Countries.
• Diversification of mines
(21mines across 10
countries) mitigates risk.
• Social, economic and
environmental risk: Mining
safety becoming
increasingly important issue
in SA, both politically and
operationally
Black Economic Empowerment
• BEE is a program launched by the
South African Government to redress
the inequalities of the apartheid by
giving, historically disadvantaged
South Africans economic opportunities
previously not available to them. In
terms of mining, companies are
required to convert their existing
licences into a new generation of
mining licences.
• Companies that don’t comply with BEE
legislation, which most importantly
includes the provision of transfer of
ownership of equity or assets to BEE.
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22. BROADER ISSUES
Shareholder Distribution
• Company presently
distributes 20% of
earnings as dividends.
Management Team
• Good all-round mining
experience supported by
well-connected African-
oriented board.
• Acquisitions are for
shares and not for cash.

23. BROADER ISSUES
Industry Issues
• Financial profile of the gold
industry is characterized by:
heavy investment in FA; 2+
year development period, very
high fixed costs.
• Due to high fixed costs in their
cost structure, gold mining
companies display extreme
sensitivity to product price
movements.
Should we or Should we
not?
• A decision can be taken
after comparing the
Expected Losses and
Risk Adjusted
performances for both the
proposals.
• Pay Attention to the excel
sheet!!!!
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24. D EC ISION MA K IN G TOOLS
ECONOMIC AND
FINANCIAL COMPARISON
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25. CLICK TO SEE EXCEL SHEET
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THANK YOU!
QUESTIONS PLEASE?