Planning & Communications - BancZero Case Study - Report Writing Assessment Answer

Assessment Task:

BancZero, headquartered in New York City, was the holding company for a number of subsidiaries that provided a wide range of financial services around the world. One of the largest banks in the United States, BancZero had achieved great success in the securities business. Important to its ability to make large inroads in well-established markets and gain market share were its credit rating and large, stable capital base.

BancZero aimed to attract and retain clients with a broad range of financial service needs, for example, market-making in foreign exchange, derivatives, fundraising from various markets, advisory, and mergers and acquisition services. Large conglomerates needed such services, and BancZero focused on increasing its transactions with these corporations rather than expanding the size of its client list.

Overseas divisions were important sources of profit. BancZero had established an unrivalled position in Europe and in parts of Latin America, far ahead of other commercial and investment banks. It had recently turned its attention to the emerging markets of Asia and Latin America. Investors from advanced countries were eager to enter emerging markets, and clients in the developing countries were beginning to need the bank's skills.

BancZero's internal organization consisted of Corporate Finance, providing comprehensive services for institutional clients; Markets, serving market clients; and Asset Management, offering investment management services to clients. The Legal, Technology and Operations (T&O), Financial, and Audit divisions supported the other three divisions, as shown in Exhibit 1 BancZero's Mexico City Office.

The Mexico City office had been opened to take advantage of new business opportunities in emerging Mexican markets. The office's management (see Exhibit 2) was all transferred from other BancZero offices, mainly from Buenos Aires and New York. Fluent in Spanish and English, staff members were experienced local hires from other investment banks and brokerage houses.

The head of derivative product sales, Fernando Manzanilla, was hired from a competing investment bank, where he had been head of sales and trading-and one of the most successful salespeople in the bank's history. The T&O new products manager, Ricardo Elizondo, was hired from a large local bank, where he had been assistant comptroller. New Product Development: Currency Swaps in Mexico One new product was currency swaps. A swap contract obligated two parties to exchange two defined cash flow streams at specified intervals, for a specified period of time. Suppose, for example, that Mexican Company A, a real estate concern, had borrowed abroad US$10 million for 5 years at a fixed rate of 10% a year to purchase and develop land for houses. Company A would build and sell these houses to Mexican clients, who would finance their purchase by taking a mortgage in Mexican pesos (at Mexican interest rates fixed, say, at 20% per year).  

Thus, the Company 

A would have Mexican peso assets and US dollar liabilities. To service its US dollar borrowings, Company A would have to take in the Mexican peso payments from the home buyers and convert them into US dollars at prevailing spot rates in order to make the US dollar interest payments, thereby exposing Company A to foreign exchange risk. To avoid this, Company A could enter into a currency swap with BancZero: BancZero would make Company A's US dollar interest payments and in exchange, Company A would forward the home buyers' Mexican peso payments to BancZero. But now BancZero would be exposed to exchange rate risk, credit risk and interest risk.

In exchange for providing the swap, therefore, BancZero would charge an intermediation fee plus a spread on the cashflow exchanged, in order to cover some its risk exposure. The sales people had presented this product to clients, who were more than willing to enter into transactions with BancZero under BancZero's terms.

The Swap Project 

Manzanilla first proposed currency swaps to BancZero's business management group in Mexico City in May 2019, six months after the office opened. A number of clients had requested peso/ dollar currency swaps, and Manzanilla realized the new product had great potential as a revenue source. The office manager gave verbal approval to proceed with new product development, which was entrusted to Elizondo. The office manager and Elizondo agreed that the project was of sufficient size and complexity to require significant changes in operational and support procedures. Thus, the new product had to be subjected to a full new product approval process review.

WORKFLOWS 

The standard operating procedure at BancZero for a new product was the following: 

1- A proposal was written for the new product. Proposals for a product were usually 

initiated by a sales and trading or corporate finance professional. The new product proposal usually included the following:

1- A proposal was written for the new product. Proposals for a product were usually 

initiated by a sales and trading or corporate finance professional. The new product proposal usually included the following: 

• Description: Product overview, features, benefits, target market, expected volumes, revenues, risk profiles of targeted client base, transaction steps, and typical work flow. 

• Risks: Description of types (types of market risks, types of credit risks, etc.), measurement and reporting methods, potential controls. 

• Financial information: Projected impact, start up costs, price schedules, accounting, tax implications, funding. 

• Implementation plan: Responsibilities of key support groups, timing and availability of personnel and systems. 

2- Once the business manager approved the product proposal, a new products manager from the operations area became responsible for identifying and managing the working group, coordinating the product introduction and ensuring that deadlines were met. 

3- Once all tasks were completed, new product manager and work group conduct stress test and test trade (detailed procedure of the Stress Test and Test Trade is provided in Exhibit 3).

4- Business manager reviewd and modified-if necessary- the results and launched the new product.

Exhibit 4 

As a first step, Elizondo went through the new product task list (Exhibit 5) , assigning each task to the relevant group and estimating the completion time. In late August, in a team meeting, Elizondo outlined the tasks to be completed, the corresponding deadlines, and the estimated product introduction date. The group agreed that a late December 2019 test trade would not be unreasonable. The salespeople proceeded to talk to potential clients, indicating that actual trades with BancZero as a counterparty would be available in early January 2020. 

YOUR TASK 

With an understanding of the advantages of Swap product for BancZero and a thoughtful examination of goals and requirements, you should develop an optimal product development strategy for the Swap project .

You need to develop a detailed work breakdown structure for proposal, new product plan and implementation of Swap. You should also find out tasks that can be started together and resources that can be shared/distributed. Where they cannot be shared you can recruit more resources but obviously it will cost more. 

After some trials you develop a Master Plan in Primavera (the file should be completed with rational connection of activities, required resources, set baseline, ...). 

Along with your Master Plan you write a comprehensive report (around 2000 words) highlighting: 

a. OBS and EPS reflecting on the BancZero organisational structure and business

b. Justification and rationale for activity sequence.

c. How have you optimised the time and the resources?

d. What is the duration and cost of the whole project and what is critical path and what are the critical activities?

e. Printed Gantt chart and activity network f. What are the resources required and their numbers for this project according to your plan?

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