Risk Management at Wellfleet Bank: All That Glitters Is Not Gold

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REV: JANUARY 6, 2012

ANETTE MIKES

Risk Management at Wellfleet Bank: All That Glitters Is Not Gold

In late October 2008, Alastair Dawes, CEO of Wellfleet Bank, a London-based global bank, was confronted by two major issues. First, should Wellfleet underwrite a $1 billion loan to Gatwick Gold Corporation (GGC), a South African gold producer that accounted for 7% of global gold production? Second, were Wellfleet’s risk-management practices adequate in the global financial crisis? To date, Wellfleet had weathered the financial crisis relatively well. It was one of the few European banks that did not expect to report losses to its shareholders in 2008. Dawes attributed this resilience in part to the bank’s good risk-management practices. However, this was not a time for complacency. Wellfleet’s flagship corporate lending business, the Corporate Banking Group, had been aggressively pursuing large-scale transformational deals in line with the bank’s strategic intent. The flow of business proposals that reached the highest decision-making forum of the corporate banking business, the three-member Group Credit Committee, had increased to a volume never envisaged. Two seasoned credit-risk managers—the group chief credit officer and committee chair, Catherine Richards, and the deputy group chief risk officer, Thomas Mayfield—and the group head of client relationships (representing the business side), collectively reviewed the largest credit proposals, now nearing $1 billion each. Last year, they had projected a workload of 220 proposals for 2008, but they now expected to review over 300 submissions. Each of these large-scale credit applications counted as a mega-risk. According to the internal mantra of the bank, “If a billion-dollar deal went wrong, it could sink the ship.” The Group Credit Committee’s authority was unlimited—it could approve deals of any size within the bank’s regulatory limits. If Mayfield and the group head of client relationships...