Hbr Case Chemical Bank

CHEMICAL BANK

- Allocation of Profits

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EXECUTIVE SUMMARY

The overall profitability of Chemical Bank has been negatively affected by a decrease in profit contribution from Due Bills. There is an external threat of reduced interest rates and internal threats in the form of misalignment between involved divisions.

The following suggestions aim to counteract this development

1. Increasing sales volumes of Due Bills

a. Allocate 100% of profits from customer fees to Metro

b. Aligning Metro’s branch managers’ Point System with increasing sales

i. Incorporate Due Bills in the Point System

1. when all fee profits from Due Bills are allocated to Metro, they fall under “Direct Fees”

ii. Increase the point value for “Direct Fees” and reduce point value for “Deposits”, proportionately with predicted contribution margin per product

2. Cut administrative costs associated with Due Bills

c. Transfer administrative tasks from T& I to Treasury

3. Create incentives of cost control within each division

d. Treasury are responsible for 65% of their generated costs associated with Due Bills

e. Metro is responsible for generated processing costs associated with Due Bills, plus 35% of costs generated by Treasury

4. Incentivizing Treasury traders to make profitable trades and reduce impact of lowered interest rates

f. Allocate 100% of profits from NII and Trading with 2ndary markets to Treasury

5. Create structure for synergistic effects between Metro and Treasury

g. Weekly reports to Treasury traders on how big a percentage of the period’s profits result from increased sales volumes of Due Bills from Metro

h. Initiate Project: Synergy between Metro and Treasury to

iii. improve communications between the two divisions

iv. further Metro’s strategic...