Case Analysis

LINCOLN NATIONAL BANK

CASE ANALYSIS

STATEMENT OF THE PROBLEM

Jeff Vigil, a Financial Analyst of the Lincoln National Bank, wanted to trace back the previous performance of the company that caused its downfall in the late 1980’s. For them to be aware of the wide possiblities that might cause the bank to experience relapse.

OBJECTIVES

1. To examine the past performance of the bank.

2. To take precautionary measures in order to avoid future problems.

3. To contol and maximize overall profitability while maintaining sound liquidity and capital adequacy with prudent management of risk.

AREAS OF CONSIDERATION

* Tight Credit Policy – The bank was limiting its credit terms given to the customers and this caused them to be unattractive to the majority of its customers.

* Reduced Lending Activity – The bank decreased the lending activities which resulted to low cash inflow in the bank through interest income.

* Asset and Liability Management – The bank was poor in utilizing its assets that caused the increase of its long-term obligations.

ALTERNATIVE COURSES OF ACTION

* Loose Credit Policy – The bank must improve their credit policy in terms of untight credit terms in order to attract more customers for them to gain higher interest income.

* Sale of Property – Because the bank portfolio declined rapidly, they needed to sell properties in order to gain income. Thus, it reverses its loss of allowance into income.

* Borrowing of Funds – The bank borrowed significant amount of longer term funds to Federal Home Loan Bank to support its portfolio mortgages.

* Selling of Excess Funds – The bank sold off its security holdings after they experience boom in lending.

RECOMMENDATION

We highly recommend that the bank should contol and maximize overall profitability while maintaining sound liquidity and capital adequacy with prudent management of risk. And also, the bank should take higher risks in order for them to get a higher...