Buffalo Savings Bank: Financial Case: Buffalo Savings Bank Case

Buffalo Savings Bank Case Summary
Situation Summary:
Issues:
1. Operating Loss of $10.3 Billion in assets.
2. Outstanding -40000 mortgages
3. Imbalance between record high interest rates and low yield on LT loans.
Reasons:
1. High cost of short term loans, Low yield of Long term Loans
2. Recession in the country
3. Depletion of Capital by consistent losses.
Possible solutions:
1. Call 900 renegotiable rate mortgages which were made at 8.5% (Usury law)
2. Refinancing the mortgages at 14% from earlier offered 8.5%, even though market interest rates are 17%.
Known Facts:
1. BSB had kept low interest rates while sales of Mortgage in 1976
2. New Head of BSB Mr Kenzie with a new objective:
a. Diversification into Real Estate and Mortgage Banking,
b. Acquisition of Other thrifts
3. Rising Interest

Bank, Shareholders and The Board: Bank’s reputation will be impacted with the decision of either refinancing or call back. The conflict lies in maintaining status-quo with bank’s policies in the past of never re-financing/call back.
Even in refinancing Bank will renegotiate essentially to divide the market risk fairly with its customers.
No one expects the bank to take these actions as that will impact them for their risks.
The other factor here is bank’s financials will change with the decision. Both options will also have a different effect financially.
3. Employees:
No doubt, if any action is taken in terms of laying off people on the grounds of performance the risks of degrading morale grow on every employee.
Crisis is supposed to unite people and motivate people to work efficiently as a team to get out the unwanted situation. Any announcement in terms of lay-off will be detrimental to overall efforts of the organization/employees.
The conflict here is again Organization’s past history of never laying off people (At least not mentioned in the case).
4. Government and the Activists: Will be affected as per the outrage by customers.
Answer: - 5
1) Reputation