HBS Case: Banc One Corporation: Asset and Liability Management
Instructions: This case is done by groups. Each group should prepare a written analysis, and hand in one copy of your analysis at the beginning of class on March 19. Each team member should also bring his/her own copy of the write-up to class, as well as the case itself, so that we can refer to the specifics in our discussion. People in the same group will receive the same grade for the case write-up. The text analysis of a case should be about 3-5 pages (double-spaced). You are encouraged to use tables and graphs (not counted as text) to support your arguments.
Your write-up should begin with an opening paragraph that defines the main problem in the case and your recommended solution. The remainder of your paper should support your conclusion and recommendations. This support should be based on your definition of the problem and inferences that you draw from the facts of the case. Structure is important for your argument to be lucid and transparent.
The grading will be based on the quality of your analysis and writing. You should present the material in a logical, clear and concise way. Points will be deducted for grammar mistakes and typos.
Your case should address the following questions:
1. If Banc One wanted to manage its interest rate exposure without using swaps, what could it do? Specifically, how could it move from being asset-sensitive to either neutral or mildly liability-sensitive without using swaps? What are the pros and cons of using swaps vs. these other means of adjusting the bank’s interest rate sensitivity? What impact do they have on the bank’s interest rate sensitivity, liquidity, accounting ratios, and capital ratios?
2. What are AIRS? How do they work? Why is Banc One using them so extensively?
3. What are basis swaps? Why has Banc One recently significantly increased its basis swap position?
4. How might its derivatives portfolio be damaging the bank’s stock price? What exactly are analysts and investors worried about?
5. What should McCoy do?