Case Study: Banc-Zero New Product Development

This case study is based on Banc-Zero (a disguised name for one of the largest US banks). Banc-Zero, a holding company for its numerous subsidiaries worldwide, provides a range of financial services increasingly targeted to large multinational conglomerates. It has “recently” opened a Mexican subsidiary, where the head of derivative sales is impatient for a currency swap product that has long been under development at the bank’s New York headquarters. Having failed its “stress test” just before the “final documentation “ step in the development process, the product is further analyzed for risk exposure and thus will be delayed once again. The development process is a “stage-gate” model whose steps have been sequenced for the incremental projects the bank has generally undertaken in the past. The environment the bank now faces, however, is increasingly turbulent and the product involved more revolutionary. Meanwhile the competition in Mexico is rumored to be near ready with a similar offering. Given the demand for this kind of product, BancZero clients could well defect to the competition.
Your assignment is to:

1. Demonstrate a thorough understanding of the case by describing in great
   detail all aspects of the case
2. Approve or disapprove the new currency swap product
3. Provide suggestions to improve the bank’s processing and approval of new
   products guided to local markets
4. Write a summary of major insights that you have gained and lessons learned
   from the case
   In your presentation you must be sure that you provide answers for all these questions or issues:
5. What are Banc-Zero’s credit policies?
6. What type of clients are they trying to attract?
7. Who are Banc-Zero’s competitors?
8. Describe the difference between the over counter derivatives and
   standardized traded derivatives
9. Describe how BancZero uses derivatives in its trading and asset/liability
   management operations
10. What is the role of Banc-Zero’s Risk Management Group and who is the head
    of the group?
11. To demonstrate your understanding of the new product approval process
    you need to examine and comment on: Figure 2-The New Product Approval; Figure 3-New Products Manager; Figure 5- Mexico City Office Organizational Structure
12. What are Banc-Zero’s risks in the Currency Swap with Company A?
13. How could BancZero hedge some of the risks with Company A and what are
    the limitations of doing so in the Mexican Market?
14. What will be Banc-Zero’s compensation (fees, etc.) if it were to do the swap
    with Company A?
15. Who are Fernando Manzanilla and Ricardo Eliozondo?
16. What are some of the things that must take place before the swap project is
    approved?
17. Describe the problem with Banc-Zero’s pricing and valuation model and the
    swap project?
18. What were the results of the “stress test”?
19. What will be the problems in modifying the product to meet the current
    stress test standards? What about changing the stress test standards?
20. What is the concern of Fernando Manzanillaj with the results of the stress
    test?
21. Assume that you are the Head of Risk Management in New York: Would you
    approve this product? Give detailed reasons for your answer.
22. How would you improve Banc-Zero’s process for new products? How would
    you change the sequence of activities?
23. What Have I Learned From this Case?