Gocb Case

2662 Words Feb 24th, 2016 11 Pages
CASE ANALYSIS
December 7, 2008

QUANTUM OF SOLACE*
A Case of Golden Opportunity Commercial Bank

President Celso Valmores in his speech before the board members said: “I would like to seek your opinion regarding a major initiative of our bank, which is part of the implementation of Golden Opportunity Commercial Bank’s (GOCB) renewed strategy to be the bank of choice in terms of consumer banking. To be able to finance this new strategy and to aggressively revive our bank, GOCB is contemplating a major move that will, in effect, recover from losses brought about by increasing mortgage default payments, valued at P5.0 billion. This move is designed to fully extinguish our debts, create a new and dynamic bank and hopefully leave us
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A number of branches were increased to 30 from 10, which are located in the various areas of Metro Manila, Cebu, Davao, Naga, and Baguio City. GOCB eventually became a highly tradable publicly held company.

In his desire to further increase its revenues at approximately 300%, he sought new opportunities. The bank teamed up with GRC and entered into a guarantee agreement with the Home Guaranty Corporation (HGC) for the securitization of P5.8 billion worth of housing loans. The guaranty program aimed to liquefy through the asset-backed securitization (ABS) ranging from P10,000 to 1.0 M, with a yield of 15% per annum paid quarterly and a term of five years. This strategy met with great success for 6-straight years of record increases in profits. In 2006, GOCB was highly leveraged with as high as 85 percent. However, it managed to lower the debt ratio to 60 percent to retain shareholder confidence and ensure the bank’s eligibility for a B bond rating. Strong reputable brand name, financial strength, and a strategic fit were the three key ingredients why the GOCB’s 10 million shares had market value of P250 each which is 10 times the net income per share. This further boosted its market position to hold the top 20 spot with a total resource base of P35 billion as of December 2007, which comprised of 10% of the entire banking industry’s total resources.

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