In: Economics
PART 3 – MARK ANGELO CASE STUDY
You are a business development officer of ABC bank. An existing client of yours told you about Mr Mark Angelo who is presently banking with MMM bank. You were told that Mr Angelo is a very rich and influential client who could be approached to move his business to your bank should you be able to offer him favourable rates. During your initial contact with Mr Angelo he indicated that he is not looking for another banker but that you should provide him with a proposal which he can consider.
MARK ANGELO
STATEMENT OF FINANCIAL POSITION AS AT 1 SEPTEMBER 20XX
ASSETS |
|
Residential property – Mill Point Rd, South Perth |
$ 15 000 000 |
Holiday home – Dunsborough |
$ 5 160 000 |
Vineyard farm – Margaret River |
$ 7 500 000 |
Investments: |
|
Mark Equipment Pty Ltd - 50% shareholding |
$ 1 527 600 |
Mark Equipment Pty Ltd - loan account |
$ 5 325800 |
Fixed deposit |
$ 750 000 |
Vehicles: |
|
20XX Range Rover |
$ 80 000 |
20XX Mercedes 600 SL |
$ 190 000 |
20XX Porsche |
$ 190 000 |
Household goods, Persian carpets and work of art |
$ 1 000 000 |
$ 36 723 400 |
|
LIABILITIES |
|
Bond on Mill Point Rd, South Perth property |
$ 11 500 000 |
Bond on Dunsborough property |
$ 2 500 000 |
Bond on farm |
$ 4 500 000 |
Instalment sale agreements on vehicles |
$ 1 000 000 |
Overdraft |
$ 50 000 |
$ 19 550 000 |
|
Net asset value |
$ 17 173 400 |
You as a banker identified three types of finance that can be taken over by your bank if he can be convinced to change his bank:
You also identified the residential properties and vineyard farm, the vehicles and the fixed deposit as the most suitable types of collateral. Answer the following questions for each of the three prominent types of collateral identified:
i. Can the bank easily obtain effective control or custody over the asset?
ii. Can the bank realise the asset quickly and with little expense?
iii. What is the possibility that the collateral can become worthless?
Complete the table to answer this question. Substantiate your answers with good reasons.
Properties |
Vehicles |
Fixed deposits |
|
Can the bank easily obtain effective control or custody over the asset? |
|||
Can the bank realise the asset quickly and with little expense? |
|||
What is the possibility that the collateral can become worthless? |
the prority is as follows
1) fixed deposit ( it is the most liquid and least risky asset) hence making it the safest bet as chances of default on it by bank are less and it can easily be liquidated. note: margin requiremnt will be less due to less riskiness say 10%
2)loan account as loans are to be paid first in case of a default and its value is not subject to change like property values it is the 2nd best bet. margin requirements will be more around 10-20%
3)residential property:as it is a residential property which makes it safer than other properties( because no one wants to lose a home delibrately due to emotional attachments) , after subtracting the value of liabiltues from the asset price, and a margin a loan can be given against it as collateral,margin requirements minimum 20%
4)vineyard farm: again its price can be volatike and like residental property as its location is not that good margin requirements will be higher than residential property.
5) prices of carpets etc are subjective to the owner who buys them hence it will have maximum margin requirements