Question

Find an example of a publicly-traded company that lists two risk factors in their 10-K that you think will become greater liabilities for them in the near future. If you were the CEO, how would you mitigate those risks?

Answer 1

I would like to answer this question from Indian company perpective.When it comes to publicly traded company in India Sate Bank of India or SBI is among the top list. It is the largest public sector bank in India and when it comes to risk analysis it is surely crucial for this bank. The two most important factors that I think it should lists in it;s 10-K report are:

1. Increasing NPA's: NPA's or Non Performing assets are those loans which the bank has extended to it's lenders but they have defaulted on their payments. A bank declares an asset as an NPA if for a period of 90 days there isn't any payment made by borrower to the bank for the loan taken.
2. Merging small banks into big one's: No doubt that mergers have increased the stability of the banking sector in India but there are some costs associated with them. The merger of SBI with it's small bodies was a good move by the Indian Banking authorities but there were many costs associated with the mergers. The top level management now have to look down at the bottom level managers more precisely because of the increased size of the work and of the bank as well.

If I were the CEO i would have done the following:

1) I would have advised the managers to not give out loans without any security. Due to this move the bank would be secure on the part of default by the lender for the payments. The bank would easily sell off the underlying security and realize the payments thereon.

2) In order to reduce the cost at the lower level I would have recruited additional managers who would look onto the lower level staff and see that they work in accordance with the standards of the bank and do not pick up any such activity that would increase any cost on part of the bank. The managers would directly report to the CEO so that there is not any mishandling of information which would be in case if the managers so appointed were to report indirectly.