Wednesday, July 24, 2019

The Trust bank of Britain and Asia Essay Example | Topics and Well Written Essays - 1750 words

The Trust bank of Britain and Asia - Essay Example The higher the level of uncertainty (with regards to future operations of the acquired entity) indicates that the company should go for alliance rather than acquisition and vice versa. From the case analysis, it is clear that TBBA has a strong history and culture. It is a trustworthy bank that enjoys a good repute among its customers. Though TBBA has a good holding on the retail banking tasks, it is new to commodity trading. Still, the bank has several opportunities in commodity trading especially when the economic crisis has considerably reduced the profit margins from the retail and investment banking side. Richard Cheung, the newly appointed CEO of TBBA is now faced with two questions whether it should keep its commodity trading business or sell it off. In addition to this, if the bank decides to stay with this line of business, whether it is a good idea to go for alliance or acquisition. Analysis and Recommendations with regards to Selling off Commodity Trading Business Selling o ff a part of business is worthy when the gains are higher in liquidating than keeping that line of business. Van Horne (2002) stated that selling off a part of business to another firm is a right decision when the present value received by the selling company is higher than the expected future returns by that business. Other reasons of divestment highlighted by Kozami (2002) are persistent negative cash flows, high competition, or lack of resources. In the case of TBBA, none of the above reasons exists that makes it justifiable to divest commodity trading business. Neither commodity trading business is giving negative outcomes, nor does the company lack resources for technological upgradation or to beat competition. This makes it irrational to sell off a line which is one of the most flourishing markets and has shown great potential in Asian market of TBBA. Divestment can be a quick fix for a newly appointed CEO because he is not emotionally attached to the unit to be divested; howe ver, for a CEO emotionally attached to a unit it is rather a difficult decision (Kozami 2002). In case of Richard, he is a part of the organization before being appointed as a CEO and he is the one who has given a unified identity to TBBA and commodity trading unit is very much a part of that identity. It is not that easy to sell it off rather it is more comfortable to invest in it especially when future expected returns are higher. Another thing that opposes the decision to divest is that the future plans of TBBA include returning to its roots. There is a great opportunity for expansion in UK because of the weak performance of rivals. TBBA is expert in areas where its rivals has failed to produce results; that is lending to small firms and commodity trading business. Entering these lines will give TBBA a visible success in UK market. Working on areas that can deliver true value to stakeholders can give a clear edge to TBBA in highly competitive and slow growing market of UK where i t will be difficult to mark a huge footprint otherwise. Though selling off a business unit may lead to regain lost strategic focus (Decker 2008) however it is not a good option when the business line to be sold off promises future gains (Van Horne 2002). Instead of selling off commodity business, it is a far better idea to make it work in UK market. TBBA can take advantage of its strong balance sheet to expand its commodity trading

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