Modern family: Addition

Bank purchase (2)

Party which came to negotiate the deal is actually manager of the Bank. It's actually a local bank in Georgia. Original owner of the Bank died and now his young wife and two children are left behind. This manager is an trusted employee of the original owner and came to negotiate the deal on family's behalf. Family  needed Money to survive and migrate downtown to live etc. Bank is under bad debts, broken capital chain etc. and death of original owner has lifted trust of depositers from the bank and they are lining to continuously withdraw money from account. Bank has little fund in hand and most of the deposits are demand deposits so when large number of consumers will withdraw money, Bank will fail.

Not only that, Bank tried to get loans from other banks and Fed as well but interest rates were quite high. Eg. Fed has interest rate of 10.35% while other local banks were offering 12%, 11.5% etc. obviously with less maturity period and lesser loaning amount.
On top of that, no one from family is able to shoulder responsibility so they made their mind to look for possible buyer or banks to merge with.

In their investigation and our hunt, we communicated and now are sitting on negotiation table to finalise the deal.

Deal completed smoothly and I took over the bank and named it "DWD financial services". It is now a retail bank but I will branch it out to have a commercial bank in a private sector bank. I will expand it to make it one of the biggest banks in USA and in the world.

(DWD stands for Dream of William Dunphy)

Almost 70% of the deposits in this bank are demand deposits, millions of USD are in short term loans which if not recovered and customers were allowed to withdraw money in full, Bankruptcy would have been declared immediately.

Stagflation has been in the economy since the very start of 1970s and despite increasing inflation, Fed had not lowered Money supply in the market & economy. Despite various reasons and constraints, when Economic growth is slowing down becoming sluggish and despite that inflation is still increasing at fast pace; you can't broke this vicious cycle and stimulate economic development if you don't limit and reduce money supply in the market.

Amount of money being more than market supply will only boast inflation to whole new levels.

Bank previously has total of 329 certificates of deposit, but only 78 long-term ones; of the remaining, most recent ones are three years later. There are a total of 1.2 million US dollars, and the rest are basically deposits that will be paid within one to two years, with a total of 6.7 million U.S. dollars. Among them, there are ten recent deposit certificates, which will expire next month, and the principal and interest need to be paid to the customer for a total of 962,000 U.S. dollars.

There is still a cash reserve of 12.8 million US dollars in the bank, which is 12.842 million US dollars to be precise. There are currently 133 loans with a total principal of 18.2 million, but ten of them have been basically determined to be bad debts involving a principal of 2.2 million U.S. dollars. Now if the demand deposits are opened for full redemption, 21 million U.S. dollars will have to be sent out, and bank doesn’t have enough money in their account now.

So, total of 31 million US dollars, 18.2 million in loans and 2.2 million in bad debts, then only 28.8 million is left. After removing the demand deposit of 21 million, only 7.8 million can be used to repay the future long-term deposit of 7.9 million.

From the optimized and idealized theory, it is all liabilities, but it is replaced by reality. Let alone the problem that the current cash reserves are not enough to cover all the current accounts, just talk about other necessary expenses eg. water and electricity insurance, salaries etc. during these times, It's completely like a dying struggle before being on the verge of bankruptcy.

Despite knowing that economy is in stagflation, why would you put out so much loans?? I don't believe that they didn't understand financial leverage, nor is it that I don't support the idea that banks should find ways to make money by lending. But it is clear that the economic environment is not good, and despite that you have not collected funds to prevent accidents. When the peers are not very willing to dismantle the funds, you use your own principal to release more than half of the loan.

Perhaps the original owner was of the opinion that this stagflation is a temporary phenomenon and he might not have anticipated 1973 oil crisis and certainly not 1979 oil shock and unprecedented move of Fed led by Paul volcker which will become death nail in the coffin of his and several other such banks. He perhaps believed that Ford government will revitalize the economy and Fed is constantly issuing money so even in worst scenario, he can borrow from Fed with lower interest rates.

Despite all these things, it is my good luck that I came across this chance and from here I will take this bank under my wings to protect and mature it then it will reap benefits for me.

Few other banks eg. Portnewt bank and Monza bank etc. are also in such tight situations and sooner or later they will also be in my pocket.

Their is another interesting fact I noticed and that is these banks have borrowed from each other in the past and this bank has provided banks like Portnewt and Monza bank, help in their tight fund situations but now conditions has been reversed they are eyeing this bank and making it difficult to survive. Eg. Portnewt bank asked for 12.5% interest for 2 million dollar loan while Monza asked for 11.75% interest for 2.5 million despite the fact that Fed's interest rate is at 10.35% but it's difficult and tedious to borrow from Fed.

Despite having adequate funds in hand, I'm not willing to channel the cash to tide over the difficulties facing DWD financial services. I'm more inclined to use other flashy actions to pass the difficulties. Instead of using my own funds, I will use other's fund to for manuevor and troubleshooting purposes.

Firstly, it will be announcement of New owner and New name of the Bank with other details regarding new owner's financial power and business experience & expanse to boost the confidence of old customers.

Secondly, overhauling of the old management and working culture to invigorate and transfuse New blood to increase efficiency and productivity.

Thirdly, borrowing large funds at slightly higher interest rates for longer duration to fill the pockets and use funds to advance my venture and when crisis will hit and Fed will increase interest rates, lend money to others at even higher interest rates but lower than Fed and other big banks to earn the difference as well as expand the name and activities of the "DWD financial services".

Days passed by and with the announcement of change of ownership and Bank name alongwith some titbits regarding new owner; customers were stabilized.

I alongwith my team travelled to Bank headquarters to initiate the meeting with management of the Bank. I chaired the meeting alongwith with my team.

Initially it's always been baffling for others to see such a young boy at the helm of business and such meetings. I'm used to it so it didn't bother me that much but I'm also planning to make some moves to become famous early and be titled as rare Genius in public and Mass media so that these initial difficulties can also be smoothened but for time being my focus is to streamline the operations of DWD financial services.