Derivatives At Banc One (1994)

© 1997
ISBN 0-538-85801-X

Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 18 pages in length and its case teaching package is 2 pages.

Abstract

Banc One Corporation, a bank holding company headquartered in Columbus, Ohio, has been one of the great success stories of US banking. With roots as a local Columbus bank, twenty-five years of acquisition-driven growth have produced a "super-regional" powerhouse operating, at the end of 1993, in 13 states, with assets of $79.9 billion, an earnings record the envy of the industry, and average annual stock appreciation since 1968 of 16.5%. Growth has been matched by performance, with consistently high returns on assets and equity and an ongoing record of technology-based innovation.

We use Banc One's experience with interest rate swaps to illustrate the management of interest rate risk at a commercial bank. The case also serves as a vehicle for examining the current state of commercial banking in the US, the use and reporting of derivative positions, and the role of information technology in banking management and strategy.

Study Questions

1. What forces have been driving consolidation in the banking industry?
2. Where does Banc One make money?
3. What is the natural interest sensitivity of Banc One's balance sheet?
4. Financial engineering: how might the interest sensitivity be eliminated?
5. Was Banc One hedging or speculating?