Problem The loan approval board has currently reviewed the loan application of the Redhook Ale Brewery in connection to the proposed issuance of an expansion loan for the amount of $6. 5 million dollars. Redhook Ale has been a valued customer with no complaints but yet there are still some areas of concern in regards to this proposed application. U. S. Bank could possibly face losses on their investment in the end causing more liability. Currently the profit indices for the banking overall were weak in 1989. The larger banks were reporting weak earnings and commercial and industrial (C&I) loan growth was recently on the decline.
This problem is then weather or not this would be a good investment for U. S. Bank due to the under performing industry trends and will it this investment properly fit into the company’s portfolio. Another problem that may possibly arise, could be Redhook failing. The new Redhook ale may not do as well as projected and attract fewer sales leading to a default on their loan. But for the sake of this case we will assume that Redhook received the $5 million equity infusion. Analysis of Data Much of U. S. Bancorp concerns come from the poor perfomance of the banking industry especially within the C&I market.
After revealing that of the losses in commercial real-estate and domestic were on the mainly on the East Coast, gives positive light to Redhook Ale. The northwest area is thriving for business with high price ale sales expected to reach $145 million in that region alone. If Redhook Ale is optimistically able to capture that 50% market share in that area as well in lager market they would be able to bring in roughly $7. 25 million almost tripling what they bring in now in revenues. The potential is definitely there since they are the only ones in the local market.
Since they created a niche the board see no reason why they will not do extrodinarily well. Redhook Ale’s sales have been on the steadily rise over the past ten years putting them in a position of domination in the local market. They currently hold 50% of their areas ale industry market share. They want to expand into the lager industry which is excellent strategic move due to the fact that it allows them to create a niche market in the area. There are no local lager breweries in the area anymore this should definitely be displayed through sales profits. Application of Methodologies A customer for some years now, Redhook Ale has never let U. S. Bank down. They have proved to be excellent customers meeting all payment agreements on past investments. Rapid growth in sales and local market share give U. S. Bank reason to believe Redhook is running a successful and loyal operation. They present no immediate threat to why they should not receive funding.
Alternatives/Scenario Evaluation 1. Provide the $6. 5 million loan to Redhook Ale Brewery -Redhook could possibly default of their loan causing U. S. Bank to confiscate their collateral 2. U. S. Bank could reject Redhook Ale Brewery’s loan application -U. S. Bank may loose Redhook Ale as a future client. Redhook Ale may produce bad press about U. S. Bank causing harm to sales Recommendation The U. S. Bank loan approval board recommends that U. S. bank allocate the $6. 5 million dollar loan to Redhook. Redhook has been a valued customer of the bank for a couple years now never faulting on any payments. Due to the fact that they have missed past payments and by looking at the past financial performance of the company shows that they have capability to meet their projections. Redhook dominates the market locally and by expanding their products they should have nothing but success due to their niche marketing.
No other microbrewery in the area produces ale, giving Redhook a competitive advantage in the market. Our skepticism due to the banking industry’s trends was no longer an issue due to the location of Redhook Ale. The northwest region of the U. S. is booming for business especially in the Ale industry. We believe that Redhook will benefit due to their excellent location. Plan of Action The funding loan of the Redhook Ale Brewery will be issued and paid back to the U. S. Bank within a seven-year period otherwise Redhook ale will be taxed a premium.
Redhook Ale must also only expand Washington. Upon reaching proper financial benchmarks within the first two years then Redhook Ale Brewery can then expand its northern California operations. This will be the banks way to overlook their investment and reduce possible risk if deemed necessary. This will give the bank the leverage to cut their losses short in case of a default. By staying in tune with strict financial benchmarks we the loan approval board of U. S. Bank believe Redhook Ale should be able to meet their investment expectations and limit the U. S. Banks risk on investment.
