The vunerability assessment

Analyze the data for your client company’s industry and answer the following questions.

  1. How much have sales in the industry declined in the recession? What’s the worst that has happened in the past?

Sales have declined consistently throughout each major recession, this was exaggerated even more during teh 2020 recession. The past recession was the worst for the banking industry having a drop from 0.9% to -8.5% by far the worst drop in recorded history.

  1. Does the industry go into recession before, at the same time, or after the national economy goes into recession? If earlier or later, how many months of difference is there?

Since the banking industries profits are heavily aligned with their consumers making money. When the consumers stop making money during a recession, the banks are soon to follow. This leads to banking profits being predominantly reactive to overall market. This means that in most instances banking follows GDP, except for when the recession is caused by the banks such as in 2008.

  1. Does the industry recover from recession before, at the same time, or after the national economy? Again, what’s the difference in months?

Because of the banking industry being so reactive to the market the banking industry will need to wait for their consumers to begin to making money again before they are able to profit off them. This means that the banking industry will recover after the rest of the market.

  1. How long does the industry typically take to recover from a recession?

During the 2008 recession, the banks took about two years to recover, in 2020 this only took about a year.

Grappone

Bank of New Hampshire

Comptus

Building flexibility into the business

Read the client’s response to the questionnaire. How can your client build flexibility into the business? Refer back to the textbook, if necessary.

Bank of New Hampshire does a lot of good things such as running stress tests, and looking to sell less profitable loans. Some additional steps that can be taken to increase flexibility are diversifying their assets even further, as well as, focusing on gaining long term loans at a fixed rate that will allow for additional garrenteed cash flow through a economic downtern.

Graponne

Question Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years.

How does your company plan for a downturn?

 Our liquidity is a major focus when we are preparing for a downturn as well as our inventory levels.  Cash is king in terms of getting through a downturn. You also need great relationships with your lenders – you hope they will stick with you when times get tough. 

Bank of New Hampshire

Question Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years.

How does your company plan for a downturn?

 The bank builds up loss reserves, conducts expense reviews, tries to maximize yield on assets, looks to sell less profitable assets, e.g. low yielding loans. The bank also conducts various annual stress tests and scenario analyses to identify potential problems that could arise during an adverse economic event. Corrective action is taken to mitigate these risks if the exposure is outside of acceptable ranges.

Comptus

Question Response from the company

Recessions raise the risk of bankruptcy. Even less severe downturns can limit the company's growth prospects for several years.

How does your company plan for a downturn?

 Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production.