Case 3 Enterprise Bank

In this chapter, the third of four case studies is presented. This case presents a financial services group with operations in five distinct jurisdictions—a holding company based in an advanced economy, and subsidiaries in four emerging market economies, all exhibiting widely diverse stages of institutional development. In the least advanced jurisdiction, poor corporate governance in the subsidiary leads to risky lending practices. One early-stage counterparty comes to represent a significant portion of the portfolio. When this borrower experiences an accounting scandal and is forced into liquidation, the local subsidiary faces regulatory insolvency. The group shareholders must scramble, not only to recapitalize the local subsidiary and secure the agreement of lenders to the group, but also to convince the local authorities that the governance failures that contributed to the crisis have been resolved. This effort, eventually successful, takes place to the backdrop of local interests trying to secure control of the operation at privileged terms by using allies within the government.