zeb case: Private Bank Anytown

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Problem Definition

Private Bank Anytown disposes total assets of approx. EUR 3 bn on December 31, 2014. The growth strategy of the institution determined at the end of 2010, however, has a higher impact on the cost side than on the income side.

Aggregated to the return on equity as defined central parameter of the bank, the negative result of EUR -640 k in 2014 resulted in a key figure of -0.3%. Thus, the bank is miles away from the target parameter of 20% ROE defined by the supervisory board. Since no improvement is in sight for 2014, the board of directors of Private Bank is asking you for help.


In addition to the annual reports of Private Bank which have already been prepared by your colleague, the research department of your institution could already compile first reference values of the private banking sector.

Short Solution (Expand)

Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

The following framework/structure provides an overview of the case:

I. Background

The interviewee should ask general questions about the company and its competitors.

Information that can be shared if inquired by the interviewee:


  • Private Bank Anytown has been concentrating on 2 products
    • loan product with a customer volume of EUR 3 bn
    • deposit product with a customer volume of EUR 2.8 bn.
  • Apart from these products, the bank has only the aforementioned equity in its balance sheet.
  • Further possible income and cost components must not be considered.


  • The average competitor disposes of total assets of EUR 3.5 bn and withholds an equity of EUR 240 m.
  • Significant income components make up the net interest income with EUR 91.8 m and the net commission income with EUR 63.8 m. The net interest income of the competitor is formed by the interest rate of loan products with an average of 3.75% with an interest rate of customer deposits of 1.22%.
  • Whereas personnel costs of EUR 63.4 m and material costs of EUR 43.2 m are on the cost side.

II. Analysis

First the calculation instruction for the return on equity is to be consulted in terms of a structured derivation. This can be calculated by setting the net income of the bank in proportion to the equity.

Return on equity (ROE)

An income / profit increase is possible if either the income is increased or the costs are reduced.

Share Diagram 2 with an overview of the current return on equity after the interviewee calculated it.

Following the predefined structure for income calculation, four levers are to be analyzed—two on the income side and two on the cost side.

  • Interest surplus
  • Commission income
  • Material costs
  • Personnel costs

Interest surplus

Commission income

Material costs

Personnel costs

Share Table 1 with an overview of der income development if inquired by the interviewee.


  • The provided key figures of Private Bank Anytown reveal that the ROE of almost 9% in 2012 plummeted to -0.3% in 2014 and thus is more than 20% away from the defined target value.
  • For an equity of EUR 200 m, a necessary income of EUR 40 m results with a pre-defined target ROE of 20%. However, the bank is clearly missing this goal in 2014. The income of the bank is only EUR -0.68 m in 2014, thus an income gap for achieving the target value of EUR 40.68 m would have to be filled.
  • It is shown that Private Bank—both in terms of commission income as well as personnel costs—is on a normal competitive level. No significant potentials can be assumed.
  • However, the interest income and material cost components show a different picture. Both levers for an income increase can be divided into an income potential in the net interest income of nearly 1% related to the total assets and a cost potential in material costs of 0.5%.

III. Actions

Here lies the key to close the income gap.

Material costs

There is no further information for the material costs available, thus only a further analysis of the structure of these costs can be proposed.
Possible material cost potentials are hidden, e.g. in increased IT, marketing or consulting costs. Also costs for rent or cleaning of buildings are relevant cost items and are to be revised accordingly.

Interest income

The description of the initial situation provides further data for the net interest income. The details about the customer volumes of the loan and deposit product allow for a lending rate of the bank of an average of 2.82%, whereas the bank earns 1.22% as interest payable.

Lending rate

Lending rate

Interest payable


The competitive comparison for these key figures shows that the deposit condition and the interest payable are market-usual, while the interest rate for the loan product significantly lags behind the lending rate of the competition. Thus, a review of the pricing policy of the loan product is recommended.

IV. Conclusion

As Diagram 1 indicates, an increase in case of achieving a normal competitive net interest income and material costs up to 21.4% ROE is possible, which would even exceed the target value of 20%.

  • However, an elevation of the lending rate cannot be realized on short notice, i.e. only possible cost reductions would lead to an income improvement in the near term.
  • An exact quantification requires, however, an appropriate optimized disaggregation in individual material cost components.

Difficult Questions

Which important functions can be fulfilled by a consultancy in this case? How could the consultancy’s task structure look like?

Possible answer:

The first important function that can be realized by a consulting company with a “view from the outside” has already been derived. Benchmark values from vast research work and project experience are provided for the consultants allowing for—as mentioned before—identifying “market-usual” income parameters for individual institutions and calculating potentials. If a credit institution decides to fill the income gap together with zeb, further tasks will arise.

Share Diagram 3 with an overview of the project setup (see below).

Project setup

More questions and risks to be added by you, interviewer!

At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).

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Case exhibits

Income development

Overview of ROE


Project setup