Saturday, September 22, 2012

Author:M.Azim Ulfati

In this paper I have selected and researched two (2) tech stock companies, Kabul bank and Bank of America that attempted to make profits from rising consumer demand after the crash and I have analyzed how they attempted to make a profit after the crash and discussed some unethical practices. After that I have evaluated the change in consumer demand trends after the crash for each of the tech stock companies I researched and have provided examples with my evaluation and used graphics such as charts and lastly I have discussed at least two (2) strategies that multinational corporations (MNCs) can undertake in order to make profit by leveraging the growing consumer demand.

Select two (2) tech stock companies that attempted to make profits from rising consumer demand after the crash. Analyze how they attempted to make a profit after the crash and discuss any unethical practices.
Banks have a critical role to play in the economy of a country. These institutes are known for bringing money into circulation by supporting the micro to macro level businesses to grow through its various functions. Banks facilitate the government functions and help individuals securely deposit or invest their monies. (2011)

One of the Afghanistan’s stock companies that was attempting to make profits from consumer demand it involved in a major financial scandal in 2010, and lead to crash, when its Chairman Sherkhan Farnood and other insiders were spending the bank's $1 billion for their own personal lavish style living as well as lending money under the table to family, relatives and friends.

This company that went winning the hearts of its clients was the Kabul Bank. It was the greatest private bank of Afghanistan that had contemporary banking system equivalent to or even better than the banks in our neighboring and countries in the region. It was possible for the Kabul Bank to be successful in with the lowest level of security and it set its branches in unstable areas of Afghanistan.

One of the western papers published a report about the the financial losses of Kabul Bank and the bank was faced with a serious crisis. People started to withdraw all their money from their accounts and this lack of trend and distrust lead to a complete crash of Kabul Bank. Kabul Bank does not exits any more. Da Afghanistan Bank (DAB) – central bank of Afghanistan has renamed it to New Kabul and issue new license. Kabul Bank has been changed to New Kabul Bank that is functioning under government. The DAB handed over the license of New Kabul Bank to the Ministry of Finance. The New Kabul Bank will be operating with new structure but will use the systems of the Kabul Bank. (2011)

Concerns regarding the deletion of Kabul Bank and formation of New Kabul Bank existed, as it is believed that the matter has been fully politicized. And a major reason behind the fall of Kabul is conceived presence of people relating to political figures in its management. Family members of Afghanistan President Hamid Karzai and his Vice President were the influential shareholders of Kabul Bank.
The formation of New Kabul Bank somehow means regaining the trust of people and making this bank stand on its feet. Also, the issue of Kabul Bank has apparently been resolved. 
The fall of Kabul Bank has serious negative impacts on the credibility of other private banks. But at the same time it is a lesson for the government of Afghanistan. The government now needs to tighten its control and improve its oversight, monitoring and audit functions not only for the banks but also other institutions. (2011)
 Customers wait outside Kabul Bank, Kabul to empty their accounts as the bank collapsed, Sep 2010. Photograph: S. Sabawoon

New Kabul Bank planned to invest millions of US dollars in different sectors of economy in Afghanistan including trade and production sectors.
All logistic companies and firms, who have supply contracts with national and international government and private sectors, organizations, firms, companies and projects. Who need financing are encouraged to come and register themselves with Islamic Banking. Also here in all those companies, importers, stores, producers and factories who want to sale their goods and products are requested to register themselves in Islamic Banking Vendors ("New kabul bank," )

Shannon Stapleton/Reuters
Now let’s talk about the second tech stock company (Bank of America) that attempted to make profits from rising consumer demand after the crash and then let’s evaluate that how they attempted to make a profit after the crash and discuss some of their unethical practices.
Bank of America Corporation (Bank of America) is a bank holding company, and a financial holding company. Bank of America is a financial institution, serving individual consumers, small and middle market businesses, corporations and Governments with a range of banking, investing, asset management and other financial and risk management products and services. Through its banking and various nonbanking subsidiaries throughout the United States and in international markets, the Company provides a range of banking and nonbanking financial services and products through six business segments: Deposits, Card Services, Consumer Real Estate Services (CRES), Global Commercial Banking, Global Banking & Markets (GBAM) and Global Wealth & Investment Management (GWIM), with the remaining operations recorded in All Other. ("Business > companies," 2012)
Bank of America, once the nation’s largest bank by assets, has been steadily shrinking its balance sheet. It now ranks second to JPMorgan Chase, and continues to be more troubled than the nation’s other large banks. ("Business > companies," 2012)
Bank of America went from being a regional player to a national giant through an aggressive campaign of acquisitions — a pattern that has since come back to haunt it. In 1998, NationsBank, a North Carolina bank led by Kenneth D. Lewis, bought the much larger Bank of America and took its name. In 2003, it took over FleetBoston Financial for $48 billion, widening its branch base, and it snapped up MBNA two years later to create the largest American credit card business. ("Business > companies," 2012)
The bank made its two most consequential deals in 2008. In January, it announced a $4 billion takeover of Countrywide Financial, the troubled lender that became a symbol of the excesses of the subprime crisis. In September, in the midst of of the Wall Street meltdown that triggered the global financial crisis, Mr. Lewis paid $50 billion for Merrill Lynch, the venerable investment bank, which was teetering from its own bad mortgage bets. ("Business > companies," 2012)
Countrywide has produced more than $30 billion in losses, and the bank has paid both investors and the Justice Department more than $300 million each to settle lawsuits related to its mortgages.
Merrill has proved a profitable new division for the company, but has produced its own string of scandal and litigation. In December 2008, days before shareholders approved the deal, top Bank of American executives learned that Merrill’s losses were far greater than they had expected. But shareholders were not told about the looming losses, which would prompt a second taxpayer bailout of $20 billion in early 2009, on top of $20 billion in late 2008. After news of the losses emerged, the bank’s shares lost half their value in a matter of days. ("Business > companies," 2012)
In June 2012, a court filing in a shareholder lawsuit included sworn testimony from Mr. Lewis in which he concedes that before Bank of America stockholders voted to approve the deal, he had received loss estimates relating to the Merrill deal that were far greater than reflected in the figures that had appeared in the proxy documents filed with regulators. ("Business > companies," 2012)
Credit Rating Cut
Moody’s Investors Service in June 2012 slashed the credit ratings of 15 large financial firms, including Bank of America, in a move that could do lasting damage to their bottom lines and unsettle the markets. Bank of America is now rated only two notches above junk.
The downgrades were a serious blow for the banking industry, which was already dealing with the European sovereign debt crisis, a weak American economy and new regulations.
Banks are particularly sensitive to downgrades because they rely on the confidence of creditors and big customers.
Moody’s downgrades are part of a broad effort to make its analysis more rigorous. The financial crisis stained the reputation of credit rating agencies.
The threat of the downgrade had rippled through the markets for months. ("Business > companies," 2012)
2012 Earnings: First Quarter
Despite a drop in revenue and one-time accounting charges, in mid-April Bank of America reported a better-than-expected operating profit in the first quarter, as lower credit losses among consumers and strength on Wall Street offset continuing weakness in its mortgage business.
Still, its revenue decline stands in contrast to the results at other banks like JPMorgan Chase and Wells Fargo, which reported increases in revenue and profit.
The company’s global markets unit swung to a profit of $798 million, compared with a loss of $768 million in the fourth quarter. Revenue at the division, which includes Bank of America Merrill Lynch, more than doubled from the fourth quarter but was down from the first quarter a year ago. ("Business > companies," 2012)
One bright spot both for the bank and the broader economy were signs that consumers are doing better. At Bank of America, provisions for credit losses fell to $2.4 billion from $3.8 billion in the first quarter of 2011, as fewer commercial loans soured and consumers kept current on everything from auto loans to credit cards. ("Business > companies," 2012)

Evaluate the change in consumer demand trends after the crash for each of the tech stock companies you researched. Provide examples with your evaluation and use graphics such as charts, when applicable.
Since the name of Kabul bank changed to the New Kabul Bank and the government took over the control and as well IMF agreement has risen the consumer demand after the crash which happened. In spite of a distrust created between the banks and consumers, the bank is gaining its trust and people gradually trend to trust this bank and do business. Here are some examples that why and how the company starts to gain the trust of consumer demand trends once again after the crash.
KABUL — Afghanistan's parliament approved a $51m payment to the central bank recently this year as part of a planned compensation package over its multi-million-dollar bailout of the scandal-hit Kabul Bank.
The payment is part of a package of government measures agreed with the International Monetary Fund (IMF) to secure a new loan for Afghanistan. The IMF stalled renewal of its assistance program in the wake of the scandal, which highlighted endemic corruption among Kabul's elite.
It comes as planned NATO troop withdrawals and waning donor support are expected to challenge economic growth in the heavily aid-dependent nation.
The central bank bailed out Kabul Bank, the war-torn country's biggest commercial lender, to the tune of $825 million last year, after it collapsed in a scandal, which saw hundreds of millions of dollars stolen.
"The $51m approved by the parliament is from the national budget of Afghanistan, and it is transferred... to compensate the central bank asset," finance minister Omar Zakhilwal told a press conference.
The finance ministry in a statement said that the payment had been agreed by the lower house of parliament, and was passed with two dissenting votes cast.
"This will be strong encouragement to the teams working hard to restructure the new bank, recover the assets and investigate any criminal activity," said Zakhilwal in a statement.
Kabul Bank was put into receivership following the scandal and a new bank set up, but only $70 million of fraudulent loans it granted have so far been recovered, with criminal investigations ongoing.
The ministry's statement said that work would now begin on wide-ranging financial sector reform, to include improved banking regulation, reform and privatization of New Kabul Bank, and the recovery of misappropriated assets.
Afghanistan has been without an IMF programme since the Kabul Bank failure in September 2010. A new three-year extended credit facility was held back pending a cleanup of the banking system.
But later on the IMF announced that it is moving ahead on a new $129 million loan in the wake of the government's reform promises, with a new programme expected to be submitted to the IMF executive board for approval in November.

New Kabul Bank started its banking activities by having received its license as a commercial bank as a result of high authorities’ decisions adhering to all prevailing banking rules and regulations under banking system of the country.

Ministry of Finance is the only shareholder of New Kabul Bank and it (NKB) has four kinds of activity license:
1. Banking license
2. AISA License
3. 3131 Network License
4 . 2266 Services License

Our ruling elite considers national coffers as its own treasury and whenever it want to misuse wealth of the nation, no one is there to restrain its hands. The bad news is that Afghanistan’s largest private sector bank is being up for auction and sale. It is when $ 34.9 million of its loan mark-ups have been written off. It speaks volumes of the financial scams in the ranks of our ruling and thinking class. (Joe, 2011)

The New Kabul Bank, which is the successor of the Kabul Bank, has now to be auctioned. This is the bank, which the government took over after it had come to the verge of liquidation and collapse. The government took it over two years back as a result of issuing unauthorized loans. Within the span of two years, it is yet another jolt and blow, the bank received. The bank’s outstanding loans work out at $937.7 million. (Joe, 2011)

The Central Bank Governor, Noorullah Delawari while addressing a press conference informed media men that bids for the New Kabul Bank’s bidding would be called in this year but it would be in line with a Cabinet decision. Khan Afzal Hadwal, Da Afghanistan Bank’s Deputy Chief, has come up with an odd notion. He said that waiving off interest on loans has been a common practice in other countries of the world, which is why he linked the waiver to the borrowers’ inability to pay the mark-ups. (Joe, 2011)
Therefore, nearly $410 million credit remained unaccounted for.
The matter is so stark that a high level meeting, chaired by the President Hamid Karzai, decided earlier this month to refer the Kabul Bank loan case to court. The blunder that caused a serious blow to the bank is that nearly $850 million were taken from the bank in off-book loans in December. Off-book here means that were not recorded in the official financial records. Who authorized the bank officials to give such a huge amount in off-book? It comes under criminal negligence or blunder.
Moreover see the borrowers. Since they are not men in the streets rather they are too influential because they belong to ruling class of the society that’s why it is not easy to belch out the devoured amount. Among the big-time borrowers are Mehmood Karzai, the brother of Hamid Karzai, Sher Khan Farnood, Mohammad Hussain Fahim, the First Vice President, Ghulam Daud Nasib, Tahir Zahir, Shukrullah Shakran, Sufi Nisar, Haji Khalil, the owner of Istiqlal Township, and Kabul Bank Director Khalilullah Ferozi. Now that the borrowers are from ruling elite, then where does stand the claim of Khan Afzal Hadwal? For, he has linked the waiver to the borrowers’ inability to pay the mark-ups. (Joe, 2011)
The entire affair, from the beginning to the end, shows failure of ruling elite to run the state-affairs smoothly and in a poor-friendly manner. Corruption is so widespread that even the President of Afghanistan himself has confessed it as a major challenge before the government to baffle with. Instead of pondering over ways and means how to take the nation out of the whirl of challenges, our elite’s appetite for power and money has gone wild. Their tomfooleries have reached the bank to this extent and if a tight rein is not kept on the unbridled avarice of the ruling elite the day is not so far that the entire country would be up for sale. (Dexter , 2011)

Evaluate the change in consumer demand trends after the crash for each of the tech stock companies you researched. Provide examples with your evaluation and use graphics such as charts, when applicable.
When bank of America’s business was almost to crash, lots of changes happened in the consumer demand trends and they are like the following.
Job Cuts and Big Overhaul
The billionaire Warren E. Buffett invested $5 billion in the company in August 2011 by buying preferred shares. That deal was widely seen as a crucial endorsement of Brian Moynihan, who had succeeded Mr. Lewis, amid growing doubts among investors.
On Sept. 12, 2011, Bank of America said that it planned to cut 30,000 jobs, or about 10 percent of its work force.
The bank said the cuts would come over the next few years.
Before the announcement Mr. Moynihan had discussed plans for an overhaul that would produce $5 billion in cost savings. But he did not make any reference to job cuts. He said the savings would come primarily from merging legacy data centers, deposit systems and other assets the bank had acquired through acquisitions. ("Bank of america," )
Debit Card Debacle
In November 2011, Bank of America abandoned its plan to charge its customers a $5 fee to use their debit cards, just a month after announcing the new fee. ("Bank of america," )
The reversal followed a huge backlash from customers, one of whom collected more than 200,000 signatures urging the bank to rethink its plan. ("Bank of america," )
The bank listened, but only after other large banks had indicated that they would not impose similar fees. Wells Fargo, JPMorgan Chase, SunTrust and Regions Financial have all pulled back on their plans.
In October, a new rule went into effect that limits the fees banks can levy on merchants every time a consumer uses a debit card to make a purchase, a change that could cost banks $6 billion in 2012. 
But Bank of America took the brunt of the criticism, which came from all corners, including Capitol Hill and the White House. Days after the bank announced that it would charge the fee, President Obama said customers should not be “mistreated” in pursuit of profit, while Vice President Joseph R. Biden Jr. called the move “incredibly tone deaf.” ("Bank of america," )
Settlements on Countrywide, Merrill Lynch
In December 2011, officials at the Justice Department announced that the bank had agreed to pay $335 million to settle allegations that Countrywide had discriminated against black and Hispanic borrowers during the housing boom. It was the largest residential fair-lending settlement in history. ("Bank of america," )
A department investigation concluded that Countrywide had charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk. It also steered more than 10,000 minority borrowers into costly subprime mortgages when white borrowers with similar credit profiles received prime loans, the department said. ("Bank of america," )
Earlier in the month, the bank agreed to pay $315 million to settle claims by investors that they were misled about mortgage-backed investments sold by its Merrill Lynch unit.
Merrill Lynch Lawsuit Challenged
In April 2012, lawyers leading a class-action lawsuit in federal court in Manhattan against the directors of Bank of America over its purchase of Merrill Lynch agreed to settle the matter for $20 million even though damages in the case could reach $5 billion, according to plaintiffs in a parallel suit against the bank’s board in Delaware. ("Bank of america," )
Calling the settlement grossly inadequate and the result of collusion, the lawyers in the Delaware case have asked the judge overseeing the New York matter to order the parties agreeing to the deal to justify its terms.
If the Manhattan court approves the settlement, all damage claims made in the Delaware suit would be extinguished. That matter is scheduled to go to trial in October. Lawyers representing two public employee pension funds that had sued the directors of Bank of America for breach of fiduciary duty struck the settlement privately on April 12. ("Bank of america," )
At issue in both the federal and state suits is whether Bank of America’s board breached its duty to shareholders in approving the 2008 acquisition of Merrill Lynch for $50 billion and whether it misled investors about the brokerage firm’s weakening financial condition leading up to the purchase. ("Bank of america," )
Struck during the depths of the financial crisis by Kenneth D. Lewis, then Bank of America’s chief executive, the Merrill deal generated billions of dollars in losses at the bank. Those losses led to Bank of America’s second request for bailout money under the government’s Troubled Asset Relief Program.
According to the lawyers in the Delaware case, the $20 million deal is inadequate in several ways. First, the amount does not come close to the $150 million fine paid by the bank in 2010 to settle a Securities and Exchange Commission suit over the Merrill deal. Second, it would not require the directors to dig into their own pockets. The bank’s insurance policies extend well beyond the $20 million cost, the lawyers said, although the exact coverage was redacted in the filing. In addition, the court filing contended, the settlement deal is the result of collusion between the lawyers for the bank’s directors and those representing the pension funds. ("Bank of america," )
In June, the plaintiffs in the Manhattan lawsuit filed documents that included several damaging disclosures by Mr. Lewis and other bank officials.
The suit, filed on behalf of Bank of America shareholders, asserts that the bank’s executives misled them by not disclosing Merrill’s mounting mortgage losses in proxy documents recommending approval of the deal. ("Bank of america," )
For example, the proxy statement estimated that the purchase of Merrill Lynch would reduce earnings by only 3 percent in 2009, would not hurt the bank’s profits in 2010 and might actually add a bit to them.
Mr. Lewis echoed this view at the meeting where shareholders voted on the deal. When asked whether the transaction would dilute Bank of America’s earnings in coming years or add to its income, he referred the questioner to the proxy statement. ("Bank of america," )
But in sworn testimony taken in the case, Mr. Lewis testified that by the time shareholders voted, the merger’s effect on Bank of America’s profit outlook had changed. According to the court filing, Mr. Lewis confirmed that the bank “expected the merger to be more than 13 percent dilutive in 2009 and 2.8 percent dilutive in 2010.” ("Bank of america," )
Asked by Steven B. Singer, a lawyer at Bernstein Litowitz Berger & Grossmann who represents the plaintiffs, whether the figures shareholders had received in the proxy statement were no longer accurate on the date of the merger vote, Mr. Lewis said: “They were not those numbers, no.” ("Bank of america," )

In response to consumer demand for a card that offers the convenience of credit with simplified rates and terms, Bank of America is introducing the BankAmericard® Basic™ Visa® card. The new card features one basic rate for all types of transactions, including balance transfers and cash advances. That rate, which is tied to the U.S. Prime Rate, will not change over the life of the account.
"Today, consumers are telling us more than ever that they need products that offer simple and straightforward solutions," said Bank of America Global Card Services President Ric Struthers. "For those consumers who just want the basics, our goal is to offer products with features that are predictable, easy to understand and help them manage their finances responsibly."
Key features of the BankAmericard Basic Visa card include:
The interest rate is the same for all transactions, including purchases and cash advances, making it easy for customers to keep track of their interest rate at any given time.
One interest rate -- U.S. Prime plus a margin of 14 percent -- that never changes for the life of the account. Rate increases and decreases will only occur if the Prime Rate changes.
No over-the-limit fee.
Easy- to-understand, single-page disclosure explains terms and conditions.
One flat fee of $39 for late payments. ("Bank of america," )
The new card will be available online at in October.
The Basic card is one of four new cards in a simplified suite of cards offered under the BankAmericard brand. Other cards in the suite include:
BankAmericard Power Rewards Visa, a robust choice of rewards options
BankAmericard Cash Rewards Visa for customers looking exclusively for cash back; and the
BankAmericard Visa, which includes an introductory promotional rate.
All cards in the suite feature Total Security Protection®, Bank of America's award-winning security and fraud protection services and access to the bank's free Online Banking service, which gives customers the ability to receive e-statements, view current account activity and receive e-mail alerts when a payment is due.
In addition, all four cards offer customers the ability to earn up to 20 percent cash back on purchases through the Add It Up™ program -- a secure online shopping Web site that provides Bank of America customers who have a credit card or check card relationship with access to more than 270 online retailers.
"Our intention is to offer customers the product that best meets their individual needs and help them get the most out of their relationship with us," said Struthers. "We recently introduced our clarity commitment -- a one-page summary disclosure -- to our mortgage customers. The Basic card is another step in responding to consumers who are looking for greater simplicity in their financial products." ("Get more cash," )

Discuss at least two (2) strategies that multinational corporations (MNCs) can undertake in order to make profit by leveraging the growing consumer demand.
There are many different strategies that multinational corporations can undertake in order to make profit by leveraging consumer demand and those business strategies can be global profit maximization, some are home country oriented, others are host country oriented, successful firms world oriented but they must be adapt to local market.
According to Franklin Root (1994), an MNC is a parent company that
(i) engages in foreign production through its affiliates located in several countries, (ii) exercises direct control over the policies of its affiliates, and (iii) implements business strategies in production, marketing, finance and staffing that transcend national boundaries. ("Multinational corporations," )
In other words, MNCs exhibit no loyalty to the country in which they are incorporated. ("Multinational corporations," )
Taking a more practical orientation than other researchers within regional studies provide five different tangible types of regional strategies that incorporate and balance both global integration and local responsiveness as well upstream and downstream activities, thus facilitating the dimensions that were identified in the previous section. Expanding the strategic importance of regional strategies as a way of bridging global integration The strategies identified are (1) home base strategy (2) The portfolio strategy (3) The hub strategy (4) Mandate strategy (5) The platform strategy. (Oscar , 2010)
We discuss about two of the five strategies in this paper within Bank of America.
The home base strategy
The strategy of the home base strategy resembles very much a normal export or service strategy and it is difficult to tell the difference as the main point of is that the company develop and produce in their home country and export it to suitable markets. Companies usually start by serving the home-, and near markets from their home base. I think this would explain Bank of America initial international strategy of deriving most of their international services. Bank of America spend decades using this strategy, which exemplifies the long-term reliance on the home base strategy. Some companies even return to a home-base strategy as it can reduce, time-to market for products, services, reduce costs associated to services, to create a nimble organization. (Oscar , 2010)
The portfolio strategy
By acquiring or setting up organizations outside the home region that reports directly to the home base companies engage in the portfolio strategy. This is usually the first type of strategy that is used by companies that seek to establish a market outside their home base. I would illustrate a successful portfolio strategy with Bank of America services and manufacturing set-up in the US. Arguably this investment in manufacturing overseas may be successful in the Europe in the future. If implemented properly the portfolio strategy has the potential of providing the companies with faster growth in non-home regions, home positions that generate large amount of cash and an opportunity to average out economic shocks and cycles across region. (Oscar , 2010) 


At the end I would like to say that banks plays a crucial and critical role in the economy of a country or people. Banks are known for brining money in to circulation by boosting micro and macro businesses in order to grow through its many different performances. Banks facilitate the government functions and help individuals securely deposit or invest their monies. The companies in which I chose and have discussed in this paper was about one bank in Afghanistan and one bank in USA that attempted to make profits from rising consumer demands after the crash. The fall of Banks have serious negative impacts on the credibility of other private banks. But at the same time it is a lesson for CEOs of the companies to well manage the financial system of the banks and feel very responsible, and responsive to the people of nations and either establish a good management system with great banking plans and strategies in all affairs of the company in order to enhance the consumer demands and always attempt to make profit.


(n.d.). New kabul bank. New Kabul bank launch its Islamic banking investments, Retrieved from
(2012). Business > companies > bank of america corporation. Bank of America Corporation, Retrieved from
(n.d.). Bank of america. Bnak of America Goes Basic, Retrieved from
(n.d.). Get more cash back for the things you buy most. Bank of America, Retrieved from
(n.d.). Multinational corporations. Ownership criterion, Retrieved from
Oscar , F. (2010). Multinational corporations & regional strategy.
Dexter , F. (2011). The afghan bank heist. Retrieved from

Joe, B. (2011). Theguardian. The financial scandal that broke Afghanistan's Kabul Bank, Retrieved from

No comments:

Post a Comment