In early 1997 asked Harrington Bank, a small Indiana savings and loan (thrift), what should be his next step. Harrington was established in 1988 by the principles of Smith Breeden Associates, a money management and consulting firm specializing in the application of modern financial technology to purchase the pricing, hedging and risk management of mortgage-backed securities. The Smith Breeden Headmaster had established an arms-length contract with Harrington Harrington, where Smith Breeden prici advise on the … Read more »

In early 1997 asked Harrington Bank, a small Indiana savings and loan (thrift), what should be his next step. Harrington was established in 1988 by the principles of Smith Breeden Associates, a money management and consulting firm specializing in the application of modern financial technology to purchase the pricing, hedging and risk management of mortgage-backed securities. The Smith Breeden Headmaster had established an arms-length contract with Harrington when Harrington Smith Breeden advise on pricing, hedging, active management, and risk management assets and liabilities of Harrington. Since the acquisition, the bank had done very well. Assets had grown from $ 75 million in 1988 to over $ 520 million at the end of 1996. The net interest margin was more than tripled core operating profit had grown by over 400% and return on equity was significantly increased. Nevertheless, Harrington was not your average thrift in 1996. 80% of its assets consisted of mortgage-backed securities (vs. 30% for the median economy), and most of his debts were no deposits, but also other forms of wholesale funding.
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from
Alberto Moel,
Robert C. Merton
Source: Harvard Business School
15 pages.
Release Date: 14 February 1997. Prod #: 297088-PDF-ENG
Harrington Financial Group HBR case solution