Foundations of Financial Markets and Institutions - Assignment Example

A Comparative Financial Trend Analysis of: of Financial (A) Vis-à-vis of Financial (B) Prepared for: Marcos A. Kerbel Participating Adjunct Professor Department of Finance College of Business Florida International University In partial fulfillment of the requirements of Course: FIN 4303 Financial Markets and Institutions Term: Spring, 2014 By: Your Full Name (as it appears in the FIU Course Roster) Panther Student Number Telephone No. E-Mail Address Date of completion (The actual day when you completed paper) GENERAL BANK INFORMATION Name of Financial Institution BBVA COMPASS BANK SANTANDER BANK, N. A. Principal Address, City, State and Zip Code of Head Office 2114 2nd Ave N, Birmingham, AL 35203 75 State Street, Boston, MA 02109 United States Telephone and Fax Numbers (205) 297-5935 617 757 5770 Website Address (Hyperlink) http://www.bbvacompass.com/ http://www.santanderbank.com/ Date Founded 1964 1984 Primary Regulator (State, OCC, SEC) and FDIC Certificate Number, if bank FDIC Certificate Number: 19048 FDIC Certificate Number: 29950 Total Assets as of: Dec. 31, 2013 Dec. 31, 2012 $71,737,435,000 $69,076,722,000 $74,264,382,000 $83,081,838,000 Total Deposits: Dec. 31, 2013 Dec. 31, 2012 $54,591,332,000 $51,808,481,000 $49,628,091,000 $50,934,216,000 Total Liabilities: Dec. 31, 2013 Dec. 31, 2012 $60,453,964,000 $58,141,464,000 $61,475,049,000 $70,232,470,000 Net Income as of: Dec. 31, 2013 Dec. 31, 2012 $432,035,000 $494,691,000 $427,654,000 $438,067,000 Total Equity as of: Dec. 31, 2013 Dec. 31, 2012 $11,283,471,000 $10,935,258,000 $12,789,333,000 $12,849,368,000 Peer group Number & Description: Number of Banks in Peer Group Names of Directors and Principal Officers: Chairman of Board CEO President COO CFO CIO Emilio Botin Mr. Roman Suarez Blanco Mr. Juan Carlos Alvarez Soto Number of Branches: 687 Number of Employees 11,647 8,250 Mission Statement Each Company’s Strategy Services and Products Offered Interest Rates paid on deposits (range) Service Charges Loan Rates Sources from (Bloomberg Businessweek) , (Santander) and (BBVA) FINANCIAL TREND COMPARISON Data in thousands of dollars BBVA COMPASS BANK SANTANDER BANK, N. A. Dec 31 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 ASSETS Cash & Due from Banks 3,478,891 6,132,858 3,066,366 3,129,068 1,483,694 4,246,793 2,240,428 2,674,572 1,717,131 2,310,258 Investments: Federal Funds Sold 24,955 15,935 4,805 11,130 12,470 0 0 0 0 22,242 Bond Portfolio 9,310,844 8,998,544 8,771,067 8,055,061 7,599,438 11,606,858 18,644,624 15,591,926 13,075,784 13,190,477 Loans Real Estate 27,263,233 25,592,575 25,829,372 26,584,783 28,835,169 33,458,205 35,435,314 35,998,640 35,805,539 34,483,375 Commercial 14,959,883 13,021,390 11,179,049 9,233,285 9,004,001 13,005,301 12,491,995 11,819,612 10,257,014 10,785,374 Consumer 3,286,479 2,745,410 2,474,944 2,556,625 3,497,419 1,907,013 2,434,580 3,306,360 2,247,794 3,777,964 Agricultural 21,263 15,551 29,877 51,834 50,423 2,387 1,990 12,601 13,630 1,799 Total Loans 45,530,858 41,374,926 39,513,242 38,426,527 41,387,012 48,372,906 50,363,879 51,137,213 48,323,977 49,048,512 Less: Allowance for loan losses (700,719) (802,853) (1,051,796) (1,109,017) (1,268,046) (834,337) (1,013,469) (1,083,492) (944,620) (963,758) Net loans 44,830,139 40,572,073 38,461,446 37,317,510 40,118,966 47,538,569 49,350,410 50,053,721 47,379,357 48,084,754 Fixed assets (Premises & Equipment) 1,065,123 1,140,731 1,308,557 1,193,326 1,046,278 399,290 329,779 354,420 554,292 460,330 TOTAL ASSETS 58,709,952 56,860,141 51,612,241 49,706,095 50,260,846 63,791,510 70,565,241 68,674,639 62,726,564 64,068,061 Data in thousands of dollars BBVA COMPASS BANK SANTANDER BANK, N. A. Dec 31 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 INCOME Interest Income 2,332,578 2,499,269 2,615,641 2,738,106 2,492,805 2,303,281 2,557,590 Investment Income 0 0 0 0 0 0 0 Non-Interest Income 697,192 795,009 751,597 785,017 911,894 633,655 606,769 TOTAL INCOME 3,029,770 3,294,278 3,367,238 3,523,123 3,404,699 2,936,936 3,164,359 EXPENSES Interest Expense 277,151 257,569 277,044 366,209 515,388 623,016 713,204 Salaries & Benefits 913,809 972,128 963,129 854,216 849,706 694,732 653,699 Provisions for Loan Loses 107,546 29,471 428,633 825,049 1,686,493 36,850 392,800 Other Expenses 844,192 1,000,568 1,006,045 890,098 560,469 688,439 674,128 Total Expenses 2,142,698 2,259,736 2,674,851 2,935,572 3,612,056 2,043,037 2,433,831 Taxes 173,713 222,090 99,795 70,076 (215,681) 110,350 72,592 NET INCOME 713,359 812,452 592,592 517,475 8,324 783,549 657,936 Data in thousands of dollars All of the above tables’ data have been retrieved from (Federal Financial Institutions Examination council) and (Federal Deposit Insurance Corporation) COMPARATIVE FINANCIAL ANALYSIS OF EACH BANK TO THE OTHER AND TO THEIR RESPECTIVE PEER GROUP Data in thousands of dollars Calculations for the table above has been referred from (Howells and Bain) and (Fabozzi, Modigliani and Jones ). BBVA COMPASS BANK SANTANDER BANK, N. A. PEER GROUP Dec 31 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 Return on assets 0.0122 0.0143 0.0115 0.0104 0.00017 0.0123 0.0093 Return on equity 0.0629 0.0747 0.0571 0.0428 0.00067 0.0601 0.0514 Amount of loan charge-offs 700,719 802,853 1,051,796 1,109,017 1,268,046 834,337 1,013,469 1,083,492 944,620 963,758 Percentage of loan charge-offs to total loans 1.54% 1.94% 2.66% 2.89% 3.06% 1.72% 2.01% 2.12% 1.95% 1.96% Assets per employee 5,622.48 5,119.77 4,375.40 4,191.07 4,230 7,345.87 8,385.65 8,486.73 8,057.36 7,742.36 Number of employees 10,442 11,106 11,796 11,860 11,882 8,684 8,415 8,092 7,785 8,275 Average salary per employee 87.512 87.532 81.649 72.025 71.512 80.001 77.683 From the graph above, we observe that the trend for Compass Bank has been upwards i.e. return on assets has been increasing for the four years up to 2012. However, in the year 2013 the return on assets decreased up to almost the same level as that of 2011. Similarly, Santander bank has also been experiencing an upward trend on the return on assets. Therefore, this indicates that the two banks are improving in operation since the assets invested in keep generating significant results in terms of return. A clear look at the graph indicates that the returns on equity also follows the same trend as that of the returns in assets. Compass Bank has experienced a growing return on equity up to the year 2012 where it falls down. Comparing the five years’ performance, we see that the year 2012 was the best performing year since the returns on equity is at the highest level. Similarly, Santander Bank also has a growing trend for the return on equity. Therefore, the banks are worth the going concern for business simply because they are performing well. REGULATORY ENFORCEMENT ACTIONS Banks is defined to include; i. national banks ii. Federally chartered savings associations and their subsidiaries iii. Federal branches and agency offices regulated by the OCC) The enforcement actions types are: 1. Cease & Desist Orders (C&D): “All the Banking organizations that are subject to cease and desist orders are required to take actions or follow prohibitions in the orders. 12 U.S.C. § 1818(b)”, (Topics: Office of the Controller of the Currency). 2. Civil Money Penalty Orders (BCMP): “All the Banking organizations subject to civil money penalties must pay fines. 12 U.S.C. § 1818(i)(2)”, (Topics: Office of the Controller of the Currency). 3. Formal Agreements (FA): “All the Banking organizations that are subject to formal agreements agree to take actions or follow proscriptions in the written agreement. 12 U.S.C. § 1818(b)”, (Topics: Office of the Controller of the Currency). 4. Notices Filed (NFB): “ All the Banking organizations against whom an "OCC Complaint" (in the form of a Notice of Charges and/or Notice of Civil Money Penalty Assessment) is filed have an opportunity to litigate the matter before an Administrative Law Judge. 12 USC § 1818(b) (Notice of Charges) and 12 USC 1818(i) (Notice of Civil Money Penalty Assessment)”, (Topics: Office of the Controller of the Currency). 5. Prompt Corrective Action Directives (PCAD): “All the banking organizations that are subject to prompt corrective action directives are required to take actions or to follow proscriptions that are required or imposed by the OCC, under section 38 of the FDI Act. 12 U.S.C. §1831o”, (Topics: Office of the Controller of the Currency). 6. Safety & Soundness Orders (SASO): All the banking organizations that are subject to safety and soundness orders are required to take actions or to follow proscriptions that are imposed by the OCC under section 39 of the FDI Act. 12 U.S.C. §1831p-1”, (Topics: Office of the Controller of the Currency). 7. Securities Enforcement Actions (SEB): “All the banking organizations that are engaged in securities activities, such as municipal securities dealers, government securities dealers, or transfer agents, can be subject to various OCC sanctions, including censures, suspensions, bars and/or restitution, pursuant to the federal securities laws”, (Topics: Office of the Controller of the Currency). The enforcement actions also fall into two main categories which are, formal enforcement actions and informal enforcement actions. Informal enforcement actions may include memoranda of understanding, commitment letters, approved safety and soundness plans submitted pursuant to the part 30 and part 170 safety and soundness process. This could be done to avoid a further decline in the condition of a bank. The formal actions are authorized by the statute, are more severe and are also disclosed to the public i.e. they are not confidential. These may include; “orders and formal written agreements within the meaning of 12 USC 1818(b), Prompt Corrective Action (PCA) directives under 12 USC 1831o, safety and soundness orders under 12 USC 1831p-1, and capital directives under 12 USC 3907”, (Topics: Office of the Controller of the Currency). COMPARATIVE SWOT ANALYSIS SWOT ANALYSIS BBVA COMPASS BANK SANTANDER BANK, N. A. Strengths 1. Brand name recognition 2. Recurrent earnings 1. Brand name recognition 2. Weaknesses 1. Negative retained earnings 1. Negative retained earnings Opportunities 1. Mobile banking 1. Mobile banking Threats 1. Legal regulations 2. Market expansion of other similar banks 1. Legal regulations 2. Market expansion of other similar banks Both banks operate across the continent, i.e. in Europe and the United States of America. Thus, their brand name is recognizable widely. This is a strength to the bank since it shall enjoy more publicity and exposure to the market than other banks. Recurrent earnings show the resilience of a bank to grow faster and survive the market shocks. A bank that makes profits year-in year-out is able to sustain its gradual growth. Investors would want to invest in a company that is making profits rather than a company which is experiencing a decline stage. Both banks are recording negative retained earnings. This means that the banks are making losses instead of generating profits. Investors will be very reluctant to invest in the bank since there shall be very minimal dividends paid, if not none, received from the bank. The growth of the bank may also be slowed down due to these losses. The legal regulations that control the operation of a bank pose a threat since this may mean an increase in the operating costs of the bank. Preparation of all the legal requirements may mean using funds to prepare the requirements. E.g. a bank is required to prepare audited reports at the end of each period and present it to the shareholders or public. Auditors are required to perform this requirement and it costs funds to obtain the services of an auditor. The market expansion of similar banks poses a threat to the bank since this shall mean sharing the market or even losing some of its customers to the newly ventured bank in the region. Also, market expansion means that the bank is growing bigger. This may translate to ability for aggressive advertisement and promotions which the other bank may be unable to cope up with the increasing competition. CONCLUSION AND DECISIONS DECISIONS I would invest in the two companies since the return on equity is showing an upward trend which may mean that my returns will be growing as time goes by in the near foreseeable future. The FDIC insurance coverage is not irrelevant since the $250,000.00 is not the ultimate amount of figure offered. The company can offer more coverage depending on the factors. BIBLIOGRAPHY BBVA. n.d. Website. 8 April 2014. Bloomberg Businessweek. n.d. Website. 8 April 2014. Fabozzi, Frank J, Franco G Modigliani and Frank Joseph Jones . Foundations of Financial Markets and Institutions. Prentice Hall, 2010. Book. Federal Deposit Insurance Corporation. n.d. Document. 8 April 2014. Federal Financial Institutions Examination council. n.d. Website. 8 April 2014. Howells, Peter and Keith Bain. Financial Markets and Institutions. Prentice Hall, 2007. Book. Santander. n.d. Website. 8 April 2014. Topics: Office of the Controller of the Currency. n.d. Web page. 10 April 2014. "Topics: Office of the Controller of the Currency." 9 September 2011. Office of the Controller of the Currency. Document. 10 April 2014. Read More