Question

You are a financial manager of a major U.S.-based financial institution of your choosing. Go to the company's Web site (e.g., JPMorgan Chase, Wells Fargo, U.S. Bancorp). Pull its 2 most recent annual reports. In the annual report, you will see the balance sheet. You have been asked to provide a report to the company, in which you will include the following:

• Discuss major balance sheet numbers (e.g., Total Assets, Total Liabilities, Total Equity) and how these changed over the past 2 years. Refer to your textbook as needed.
• Discuss the potential credit risk, interest rate risk, and operational risk as they pertain to the selected financial institution. Use supporting numbers from the balance sheets

Answer 1

ASSETS

At December 31, 2018, company's assets totaled $1.9 trillion, down $55.9 billion from December 31, 2017. Asset decline was predominantly due to interest-earning deposits with banks which declined $42.8 billion.

Other major changes were

Debt securities Trading at fair value has increased by $ 12365 million from December 2017.

Debt securities Available for sale at fair value has decreased by $ 12365 million from December 2017.

Equity securities have declined by $7349 million from December 2017.

LIABILITIES

Non-Interest-bearing deposits have declined by $24188 million and interest bearing have declined by $25633 million from December 31, 2017.

EQUITY

Retained earnings increased by $12900 million December 31, 2017.

Potential credit risk for an institution can be ascertained by analyzing its few parameters like Value at Risk (VaR), company’s current ratio, quick ratio, days payable outstanding, to name a few. Company holds approx. 25% of its total asset in the form cash or cash equivalent and securities available for sale. Its current ratio is greater than 1.

Operational risk for an institution can be ascertained by its KPI target fulfillment, legal cases pending against, it to name a few. The company has few legal actions pending against its name. However, the losses are not probable or possible to be ascertained hence not accounted for. Although the company has highlighted it in its Annual Report.

Company’s earnings before interest and taxes is $43190 million and the interest expense is $14652 million.