Masha Austin

Cody Bailey
Sara Joseph
Jason Van Osdell
Gary Whittle

Commercial Banking in the US

Agenda
• Industry snapshot
• Financial analysis
• External analysis
• Internal analysis
Industry snapshot

Key statistics
Revenue Growth 06-11

$570.9bn -2.3%
Profits Annual growth 11-16

$52.0bn 5.5%
Industry snapshot

The Big Four … and everyone else

Bank of America 11.8%
Wells Fargo & Co. 11.3%
J.P. Morgan
Chase & Co. 7.7%

Citigroup Inc. 5.0%

Remaining banks (6,494) 64.2%
Industry snapshot

Products and services

Deposits 58%
Mortgages 16%
Business lending 15%
Home equity loans 6%
Other services 5%
Industry snapshot

Major market segments

Consumer & retail 45%
Small businesses,
corporations,
institutions 35%
Government 15%
Other 6%
Financial analysis

The industry
• Capital levels are at unusually high levels

• Growth in NIS has help offset drag of non-performing

loans and lower outstanding loan balances
• ROE hit historically record lows for the industry in
2007-2008
• Falling efficiency ratios likely due to consolidation.
Financial analysis

Return on assets
2.00%
Interest Rate

1.50%

1.00%

0.50%

0.00%
2009 2008 2007 2006

-0.50%

-1.00%
Financial analysis

Profitability measures
Average BofA JP Morgan Citi Wells

NIS 2009 3.47 2.65 2.81 3.33 4.80

2008 3.18 2.52 2.51 3.61 4.57
2007 3.29 2.53 2.21 3.16 4.43
2006 3.31 2.77 1.89 2.74 4.58

Efficiency 2009 55.50 50.41 56.27 60.83 49.25

2008 59.00 54.41 57.41 76.91 56.76
2007 59.40 59.14 61.62 73.78 60.36
2006 56.80 50.40 65.28 61.72 59.59

ROA 2009 0.09 0.30 0.50 -0.24 1.29

2008 0.08 0.41 0.68 -0.50 0.72
2007 0.81 0.93 0.86 0.20 1.33
2006 1.28 1.32 0.88 0.97 1.57

ROE 2009 0.74 2.94 6.52 -2.63 14.46

2008 0.35 4.45 8.99 -6.71 8.37
2007 7.75 10.69 10.70 2.71 14.02
2006 12.30 14.30 10.90 12.09 16.94
Financial analysis

Net charge-offs
4.00%
Interest Rate

3.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%
2009 2008 2007 2006
Financial analysis

Measures of Financial Condition

Industry BofA JP Morgan Citi Wells

Total 2009 10.90% 13.70% 13.50% 15.03% 11.87%

Capital 2008 11.00% 11.58% 12.33% 15.18% 10.71%

Ratio
2007 9.30% 10.94% 11.82% 13.33% 11.14%

2006 > 10% 11.11% 11.44% 12.39% 12.05%

Debt 2009 < 45% 26.22% 13.11% 19.61% 18.36%

Leverage 2008 < 45% 18.84% 12.44% 18.55% 16.92%

2007 < 45% 16.59% 18.72% 19.52% 17.27%

2006 < 45% 13.94% 16.18% 15.31% 18.08%

Liquidity 2009 < 65% 38.93% 31.17% 29.92% 60.97%

2008 < 65% 49.40% 34.25% 34.28% 64.43%

2007 < 65% 48.45% 33.25% 34.83% 65.50%

2006 < 65% 44.48% 35.75% 35.57% 65.43%

Financial analysis

How they stack up

• JP Morgan and Bank of America: trend closest to the industry
averages. Lower volatility and more consistent returns.

• Citi : least efficient bank with lowest ROA and ROE ratios.
Also highest non performing loans while having the most
conservative portfolio. But, grade out well on long term
measures such as liquidity and capital ratios.

• Wells Fargo: riskiest portfolio, but lowest % of non-

performing loans. Highest ROA and ROE ratios, but illiquid.
External analysis

General environment
Economic • Corporate profits • Stock market • Interest rates
• Employment • Housing starts

Sociocultural • 2008 crisis • Fear • Increasing savings rate

• Decreasing loan rate

Global • Broad globalization • EU crisis • More uniform regulations

of business

Technological • Internet • Mobile banking

Political/legal • Regulation • Federal reserve • FDIC

• Frank-Dodd

Demographic • Aging population • Population growth • Demands of young customers

• Population shifts • Racial shifts
External analysis

Economic drivers
Corporate profits L Employment L Demand L
Corporate profits q Employment q Demand q

DJIA L Consumer confidence L Demand L

DJIA q Consumer confidence q Demand q

Interest rates q Demand L

Interest rates L Demand q
External analysis

Sociocultural drivers
The big four’s losses
• 2008 Sub-prime crisis
• Consumers changed behavior $79.1bn
• Consumers saving more, spending
less
• Consumers spread their money out
• Banks failed
• Mergers and Acquisitions
• 1.3% annual decrease since 2008
• Down from more than 14,000 in
1980s
External analysis

Political/legal
• Federal intervention Bank of America

• Toxic Asset Relief Program

(TARP) saved many banks
$45bn
Citigroup
• Increased revenues, growth
• But comes with a cost …
$45bn
JP Morgan Chase

$25bn
Wells Fargo

$25bn
External analysis

Political/legal drivers
• Frank-Dodd, 2010
• Increased transparency
• Fee reductions for interchange fees
• Lowers limits on fees charged for debit card transactions
from and average of 44¢ to between 7¢ and 12¢
• Expected to reduce related revenues by 57%
• Negative economic impact
• Lower profits
• Costs likely passed to consumers
12%
Profit losses
near 2016
External analysis

Political/legal
• Rising fees
• Pilot programs to increase revenues from fees
• No free checking
• Chase: $3 monthly debit card fee; $15 monthly checking
• BoA: $6, $9 monthly checking fees
• Wells Fargo: $5 monthly fees
External analysis

Technological drivers
• Online banking
• Lowered costs
• Opened up new markets
• Increased new forms of competition

Globalization
• Low but increasing
• More uniform regulations – lower entry barriers
• Crisis shifted focus back to US, will reverse
External analysis

General environment
Regulation level HEAVY
Technological change MEDIUM
Globalization LOW, RISING
Life cycle stage MATURE
Competition HIGH
Barriers to entry MEDIUM
External analysis

Porter’s 5 forces
Threat of New Entrants
LOW
Capital Difficult to State or local
requirements develop product regulations are
high to establish unique enough to very thorough and
bank switch banks bureaucratic
Internal analysis

Value chain
Marketin
Operat Delivery
g
Revenue
ions Channels & Sales streams
• Regulatory
• Branch network • Product mix • Banking products
reporting and
compliance • ATM network • Branding; • Insurance products
• Investment products
•Deposit services • Internet Advertising
• Business services
• Loan admin • Telephone banking • Account acquisition
• Wealth management
• Treasury
• Mobile banking • Deposit acquisitions
operations
• Call centers • Cross sales
• Item processing
• Fee revenue
• Payment
generation
processing
• Community relations

Technology Development

Human Resources

Infrastructure and Procurement

Strategic decisions / Risk management

Internal analysis

J.P. Morgan Chase & Co.

Resource/Capability V R I N O SCA?

Competitive
Client Selection d d Parity
Temporary
Cross-selling Capabilities d d d Advantage
Continuous Investment Temporary
in Growth d d d Advantage
Competitive
Expense Management d d d Parity
Manage Real Estate and Temporary
Cyclical Exposure d d d Advantage
Internal analysis

Bank of America
Resource/Capability V R I N O SCA?

Temporary
Largest Market Share d d d d Advantage
Competitive
Cross-selling Capabilities d d Parity
Temporary
Technological Innovation d d d Advantage
Competitive
Corporate Relationships d d Parity
Customer Service / Competitive
Transparency d d Parity
Internal analysis

Wells Fargo & Co.

Resource/Capability V R I N O SCA?

Competitive
Diversified Products d d Parity
Competitive
Technology/Online Services d d Parity
Temporary
#1 in Customer Service d d d Advantage
Education – Internal and Temporary
External d d d Advantage
Conservative Lending Competitive
Principles d d Parity
Internal analysis

Citigroup, Inc.
Resource/Capability V R I N O SCA?

Competitive
Client selection d d Parity
Temporary
Largest network d d d d Advantage
Temporary
Modernized banking d d d Advantage
Competitive
Investor perception d d Parity
Resources

• Commercial Banking in the US. 20 February 2011. http://www.ibisworld.com. 

• Wells Fargo & Company Profile. 20 February 2011. 
http://subscriber.hoovers.com/H/home/index.html.
• Citigroup Inc. Profile. 20 February 2011. http://subscriber.hoovers.com/H/home/index.html.
• JPMorgan Chase & Co. Profile. 20 February 2011.
 http://subscriber.hoovers.com/H/home/index.html.
• Bank of America Corporation Profile. 20 February 2011. 
http://subscriber.hoovers.com/H/home/index.html.
• Industry Surveys: Financial Services: Diversified. Standard & Poor's Industry Surveys. New
York, NY. 3 June 2010.
• Checking Isn’t Free at More Branches. Sidel, Robin. Wall Street Journal. Feb. 19, 2011.
• www.yahoofinance.com
• www.bankofamerica.com
• www.chase.com
• www.wellsfargo.com