Banking Industry (1)

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    Commercial Banking in theUS

    Masha AustinCody BaileySara JosephJason Van OsdellGary Whittle

    Agenda Industrysnapshot Financialanalysis

    Externalanalysis

    Internalanalysis

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    K e y sta tistics

    .$570 9bnRevenue

    .$52 0bnProfits

    - . %2 3-Growth 06 11

    . %5 5-Annual growth 11

    16

    Industry snapshot

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    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

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    Products and services Deposits %58

    Mortgages %16

    Business lending %15

    Home equity loans %6

    Other services %5

    Industry snapshot

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    Major market segments &Consumer retail %45 ,Small businesses ,corporations institutions %35 Government %15

    Other %6

    Industry snapshot

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    The industry

    Capital levels are at unusually high levels

    -Growth in NIS has help offset drag of non

    performing loans and lower outstandingloan balances

    ROE hit historically record lows for the

    -industry in 2007 2008 Falling efficiency ratios likely due to

    .consolidation

    Financial analysis

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    Return on assets

    Financial analysis

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    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

    Efficiency2009 .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 332006 .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

    Profitability measures

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    -Net charge offs

    Financial analysis

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    Measures of Financial ConditionIndustry BofA JP Morgan Citi Wells

    TotalCapitalRatio

    2009 . %10 90 . %13 70 . %13 50 . %15 03 . %11 87

    2008 . %11 00 . %11 58 . %12 33 . %15 18 . %10 71

    2007 . %9 30 . %10 94 . %11 82 . %13 33 . %11 14

    2006 > %10 . %11 11 . %11 44 . %12 39 . %12 05

    DebtLeverage

    2009 < %45 . %26 22 . %13 11 . %19 61 . %18 36

    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 972008 < %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

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    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 Butgrade 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

    Financial analysis

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    General environment

    External analysis

    Economic Corporate profitsEmployment

    Stock market Housing starts

    Interest rates

    Sociocultural 2008 crisis Fear Increasing savings rate Decreasing loan rate

    Global Broad globalizationof business

    EU crisis More uniform regulations

    Technological Internet Mobile banking

    /Political legal Regulation -Frank Dodd

    Federal reserve FDIC

    Demographic Aging population Population shifts

    Population growth Racial shifts

    Demands of young customers

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    Economic drivers Corporate profits LEmploymentLDemandL Corporate profits qEmploymentqDemandq

    DJIA LConsumer confidenceLDemandL DJIA qConsumer confidenceqDemandq

    Interest rates qDemandL Interest rates LDemandq

    External analysis

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    Sociocultural drivers

    -2008 Sub prime crisis Consumers changed

    behavior

    ,Consumers saving morespending 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

    $ .79 1bnThe big four s losses

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    /Political legal

    Federal intervention Toxic Asset Relief

    ( )Program TARP saved

    many banks ,Increased revenues

    growth

    But comes with a cost

    External analysis

    $45bnBank of America

    $45bnCitigroup

    $25bn

    JP Morgan Chase

    $25bn Wells Fargo

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    /Political legal drivers - ,Frank Dodd 2010

    Increased transparency Fee reductions for interchange fees

    Lowers limits on fees charged for debitcard 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

    External analysis

    %12Profit losses

    near 2016

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    /Political legal Rising fees

    Pilot programs to increase revenuesfrom fees

    No free checking

    : ;Chase $3 monthly debit card fee $15monthly checking

    : ,BoA $6 $9 monthly checking fees : Wells Fargo $5 monthly fees

    External analysis

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    Technological drivers Online banking

    Lowered costs Opened up new markets Increased new forms of competition

    External analysis

    Globalization

    Low but increasing More uniform regulations lower entry

    barriers

    ,Crisis shifted focus back to US willreverse

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    General environment

    External analysis

    Regulation level HEAVY

    Technological change MEDIUM

    Globalization ,LOW RISING

    Life cycle stage MATURE

    Competition HIGH

    Barriers to entry MEDIUM

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    Porter s 5 forces

    External analysis

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    Value chain

    Internal analysis

    Regulatoryreporting and

    compliance Deposit services Loan admin Treasuryoperations Item processing Payment processing

    Branch network ATM networkInternet Telephone banking Mobile banking Call centers

    Product mix ;BrandingAdvertising Account acquisition Deposit acquisitions Cross sales Fee revenuegeneration Community relations

    Banking products Insurance products Investment products Business services Wealth management

    Technology Development

    Human Resources

    Infrastructure and Procurement

    /Strategic decisions Risk management

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    . . & .J P Morgan Chase Co

    Internal analysis

    /Resource Capability V R I N O SCA?

    Client Selection d d Competitive Parity

    -Cross sellingCapabilities d d d TemporaryAdvantageContinuous

    Investmentin Growth

    d d d TemporaryAdvantage

    Expense Management d d d Competitiv

    e ParityManage Real Estateand Cyclical

    Exposure

    d d d TemporaryAdvantage

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    Bank of America

    Internal analysis

    /Resource Capability V R I N O SCA?

    Largest MarketShare

    d d d d TemporaryAdvantage

    -Cross sellingCapabilities d d Competitive ParityTechnological

    Innovationd d d Temporary

    Advantage

    Corporate

    Relationships

    d d Competitiv

    e Parity/Customer ServiceTransparency

    d d Competitive Parity

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    & . Wells Fargo Co

    Internal analysis

    /Resource Capability V R I N O SCA?

    DiversifiedProducts

    d d Competitive Parity

    /Technology OnlineServices d d Competitive Parity#1 in CustomerService

    d d d TemporaryAdvantage

    Education

    Internal andExternal

    d d d Temporary

    AdvantageConservative

    Lending Principlesd d Competitiv

    e Parity

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    , .Citigroup Inc

    Internal analysis

    /Resource Capability V R I N O SCA?

    Client selection d d Competitive Parity

    Largest network d d d d TemporaryAdvantageModernized banking d d d Temporary

    Advantage

    Investor

    perception

    d d Competitiv

    e Parity

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    Commercial Banking in the US. .20 February 2011 :// . .http