Research Proposal on "Bank of America Annual Report 2008"

r />

Global Wealth and Investment Management (Website of the New York Stock Exchange, 2009).

3. Analysis of the 2008 Annual Report

The 2008 Bank of America Annual Report commences with a restatement of the company's activities and their business segments, to then directly introduce the reader to the financial performances of the trailing twelve months. Increases are generally observable throughout several indicators, but some decreases have also been registered. In this line of thoughts, the following lines pinpoint to the most significant findings in the bank's report:

The total assets from 2008 relative to 2007 increased by 5.95%, from $1,715,746 to $1,817,943 -- this increase means that the company possessed sufficient financial resources to make new acquisitions, but also that their financial strength increased; what is uncertain at this point refers to the liquidity of these assets, meaning their ability to be rapidly converted into cash

The total loans and leases also increased from 2007 to 2008 by a calculated rate of 6.28%, from $876,344 to $931,446, meaning that the bank served more customers and is expected to register incremental revenues from the credit rates and the interest rates it will receive in the future

The total deposits registered a 9.66% increase, from $805,177 in 2007 to $882,997 in 2008; this indicator is probably the most adequate one to reveal the positive approach to the economic crisis the Bank of America had -- instead of panicking, they attracted customers with money and convinced them to deposit their money; this means that the institution got increased access to financial resources, and by this not only salvaged themselves, but also increased the amount of liquidities necessary within the market; the money from these deposits can be used to fund economic agents and the population, drive consumptions and get the motors of the modern economy once again running. From this standpoint then, the approach of the Bank of America has not only been useful for the company, but also for the American economy

The total shareholders' equity increased from $135,272 in 2006 and $146,803 in 2007 to $177,052 in 2008 at a growth rate of 20.6% (2007 relative to 2008) -- the major increase in this figure indicates that major investments have been made in the Bank of America, probably as a response to the emerged economic crisis and with the specific goal of increasing the company's financial strength; these additional sources indicate that the company is able to support future investments, as well as pay its shareholder dividends

The book value per common share decreased from $32.09 in 2007 to $27.77 in 2008 at a rate of 13.46%; this indicator reveals that previous triumphs, the economic crisis has in fact taken a tool on the Bank of America stock, making it weaker and less safe. Theoretically, if the company were to dissolve in the immediate future, the shareholders would receive an undervalue compensation for their shares (Investopedia, 2009)

Similar to the book value per common share, the market price per share of common stock has also decreased; but its rate has been significantly higher. In this order of ideas, the market price per share of the Bank of America common stock has decreased from $41.26 in 2008 to $14.08 in 2008, at a rate of 65.87% -- this also represents a direct effect of the economic crisis and reveals that the bank remains highly sensitive to industry movements. The media often only looks at this price to assess the performances of a company (Spireframe, 2008), meaning then that the coverage of the Bank of America's doom might easily be erroneous as other indicators reveal strong performances, against this one which tells of the sensitivity to market trends

The trade value of the Bank of America stock throughout 2008 fluctuated from a high $45.03 to a minimum of $11.25, closing the year with a quotation of $14.08 (Bank of America 2008 Annual Report). As of April 2009, the stock was being traded on the NYSE at a value of $9.10. These movements are the direct result of an increased sensitivity to the market and the industry, now severely impacted by the economic crisis

Out of the three business segments operated by the bank and holding company, the Global Consumer and Small Business Banking is the most profitable one, with revenues of $58,344 million; it is followed by the Global Corporate and Investment Banking with $13,440 million and by Global Wealth and Investment Management with $7,785 million. Most of the losses were observed in the corporative services, with a total loss of $3,018 million in terms of capital and markets advisory services. This could also be due to the fact that numerous corporations were struggling with financial difficulties and renounced some banking services in order to cut costs

In terms of capital stability, this suffered in 2007 comparative to 2006 as it decreased from 8.64% to 6.87%. In 2008 however, this indicator increased to 9.15%, revealing a strong and stable company. It is not mentioned the value of the ratio for other companies, ergo it is difficult to assess how subjected to operating losses the Bank of America is within the industry, but it can be safely concluded that it is better protected against these risks that in was throughout the previous year

As a least financial indicator, the Bank of America enjoys a favorable reputation within the market and serves a wide customer palette -- 99% of the Fortune 500 economic agents and one out of two American households

The cash flows generated from operations were primarily used to cover for the liabilities; at the end of the process of collateralizing the credit card receivables, the remaining cash flows will enter the possession of the bank and its shareholders. Given the current challenges however, it is likely that the excess cash flow will remain within the company and will be used to support financial stability. Cash flows are generally dealt with through estimations on numerous scenarios and through adjustments by interest rates and risk discount rates (Bank of America 2008 Annual Report).

4. Mark-to-Market, TARP and the Bank of America

Despite its successes in 2008, 2009 confronted the Bank of America with more significant challenges. The Obama administration came to terms with the financial challenges and issued the TARP, or the Troubled Assets Relief Program, by which they intend to purchase the underperforming assets from financial institutions. The aim of the endeavor is that of reducing the pressure upon financial institutions and once again stimulating crediting operations.

The next step in the TARP is that of allocating $350 billion to create a state-owned "aggregator-bank" that would purchase the underperforming stocks which continually threaten the well-being of the Bank of America as well as other banking institutions. Some economists however argue that there exists a more efficient solution to achieving this desiderate -- that of eliminating the mark-to-market accounting model. This endeavor would ensure that the assets of the Bank of America do not continually depreciate and would also "stop the deterioration in bank balance sheets and allow time to heal without taking down the entire economy in the process" (Wesbury and Stein, 2009). Otherwise put, the renunciation of the mark-to-market accounting technique would require less financial investments and would increase financial stability within the banking sector. This in turn would stimulate the granting of loans to individual consumers and economic agents, to once again offer the fuel that drives economic stability and prosperity.

5. Final… READ MORE