Term Paper on "Bank Profitability"

Term Paper 6 pages (2329 words) Sources: 1+

[EXCERPT] . . . .

Bank Profitability

In the previous years banks were kept afloat by America's consumer-influenced, debt-fuelled economic upturn. But prior to that, they had to manage more scars on their image. In the year 2001, America fell down into recession, and the terrorist attacks in that year on New York and Washington, DC, might have been projected to cause great harm on the economy and the financial industry, on top of their dreadful human loss. But America's banks have not only withstood these shocks, but also have prospered. (Just Deserts?) American banks have traveled through the recession subsequent to the stock market collapse of 2000 with hardly a knock in the bumper, and since then their profits have quickened. (Warnings to be ignored) When compared to that of a decade before, the 2001 downturn was very little intensity. But banks have become more flexible even permitting for this. In the present days, there are much less essential source of corporate finance than before, so they are less exposed to a recession in the economy. Banks in America give directly only about 40% of the money that companies produce each year, when compared with other countries, and 50% a decade ago. (Just Deserts?)

Many banks have announced record earnings in 2003 and continue to progress in the first half of 2004. The total profits in our Top 1000 listing in July attained record high up 65.4% on the previous year, even though the global economy recovery remains shaky and the political environment indecisive. (Bank awards reveal record profits despite global economic instability) Best U.S. banks, led by Citigroup, created strong profits growth in the fourth quarter and for all of 2003, showing better credit quality and strength in retail financial services. (U.S. banks show record profits) Citigroup made more money than any other company has ever made earlier in 2003. (Warnings to be ignored) for 2003, Citigroup, the world's biggest bank, made record net incomes of $17.85bn, which is 17% above 2002, in spite of $242m charge related to the collapse of Italy's Parmalat. Citigroup's global consumer businesses were prime contributors, offering full-year income in 2003 of $9.6bn, up 17%, with retail banking and cards income up 24% and 23% respectively in the fourth quarter. In 2003, Citigroup's customer deposits in the retail bank touched $241bn globally and total client assets in the private client business passed the $1000bn mark in Q4. (U.S. banks show record profits) it made another $5.3 billion in the first quarter of this year, placing it on course to break last year's record. (Warnings to be ignored)

The company directed to its investment banking and retail arms as the major driver for growth over the past year, making predictions for 2004 very powerful. (Citigroup banks record profits) Bank of America, the world's second-biggest bank, also created record net income of $10.8bn, 17% up on 2002. BoA's capacity to grow deposits and raise market share, together with well-built performance in mortgage, card and investment banking income and a noteworthy improvement in credit quality, was accountable for the record earnings. JP Morgan, the third largest U.S. bank, which decided to buy Bank One for %58n in mid-January, reported net income of $6.7bn, up 304%. Net income in the last quarter reached $1.9bn when compared with a $387m deficit in the last year. JP Morgan's investment bank created record earnings of $3.7bn, up 183%. The fourth largest U.S. bank, Bank One also created record net income of $3.5bn based on powerful retail growth in accounts, deposits and loans. The fifth biggest bank, Wells Fargo declared record net income of $6.2bn which was 9% increase in 2002. (U.S. banks show record profits) Predictors often point record bank profitability in present years to the considerable growth of non-interest income, the revenue that banks receive from regions exterior to their lending operations. Besides the increase, the non-interest income over the last decade has been typified by a move in sources from charges on deposit accounts, for instance, to fees for mortgage servicing or sales of mutual funds. These developments are to some extent clarified by the improvements made in computing and telecommunications, which make it feasible for banks to directly market fee-related services in a manner not formerly possible. (Commercial Banking: Facts and Trends)

Further banking is going through a phase of remarkable consolidation with recurrent unification and layoffs. There are plenty of merging like those of Citibank and Travelers into Citigroup or NationsBank and BankAmerica. Customers do not go to branches like they used to and more and more depend on ATM's and electronic transactions, which has made customers to depend more on these commercial banks against the non-bank financial institutions and financial innovations. (Commercial Banking: Facts and Trends) Over the last 20 years non-interest income has changed from a helpful role into a chief supplier of bank revenue. From 1950s to 1970s, non-interest income and interest income multiplies at equal rates. From the start of the 1980s, the growth rates were different and for the past 20 years non-interest income has grown on the national level at nearly twice the rate of net interest income. Thus the part of net revenue attributable to non-interest income has enlarged from 20% in 1980 to over 40% now. Banks try to raise non-interest income, as it is believed to have qualities that make it different from interest income and thus attractive.(Noninterest income: A potential for profits, risk reduction and some exaggerated claims)

In general, non-interest income could guide a bank to be less precarious if it leads to bigger diversification. Moreover, non-interest income is usually depicted as more secure or stable than interest income. Accumulating non-interest income to a bank's revenue course could lessen possibility by giving the bank a more expanded portfolio of revenue producing activities. Often non-interest sources are depicted as offering a firmer source of income than net interest sources. Observers could also use constancy to signify that non-interest income balances for deterioration in banking conditions. No indication of deceleration is shown by the rapid growth in non-interest income. Though small banks have recorded constantly lower levels of non-interest income, both large and small banks have gone through the move toward more fee-oriented businesses. Fee income has become the main source of non-interest income got by banks, substituting the conventional base of service charges and income from trust activities. The development of non-interest income, in specific from fee sources, has changed the revenue sources for banks. (Noninterest income: A potential for profits, risk reduction and some exaggerated claims)

Due to constant strong consumer request for credit including home equity, residential first mortgage products, credit cards, revolving credit and installment loans the growth in loans are produced. (U.S. banks show record profits) Larger companies are more and more liable to hit the capital markets, which are far innate in the United States than in Europe or Asia. The main victims are the bondholders rather than the banks, when such companies get into difficulties. Granted, banks are not resilient to weak capital markets: most big banks have investment-banking arms, which miss out on underwriting fees when companies lift up less money. Granted, banks are not resilient to weak capital markets: most big banks have investment-banking arms, which miss out on underwriting fees when companies lift up less money. But as a minimum the loss is shared with specialist securities firms. Even in America bank loans are even now the main single source of corporate finance, in spite of the augmented importance of capital markets. Most of American banks present success is due to their augmented deftness at organizing this fundamental function of relocating capital from savers to borrowers. But of course, non-payments by corporate borrowers rose when the economy turned down: the rate of written-off loans more than tripled between 1999 and 2002. (Just Deserts?)

Bank profits can in fact go up rather than declining, when the Fed puts up rates. Banks make additional money when interest rates are soaring than when they are low, because they profit more from paying low or no interest on checking accounts and so forth, and all things are equal as per David Fanger of Moody's rating agency. The main reason why banks have developed their branch networks in recent years, helping them to suck in deposits, which have been growing at almost 10% a year, is the appeal of such cheap sources of funding. Depending on the bank, the cheap funding from deposits accounts for 25-40%. It denotes that still more profits rates were to increase. The difference between short and long rates has been at or close to a record high over the past couple of years, due to the generosity of the Fed and its 1% short-term rates, the yield curve. The difference between two- and ten-year Treasuries -- a good way of calculating the slope of the curve has been two-and-a-half times its average of the past 20 years. Though commercial lending has decreased, banks' holdings of government securities have gone up, as have… READ MORE

How to Reference "Bank Profitability" Term Paper in a Bibliography

Related Term Papers:

Bank of America SWOT Analysis SWOT

Bank of America is one of the largest banks in the United States, with a nationwide presence. Despite this, the company has struggled in recent years, being the recipient of… read more

SWOT 5 pages (1546 words) Sources: 5 Topic: Economics / Finance / Banking

---

Mountain Bank Research Paper

Mountain bank is located at the northwestern part of the U.S. The bank has four major line of business: consumer lending, retail banking, mortgage banking, and corporate banking. Traditionally, Mountain… read more

Research Paper 4 pages (1281 words) Sources: 4 Topic: Economics / Finance / Banking

---

Bank of America Annual Report 2008 Research Proposal

Bank of America Annual Report 2008

The buzzword of today is crisis and the media coverage of how multiple players in the American economy are affected by the financial crisis… read more

Research Proposal 6 pages (1720 words) Sources: 2 Style: MLA Topic: Economics / Finance / Banking

---

Bank Loan to Shipping Corporation Essay

Bank Loan to Shipping Corporation

Describe the categories that a bank is considering when granting a loan to a Shipping corporation in order to expand its fleet.

Categories that a… read more

Essay 6 pages (2138 words) Sources: 0 Topic: Economics / Finance / Banking

---

Cheesecake Factory Profitability Analysis 5-Year Projection for Cash Flow Risk Rate Corporate Writing

Cheesecake Factory Profitability Analysis: 5-Year projection for cash flow / risk rate

Cheesecake Factory Profitability Analysis

The current project focuses on the analysis of the Cheesecake Factory from various angles,… read more

Corporate Writing 11 pages (3114 words) Sources: 1+ Topic: Economics / Finance / Banking

---

View 100+ more related papers  >>