Question

Report on the financial statements of a major bank.

a. Write a thorough report on the P&L and BS of a major bank, from either the US or Europe.
b. Identify the main sources of interest income, non-interest income, interest expense, other expenses, and provisions of the focal bank, and its final net profit (income).
c. Identify the main components of the bank’s balance sheet from both the asset and the liability sides, namely, cash reserves, marketable securities, loans, fixed assets, deposits, borrowings, and equity of the bank.
d. Draw a comparative analysis of the performance of the focal bank against the performance of the industry for the last five years. For example, if the bank chosen has been a European institution, the comparison between this bank and the aggregate European banking industry.
e. Write your conclusions about the evolution of the solvency of the bank. Has the bank improved its solvency through the analyzed 5-year period?
f. The above requirements must be met according with the contents of the class discussions. Students are expected to summarize the information they may obtain and draw their own conclusions.
g. For the aggregate comparisons students may source information from either the European Banking Authority or the U.S. Federal Reserve depending on their choice. Additional information sources and their citations are also expected.

Answer 1

This report provides a thorough analysis of a major bank's financial statements, including the Profit and Loss statement and Balance Sheet. It discusses the main sources of income and expenses, components of the balance sheet, comparative analysis of performance, and the evolution of solvency. Students should utilize reputable sources and proper citations.

Step-by-step explanation:

Report on the financial statements of a major bank:

a.

The Profit and Loss (P&L) statement of a major bank provides a summary of its revenue, expenses, and net profit/income over a specific period. It showcases the bank's financial performance. The Balance Sheet (BS) of a major bank shows its assets, liabilities, and equity at a specific point in time. It provides insights into the bank's financial position.

b.

The main sources of interest income for a bank include the interest earned on loans and investments. Non-interest income consists of fees and commissions from various services offered. Interest expenses arise from interest paid on deposits and borrowed funds. Other expenses include operational costs. Provisions are set aside for potential loan losses. The final net profit is calculated by deducting expenses from the bank's total income.

c.

The main components of a bank's balance sheet on the asset side include cash reserves, marketable securities, loans provided to customers, and fixed assets. On the liability side, it includes deposits from customers, borrowings from other banks, and equity capital.

d.

Comparative analysis can be done by comparing the performance of the selected bank with the overall performance of the industry. For example, if the bank is from Europe, its performance can be compared to the aggregate performance of European banks over the past five years.

e.

To evaluate the solvency of the bank, it is necessary to assess whether it has improved its financial soundness over the analyzed 5-year period. This can be done by analyzing the bank's capital adequacy, asset quality, profitability, and liquidity.

f.

Conclusions about the evolution of the bank's solvency should be based on the analysis conducted and the trends observed in its financial statements. It is important to note any improvements or deteriorations in the bank's financial health.

g.

For aggregate comparisons, students can use information from reputable sources like the European Banking Authority (EBA) or the U.S. Federal Reserve (Fed). Additional information sources can also be utilized, and proper citations should be provided.