...Bank of America: Decisions for the Future ECO 550: Managerial Economics 16 June 2013 Abstract Long-term capital budgeting is the process used by many companies to make substantial term investments, in order to receive the greatest cash flow. A company must first look at an analysis of cash flows and cost and earnings of the project to determine whether to accept or reject a capital budgeting project. The three rules used to make decisions towards capital budgeting; the payback period, net present value (NPV), and internal rate of return (IRR). The Payback Period is the tool that is used to determine how long it takes for the project to recover its initial costs for funding the project. The Net Present Value shows how the present project will affect the company. The Internal Rate of Return reveals the discount rate if the NPV equals zero. The antitrust law is a federal and state law regulation of corporations. The law insures that company does not grow too large which may prevent the growth of other corporations. The government believes that without this law that prices can become fixed and demand will be unfair in the market. In Assignment 3, I discussed the publicly traded company, Bank of America Corporation, and how the corporation deals with competition and change. In this paper, I will discuss the government regulations for mergers, the possible merger that could occur, and how the merger could be profitable. Explain why government...
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...Do Bank Mergers Create Shareholder Value? An Event Study Analysis Varini Sharma Introduction to Econometrics December 17, 2009 Professor Gary Krueger Macalester College I. Introduction Since the 1980s, the U.S. banking industry has experienced a large increase in the level of mergers and acquisitions. Between 1980 and 1998, approximately 8,000 bank mergers occurred, involving about $2.4 trillion in acquired assets that can be attributed to deregulation in the1980s and the removal of legal restrictions on intrastate and interstate banking (Rhoades, 2000). One basis for these mergers is the assumption that such consolidations lead to improvements in efficiency and profits amassed through increased market power, economies of scale, reduced earnings volatility, diversification, and other financial and operational synergies. While proponents of bank mergers argue that these gains are substantial, Coase (1937) tells us that tradeoffs exist between economies of scale (size) and ability to manage. In addition to the significant increase in mergers we have witnessed the collapse of countless financial institutions in the past 3 years due to bad lending practices. While the Coase theory applies to firms in general, how well does it apply to financial institutions? Additionally, has the increased size of financial institutions contributed to the financial crisis of 2008? This paper investigates the economic role of bank mergers in creating shareholder...
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...Strategies and Government Policies Paper Maryna Lambropoulos, Trenton Acrey, Jose Esquivel & Jorge Benitez ECO/365 January 7, 2015 Matthew Mulyanto Competitive Strategies and Government Strategies Paper Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified financial services company with $1.6 trillion in assets. Founded in 1852, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, approx. 12,500 ATMs, online banking and asset management at wellsfargo.com, and mobile apps for mobile devices so you can access your accounts on the go. With headquarters located in San Francisco, Wells Fargo has more than 265,000 team members in 36 countries across our approximately 90 businesses. At the end of the third quarter 2014, Wells Fargo ranked fourth in assets among United States banks and was the world’s most valuable bank by market capitalization. In 2013, Euromoney named Wells Fargo “Best Bank” in its Global Awards for Excellence, the first time a United States based bank has won the top award. Wells Fargo Bank is one of the largest banks in the United States. Prior to 2008 through 2010, WFB had many United States based competitors, but that number has decreased due to bank failures and mergers. The number of United States Banks fell by 12% between December 2006 and December 2010. During that same period, U.S. deposits held by the 10 largest banks rose from 44% to 49%. Wells...
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...National Bureau of Economic Research Volume Title: Mergers and Acquisitions Volume Author/Editor: Alan J. Auerbach, ed. Volume Publisher: University of Chicago Press Volume ISBN: 0-226-03209-4 Volume URL: http://www.nber.org/books/auer87-1 Publication Date: 1987 Chapter Title: The Growth of the "Junk" Bond Market and Its Role in Financing Takeovers Chapter Author: Robert A. Taggart, Jr. Chapter URL: http://www.nber.org/chapters/c5819 Chapter pages in book: (p. 5 - 24) 1 The Growth of the “Junk” Bond Market and Its Role in Financing Takeovers Robert A. Taggart, Jr. 1.1 Introduction “Junk” bonds, as they are popularly called, or “high-yield’’ bonds, as they are termed by those wishing to avoid pejorative connotations, are simply bonds that are either rated below investment grade or unrated altogether.’ Fueled by the introduction of newly issued junk bonds in 1977, this segment of the bond market has grown rapidly in recent years and now accounts for more than 15 percent of public corporate bonds outstanding. However, the growth of junk bond financing, particularly in hostile takeover situations, has been bitterly denounced. For example, Martin Lipton, a merger specialist with the firm of Wachtell, Lipton, Rosen, and Katz, has argued that junk bond financing threatens “the destruction of the fabric of American industry” (Williams 1984). In a similar vein, twelve U.S. senators signed a letter in support of Federal Reserve restrictions on junk bond-financed takeovers...
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...human beings make. Cavico (2009) states utilitarianism is more than just moral philosophy. It is a way of reformation and used extensively in government decision making. This will be discussed further in the Bank of America-Merrill Lynch merger. Utilitarianism is considered a scientific system of ethics and not just a philosophical theory of ethics. Utilitarian ethics follows the belief of maximizing the greatest good for the largest number of people. As utilitarianism is identified, one needs to learn that the greatest good could be based on aggregate principle or a distributive principle. The Bank of America-Merrill Lynch merger will be assessed in regards to who, what and how the greater good will be affected in this merger. Within utilitarianism, a moral philosophy is developed that focuses on the consequences of specific actions. An action is done, then observed and then analyzed. After identifying all the people that were involved, one needs to ask the question, “Do the sum of good consequences outweigh the sum of the bad consequences?” Quantify all the good and bad consequences in the scenario and if the good consequences are greater than the bad consequences then the action was moral and vice versa. In this paper, the actions of the Bank of America-Merrill Lynch merger will be discussed, evaluated and quantified with the Richard DeGeorge Utilitarian perspective. Pinpointing the stakeholders in this case will show who was direct and indirectly affected and how they were...
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...Research Paper Matthew Emery memery@capella.edu BUS3004 Developing a Business Perspective Lynn MacBeth 08/12/2012 Too Big to Stay Introduction A financial institution so interwoven in the fabric of the national economy that its failure could cause a massive ripple effect is deemed “too big to fail”. Unfortunately for the taxpayers, their hard earned dollars are the only thing between salvation and failure for these companies. Poor management or industry instability can ruin any business, but the larger an institution gets, the larger the collateral damaged induced by their failure will be. It is the duty of a responsible government to never leave their citizens vulnerable to such a catastrophe. The goal of this paper is to prove that too big to fail policy is what turned a period of stagnant growth into the worst financial crisis since the Great Depression. It is a well known fact that the housing market and therefore the United States economy started slipping in late 2007. As the economy was faltering, it still managed to not slip into recession status until September 2008. It is lees than coincidental that America's fifth largest financial institution, Lehman Brothers, filed for bankruptcy on September 15, 2008, the very same time the economy plummeted. The instability of the market led to runs on banking institutions, which in turn led to more bank failures, which led to massive bailouts. These bailouts, while helpful at the time, lead to unprecedented...
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...Introduction: The financial crises are major disruptions in financial markets characterized by sharp declines in asset prices and firm failures (11). The global melt down of 2007-08, the Great Depression of 1929 and South Asian crises of 1997 tested the efficiencies of concerned regulatory authorities across the world. Financial crises moves like cyclone and spirals down to all connected economies (13). Whether financial crises emerges in the developed countries or in the developing countries, the history witnesses that it has invariably led concerned economies into deep recession, unemployment, loss of public confidence, domestic and international trade reversal and even capital flight. The regulatory authorities engaged in watching and monitoring health of concerned economies have to proactively respond to mitigate and resolve the crises. There could be different causes for financial crises such as ongoing double digit inflation / uncontrolled monetary expansion, unsustainable internal or external public debt, excessive credit booms, large capital inflows, large current account deficits, balance sheet weaknesses due to maturity mismatches of public debts, fall out of impracticable exchange rate mechanism followed and currency crises (3). The selection of ways and means of mitigating and resolving a financial crisis and accelerating economic recovery is dependent upon root causes leading to financial crises. The policy options selected by regulatory authorities may be...
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...Journal of Banking & Finance 27 (2003) 103–131 www.elsevier.com/locate/econbase The impact of the manager–shareholder conflict on acquiring bank returns Marcia Millon Cornett a,*, Gayane Hovakimian b, Darius Palia c, Hassan Tehranian d,* a Department of Finance, College of Business, Southern Illinois University, Carbondale, IL 62901, USA b Graduate School of Business, Fordham University, New York, NY 10023, USA c Columbia Business School, Columbia University, New York, NY 10027, USA d Carroll School of Management, Boston College, Chestnut Hill, MA 02167, USA Received 22 May 2000; accepted 16 May 2001 Abstract This paper examines whether shareholder value-maximizing corporate governance mechanisms assist in reducing the managerial incentive to enter value-destroying bank acquisitions. We find that diversifying bank acquisitions earn significantly negative announcement period abnormal returns (AR) for bidder banks whereas focusing acquisitions earn zero AR. We then find that corporate governance variables (such as CEO share and option ownership and a smaller board size) in the bidding bank are less effective in diversifying acquisitions than in focusing acquisitions. These results are robust to the inclusion of the usual control variables. Ó 2002 Elsevier Science B.V. All rights reserved. JEL classification: G21; G34 Keywords: Banks; Bank acquisitions; Corporate governance 1. Introduction Several empirical studies have documented a negative relation between firm performance...
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...Running head: VIRTUES OF COMPETITION A Competitive America Tonya Y. Stansberry DeVry University Abstract American businesses are based on free trade in a Capitalist system. In its simplest form this means that each business is free to compete with the next. That the entrepreneur is free to risk and open a business whether it is for social gain or profit. Businesses openly compete for the business of the client or customer because they need the income. Businesses have been competing among one another since the industrialization of the United States of America. There have not always rules and regulations to govern fair and equitable trade and business practices. However, with competition came regulation for business and trade. A Competitive America As Americans we love to compete. Therefore it is no wonder that the United States economy is based on competition. Promoting competition is accepted as the best way to promote consumer well-being. America’s anti-trust laws have been in place for more than 100 years, since the Industrialization of America protecting the consumer’s rights. However, more countries have passed anti-trust laws in the past 20 years. America’s anti-trust laws were passed to focus on anti-competitive practices. Americans have long loved free market system and the competition that it fosters. Competition among businesses has been regulated by anti-trust acts recently; however they help to maintain a fair and...
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...electricity to deflect an electromagnet, which would then move a marker that would make codes on paper. This was called "Morse Code. Several years later, Congress funded $30,000 to construct a 40 mile experimental telegraph line from Washington to Baltimore. Soon members of Congress witnessed the sending and receiving of the first news dispatched by electric telegraph. This technology was later improved in to the Stock Ticker, which would actually mark down numbers and letters that would reflect stock changes and recordings. Dow Jones & Company, publisher of the Wall Street Journal, was founded in 1874 by reporters Charles Dow, Edward Jones and Charles Bergstresser. Jones converted the small "Customers' Afternoon Letter" into the "Wall Street Journal", which was first published in 1889. They used the telegraph to deliver stock and bond prices on the New York Stock Exchange. J. P. Morgan was an entrepreneur who became a king of corporate bankers. Morgan arranged the merger of Edison General Electric and Thomson-Houston Electric Company forming General Electric. Also, he financed the creation of the Federal Steel Company; he merged several steel and iron businesses thus forming the United States Steel Corporation. U.S. Steel was the first billion-dollar company in the world with capital of $1.4 billion. Morgan also resolved the crisis of The Panic of 1907, in which major New York banks were nearing bankruptcy. Morgan personally took charge and save the economy from crippling...
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...Introduction: The Bank of America was formed in 1998 after the merger of California based Bank of America and the Nations Bank of North Carolina. At the end of the 20th century the bank stood as the second largest bank in the American market with close to 4500 branches operating in 21 states. Most of these branches were located in high growth markets of the south and west coast. Globally, it employed 1, 40,000 employees across 190 nations, over $8 billon in revenues, $360 billion in deposits and some $600 billon in assets. However the markets had been consolidating for sometime with the total number of banks in America having reduced to 7000 from an figure of 14000 first recorded in 1985. Intense competition characterized the market and the challenge for national banks was to be able to localize product and service offerings for their customers. Financial services had traditionally been looked upon as commodities by banks and lack of experimentation marked the sector. The sector was however slowly realizing that traditional methods of cost reduction and other control mechanisms could only take growth so far. ‘Organic Growth', a higher wallet share of existing customers was a concept of much relevance in the highly competitive market. For achieving this Bank of America had given more freedom to individual bank managers to undertake more responsibilities. Others like Washington Mutual (WAMU) had introduced new models of customer experience, benchmarking their services...
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...Abstract The signing of the Federal Reserve act by Pres. Woodrow Wilson on December 23, 1913 was the event in which the US Government essentially gave control of our country to large banks. With this law, Congress established a central banking system which would control the issuance of money. Since its creation there has been a debate as to whether or not the Federal Reserve Bank has too much power. The misconception is that the Federal Reserve Bank is a branch of the Federal Government in which it is not. America today is at the mercy of a privately owned central bank whose power is left unchecked which has inevitably led to corruption over its citizens and elected officials. Most Americans feel that the United States of America is democratic a leader of the “free” world. This is a well known assumption in theory. Our founding fathers had every intention in turning the new world into a developed democracy, and avoid any authority or one-party power. Our constitution demands that our government be “of, for and by the people,” to be divided into complex units and checks and balances, which are designed to prevent any potential power struggle by one specific branch. The constitution of the United States of America is the perfect blueprint for democracy in the purest form, with power and control in the hands of its citizens. Today, this is not the case. We gave up the right to print our own currency in 1913. The US Government gave the powers to a select few, who have owned...
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...Investing in Bank of America Bank of America Corporation (NYSE:BAC) is one of the largest banking institutions in America. Bank of America (NYSE:BAC) headquarter is located in Charlotte, North Carolina, and is a member of the Federal Deposit Insurance Corporation (FDIC). Bank of America Corporation as any other company or banking institutions has its vicissitudes in the stock market because of the financial crisis in 2009. As one of the world’s largest financial intuitions, Bank of America serves approximately 58 million consumers and small businesses around the world, doing business with one out of every two households in the United States and 99 percent of the U.S. Fortune 500 companies. The company has approximately 5,700 banking centers and approximately 17,800 ATMs. (Webmedia, 2011, para 2) When investing in any company it is in the investor’s best interest to be aware of its Strengths, Weaknesses, Opportunities, and Threats (SWOT). An SWOT analysis is a tool for auditing an organization and its environment. An SWOT analysis is the first stage of planning and helps marketers to focus on key issues. Strengths and weaknesses are internal factors. Opportunities and threats are external factors. The strengths, weaknesses, opportunities, and threats (SWOT) analysis is a helpful tool when reviewing a business profit margin. In this paper I will present the strengths, weaknesses, opportunities, threats (SWOT) analysis; as well if I suggest Bank of America Corporation (NYSE:BAC)...
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...akpinsight.webs.com Merger and Acquisitions (M&As) in the Indian Banking Sector in Post Liberalization Regime Dept. of Commerce, AMU, Aligarh India Azeem Ahmad Khan ABSTRACT The purpose of this paper is to explore various motivations of Merger and Acquisitions in the Indian banking sector. This includes the various aspects of banking Industry’s Merger and Acquisitions. It also compares pre and post merger financial performance of merged banks with the help of financial parameters like Gross-Profit Margin, Net- Profit Margin, Operating Profit Margin, Return on Capital Employed (ROCE), Return on Equity (ROE) and Debt-Equity Ratio. Through literature review it comes to know that most of the work done high lightened the impact of Merger and Acquisitions on different aspects of the companies. The data of Merger and Acquisitions since economic liberalization are collected for a set of various financial parameters. This study also examines the changes occurring in the acquiring firms on the basis of financial ground and also the overall impact of Merger and acquisitions (M&As) on acquiring banks. The Researcher used independent t-test for testing the statistical significance and this test is applied not only for the ratio analysis but also to test the effect of Merger and Acquisitions on the performance of banks. This performance is being tested on the basis of two grounds i.e. Pre merger and Post merger. The result of the study indicates that the banks have been positively...
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...the funds in their account to cover the check so it does not get a stamp of “Non-Sufficient Funds.” Before the break out of the Civil War, banknotes and bills of exchange were used extensively; they remained competitive with the deposit accounts. Once the war broke out, congress passed legislation that was known as the National Banking Act. These were the two acts that established the banking system in the United States as we know, and they were the National Banking Acts of 1863 (originally known as the National Currency Act) and the National Banking Act of 1864, this new act was in acted to take the banking system out of the hands of the state government. “These acts encouraged the development of the national currency backed by the bank holdings of the U.S. Treasury securities and established the Office of the Comptroller of currency as part of the United States.” (Wikipedia, the free encyclopedia) As the United States was still young, the banking system was also and...
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