BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

Term Project Instructions and Guidelines

1. Objective

In-depth contextual evaluation, and quantitative performance and risk analysis of an actual (real) financial institution (FI).

2. Choice of FI
   1. a)  The selected institution can be an US or Canadian financial institution, or a global entity with substantial presence in North American financial markets.
   2. b)  The chosen institution can belong to any one of the five categories covered in the course:
      1. depository institutions (chartered banks and credit unions);
      2. non-bank finance companies;
      3. securities and brokerage firms, and investment banks;
      4. investment funds (mutual funds, hedge funds, pension funds, and other funds);
      5. insurance companies (life insurance, and property and casualty insurance).
   3. c)  The institution must be publicly listed with active trading in a major exchange.
   4. d)  The institution must be currently existing and have at least 15 years of history.

BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

2. Components of Analysis

   There are four components of analysis as follows. The listing is the bare minimum requirement – in your analysis, be inclusive and creative; apply knowledge gained from other courses; and undertake a comprehensive analysis project.

   A. Descriptive Evaluation: Background and Context Analysis

   Present and discuss:

   1. a)  Motivation for your choice (of the financial institution);
   2. b)  Brief history (highlighting significant FI-specific events);
   3. c)  The type (of institution it is), and how it relates or compares to other institutions

      in the same sector;

   4. d)  Corporate organizational structure and current management team;
   5. e)  Types of products and services offered;
   6. f)  Market presence and competition;
   7. g)  A brief SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.

   Note: Be creative. Consider more description criteria than listed above.

BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

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BU433/BU633: Management of Financial Institutions Nayak, Winter 2018

B. Quantitative Evaluation, Part 1: Data Collection and Description

1. a)  Plan and prepare the list of primary financial and operating performance variables needed for the project;
2. b)  Collect all primary variables from various databases and sources;
3. c)  Provide formulas and/or calculation methods for all secondary variables;
4. d)  Prepare summary statistics for all primary and secondary variables.
5. e)  Point out if any salient inferences emerge from the summary statistics.

Notes:

1. For suggested variables, refer to the Section 4.
2. For databases and potential sources, refer to Section 5.
3. Primary variables are those that are directly collected as-is from the data

   sources in the desired form: e.g., stock prices, EBIT, NI, total assets, etc.

4. Secondary variables are those that are not directly available from the databases in the desired form and need to be computed from the primary variables: e.g., mean and standard deviation of returns, leverage, most

   accounting ratios, etc.

5. You must provide formulas and/or calculation procedure for all secondary

   variables.

6. Summary statistics imply reporting number of observations, mean, median,

   standard deviation, minimum and maximum values for each variable.

7. Summary statistics should be for full period and for sub-periods (pre-, during-

   & post-financial-crisis of 2007-2009), and not year-by-year.

BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

C. Quantitative Evaluation, Part 2: Performance Analysis

Undertake and report:

1. a)  Static (latest) performance;
2. b)  Dynamic performance: evolution or trend over time;
3. c)  Relative self-performance: breakdown of performance
   1. into pre-, during- & post-financial-crisis of 2007-2009;
   2. relative to any major FI-specific event;
4. d)  Comparative performance relative to:
   1. industry;
   2. overall market;
5. e)  Sensitivity of performance to market & macro-economic conditions;
6. f)  Pin-pointed strengths & weaknesses based on ROE framework;
7. g)  Forecasts for near-term future.

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BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

Note: Be creative. Consider more analysis criteria than listed above.

D. Quantitative Evaluation, Part 3: Risk Analysis

Consider different risk models and analysis criteria covered in the course, and customize implementation based on

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BU433/BU633: Management of Financial Institutions Nayak, Winter 2018

1. a)  nature of FI,
2. b)  type of operations, and
3. c)  applicability and availability of data.

Note: There is no suggested guideline for risk analysis. Creative customization is expected.

4. Data Variables

1. Financial Performance: stock price based measures
   1. a)  Full-period & sub-period buy-and-hold returns;
   2. b)  Annualized mean, median & standard deviation of returns;
   3. c)  Stock beta.
2. Operating(Accounting)Performance:balancesheetitems
   1. a)  Total assets;
   2. b)  Primary assets and primary liabilities;
   3. c)  Leverage and equity;
   4. d)  Cash and liquid holdings;
   5. e)  Investments and portfolios;
   6. f)  Borrowings and funding;
   7. g)  FI-specific key operational items.
3. Operating (Accounting) Performance: income statement items
   1. a)  Sales and COGS;
   2. b)  EBIT (OI): interest vs. non-interest income;
   3. c)  Interest payments;
   4. d)  Taxes;
   5. e)  NI;
   6. f)  ROA, ROE, PM, AU;
   7. g)  FI-specific key cash flow items.
4. Risk Analysis

• Variables depend on customized models and stylized analysis implemented.

Notes:

1. For stock price based measures, use monthly returns (not daily).
2. For balance sheet and income statement data, use annual data (not quarterly).

BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

5. Data Sources

Note: WRDS system referenced below is the Wharton Research Data Services. The access details to this database system has been provided in class.

A. COMPUSTAT database (on WRDS system, account based access): source of detailed and comprehensive financial and accounting data (current and historical)

BU433 / BU633 MANAGEMENT OF FINANCIAL INSTITUTIONS WINTER 2018

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