| In the current economic environment many | | | | A spreadsheet is a great tool for this methodology. |
| customers in North America are, for the first time | | | | Banks, like many Wall Street firms, like to ' window |
| every, questioning the financial stability of the banks | | | | dress ' - That means at key times, i.e. a year end, |
| that they deal with for corporate and personal | | | | they will often remix assets in order to show more |
| matters. | | | | favorable results. That is why the analyst or |
| It is exceedingly difficult for a non-financial person to | | | | customer should take a look at certain key accounts |
| understand the true financial picture of their bank - | | | | over different periods of time, for example quarterly. |
| but we will attempt to provide some basic analysis | | | | As in looking at any company you want to determine |
| that will allow one to get a sense of potential | | | | what the bank owns, who it owes money to (i.e. you |
| problems and areas in which they might wish to | | | | or your business!) and what the total capital number |
| pursue further with others. | | | | is. |
| It goes for any firm, bank or non-bank, that if there | | | | We also want to take a look at the over all liquidity, |
| has been a recent change in auditors that issue is well | | | | that is why our spreadsheet is handy, we can track |
| worth investigating. With reference to a bank this | | | | liquid assets over time. The best liquid assets for a |
| would be a serious matter if the auditors had raised | | | | bank are the cash they have on hand, monies that |
| the issue of 'internal controls. | | | | are due them by other banks, and government |
| Bank financial statements read significantly differently | | | | securities. |
| than a typical manufacturing or service company. The | | | | The next major category of assets is riskier assets - |
| 4 key areas that are related to a bank financial | | | | those are of course loans to customers and other |
| statement are: | | | | banks. Also, like any firm, the bank has fixed assets, |
| How the bank treats and records its investments | | | | such as real estate, furniture, computers, etc. |
| Consolidations of all their businesses | | | | We have taken a look at what the bank has. What |
| Loan loss reserves | | | | does it owe? Well it owes you and its other |
| Accrual policies - (How due they treat and record | | | | customers the money you have on deposit Banks |
| interest income that is due) | | | | also have their own borrowings of different types, |
| When a business person or financial analyst looks at a | | | | and those need to be analyzed carefully. Also, it is |
| regular firms financials there are some very traditional | | | | advisable to track the loan loss reserves to see how |
| ways of looking at that financial statement - those | | | | dramatically they fluctuate. |
| ways are leverage, liquidity, profitability,.There are | | | | In summary, there are a number of different parties |
| tens, in fact hundreds of ratios and analytical | | | | very interested today in bank financials, up to an |
| techniques that one employs to look at a ' typical' | | | | including our government. And oh yes, there's |
| firms financial statement. Unfortunately and here is | | | | yourself because in some case your entire life saving |
| the challenge, these techniques don't really work on a | | | | might be parked at the bank. The average person |
| banks financials. | | | | probably has to rely on their financial advisors and |
| Thos techniques don't work because it is | | | | others to get a true sense of their banks true |
| exceptionally difficult to understand banks asset | | | | condition, but we have hopefully demonstrated that |
| quality, and many banks present the material in such | | | | even some basic analysis can lease the average |
| a way as it is simply even difficult to extrapolate the | | | | person to get a sense of how their bank is doing. |
| basics. They say timing is everything, and because | | | | Concerns about bank financials are growing, and in |
| banks assets are literally changing all the time it is | | | | fact are at the extreme end of the pendulum re |
| difficult for one to put a handle on the values and | | | | overall market concern - so we should all have some |
| mixes. | | | | sense of interest in how our banks our doing. When |
| One of the best ways, and somewhat traditional, to | | | | we are caught off guard history has shown it's |
| analyze a banks financials is to create a format that | | | | already too late. |
| allows one to track certain data elements over time | | | | |