Internet Assignment

2) I think the guest speaker is right and Bank Of America (BOA) is one of the most profitable banks of its size. BOA’s net income in 2011 is nearly 1.5 billion compare to last year was negative 2.2 billion. It means that BOA improves their management and operates more efficient this year than last year. Its profit margin (1.81%) and operating margin (13.37%) is positive. Its market cap is 105.71B, much higher than industry average (40.35B. BOA has much higher growth rate (27.10%) compared to Citi group(5.8%) or JP Morgan (-16.3%). Its revenue (80.04B) is higher than Citigroup and much higher than industry average (24.6B). Since the beginning of 2012, BOA’s stock price has risen up continuously from $5.55 to $9.85. It means that stockholders’ belief in BOA’s potential growth is increasing.

3) Wachovia credit-default swap now trade between 28% to 33% “upfront”. It means that investors seeking protection against defaults. Spreading upfront means that the investors wanted Wachovia pay higher level upfront, to protect investors ‘money. That put Wachovia in distressed level and in failure. Wachovia was acquired by Wells Fargo by 2009.

Credit- default swap on Wells Fargo climbed from 11.9 points to 156.5 basis points and to 360 points at Oct 4, 2011. The stock prices fell and kept at low price in the 4th quarter last year but they keep increasing since January 2012 until now.

Wells Fargo has credit risk because their assets and liabilities mature at different time. They also have risk of mortgage banking interest-rate risks. Those risks include credit, liquidity and interest rate risks. To manage the credit risk, they use statistical credit underwriting, frequent risk measurement, extensive credit training programs and loan review. They also use securities available for sales and hedges to against the changes in the value of mortgages.