Due 5pm Monday Apr 22, 2013 Questions for homework – email by 5pm Monday Apr 22. 1 – Discuss how different types of banks make money (investment bank, commercial bank, and “wholesale” bank like BNY that provides asset servicing, corporate trust, and treasury). For the purposes of this question, ignore asset management. Investment bank
Investment Banking: transaction fee from IPO ; capital raising fee Sales and Trading Division: selling and trading various equity and fix-income securities Research Division: sell the research report and get the branch warehouse. l Asset Management: managing the money from client and get management fee. Wealth Management: managing and advising the investments for clients. Commercial bank Providing services to individual clients of utilities and remittance. Making consumer loans, mortgages Taking deposits and offering products, such as checking accounts and CDs Making money by the spread of deposit rate and loan rate
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Wholesale bank Asset Servicing Division: providing ongoing service as custodians Corporate Trust: providing debt access and realizing client’s business vision Treasury: providing trade finance and logistics solutions 2 – Discuss the “lose no customers” mantra. What are some reasons this might not be a good idea? 1) Different company culture and risk management computer system might challenges 2) High exposure in investment management sector. 4) Revenue loss from client service disruption and pricing renegotiation 3 – Look at Exhibits 2a and 2b.
What are BNY and Mellon’s ROA and ROE? What might drive these differences? BNY: ROA=2. 77%, ROE=25%; MELLON: ROA=2. 24%, ROE=19% From exhibit 2, we can find BNY’s profitability is stronger than Mellon because BNY has stronger Asset serving, cleaning service, treasury services. Meanwhile, BNY offer more financial products and services. Making BNY would have more profit growth points. ===================================================== Questions for Case Team #8 Above items 1-3, plus: 4 – Consider the discussion of synergies in the case and exhibits.
What are the main obstacles to achieving these savings? 5 – Looking at Page 7 and whatever you can decipher from Exhibit 6, come up with a valuation range for the synergies (you may look up a WACC from Bloomberg or another source, no need to derive yourself). How much thought appears to have gone into the Exhibit 6 spreadsheet? 6 – Summarize the initial plan and the hybrid plan. Does the $700 million annual cost synergies number seem reasonable? What about $850 million? 7 – As the case ends, do you agree with Keaney and Palermo’s decision? Why or why not?