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ASSIGNMENT 6:

ANALYSIS OF ARTICLES PERTAINING TO BANKS

Prepared for:
Syeda Mahrufa Bashar
Course Instructor: F403 Financial Markets and Institutions
Assistant Professor
Institute of Business Administration, University of Dhaka

Prepared by:
RH-01 Fariha Islam
ZR-03 Abdullah Atique
ZR-06 Munkasir Masud Bhuiyan
ZR-60 Sajeed Alam
RH-63 Sayeda Shifat Nazmee
Group 01 Section-A BBA 20th

Institute of Business Administration, University of Dhaka


May 28, 2015

SUMMARY OF ARTICLE 1:
GLOBAL BANKS
A WORLD OF PAIN
THE GIANTS OF GLOBAL FINANCE ARE IN TROUBLE
Since the 1990s, three kinds of international firms have emerged- investment banks, banks that have
gone native, and the global network banks. The global network banks are considered the most popular
approach and engage in a number of financial activities such as lending to and shifting money for
multinationals in scores of countries, and in some places acting like a universal bank doing everything
from bond-trading to car loans.
While this model of global banks include some of the biggest names in the world, it is now in deep
trouble. Giants such as JPMorgan Chase, HSBC, Citigroup, Deutsche Bank, and Standard Chartered
are likely to shrink down their global operations, and in some cases risk closure. Domestic lenders
such as Lloyds, Wells Fargo, and other midsized banks are doing much better. Among the global
giants, only JPMorgan Chase is doing passably well in terms of ROE, all others doing much worse
financially.
Around 20 years ago, the banks hoped that globalization would lead to an explosion in trade and
capital flows. As they expanded in the 1990s and 2000s, all of these global giants such as BNP
Paribas, Deutsche Bank, HSBC, Standard Chartered, and Chase concentrated on multinationals.
However, trade finance, currency trading and cash management typically account for only a quarter of
sales today. The model of global network banks is in trouble for three reasons difficulty in
management, fierce competition from second-rate firms, and the regulatory backlash after the
financial crisis of 2008-09.
Some of the measures of viability for global banks include best case return on equity and the
comparison between the benefits of being global with the costs. None of the global giants look good
in terms of these measures from the outside, whereas the internal situation are thought to be even
worse.
However, although the financial arguments for global banks no longer appear convincing,
unscrambling these firms would be hellish. There are two possible rays of light for global banks gradually rising interest rates in America and declining competition. Nevertheless. There will always
be new competition to push down margins possibly from the expanding banks from Japan and
China. The Western global network banks were right about globalization, but they have yet to work
out how to prosper from it.

SUMMARY OF ARTICLE 2:

PERFECTLY FORMED - SMALL BANKS GAIN AN EDGE OVER GLOBAL TITANS


The case presents a short summary of the cold fights and gains of one over other between small and
large banks along with a comparative scenario of banking industry in America and Britain.
Precisely the case connotes that while the large banks are centered on big law suits and fierce
regulation the small ones are enjoying rapid growth and lax regulations.
In America, on one side where the 25 largest banks have loaned out increasingly at 4% annually on
other side 7000 smaller banks, most of which are single branch, have doubled their volume of loans
approaching to double digits. Consequently the smaller banks have been able to raise their
profitability over their relative larger competitors. A similar situation exists in Britain. The smaller
fish are outpacing the growth of larger ones. Metro bank which was acclaimed as a pioneer in highstreet banking would be raising profits from a stock market listing in 2016. This high profitability can
be accounted by its full time banking hours, 7 days a week. In contrast the Swedish lender
Handelsbanken contributed its success to its simple belief: the approval authority of loans to be given
to local branch managers. Similarly along the line an online bank known as Atom Bank would soon
open in 2015.
The difference in legal issues accounts for the investment side of finance which is proportionally
larger for big banks. Formerly the larger banks had an advantage in foreign currency trading or
derivatives- however the same income source are now costing them lump sum fines thereby lowering
their profitability These increasing regulatory issues are the reasons why the international banks are
considering the entry to these markets would no longer provide any significant benefits.
Investment banking as well as advisory business where Goldman Sachs or JPMorgan had a
competitive advantage are now facing increasing competitive pressures. Independent corporate
finance house now comprise a third of the market. Boutique firms which recommended on six out of
ten largest M&A deals are categorized as financial-data provider. However, big banks are still at a
competitive advantage on certain scales. For instance certain investment banking activities like
trading of bonds, commodities and currencies cannot be operational by small banks. Additionally
bigger banks take advantage of political authority to escape unfavorable regulation- an advantage
which is not enjoyed by small banks. As an example Chinese small banks have been facing regulatory
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issues due to the expansion of off-balance sheet activities while the similar larger banks are facing no
such harassment.
In conclusion the crisis in 2008 is evidence of low failure rates of large banks. Large banks enjoy
economies of scale allowing them to lend out cheaper source of loans. Still 2015 appears to be a
relatively favorable towards smaller banks over larger ones.

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