Presentation Transcript

1. MICHAEL OGBUJU Bus 635: Summer 2013 Economic Analysis Project Case Study of M&T Bank June 26th, 2013

2. M&T BANK AND INDUSTRIAL OVERVIEW

   Manufacturer and Traders Bank (M&T) is a regional non-union commercial bank established in 1856 in Buffalo, New York with an asset that just surpassed $100 Billion. They have a workforce of 14,943, 799 Branches and 2000 ATM’s spread across New York, Maryland, Pennsylvania, Washington, District of Columbia, Virginia, West and Delaware. The bank generated 4.16Billion in Revenue in 2012 and most of this came from deposits from clients, interest received and fees. They have a 1.4Billion deposits with various banks and 13.1Billion with US Treasury. Total expense in 2012 was $2.5Billion and most of this came from employee salaries, equipment's, printing, leasing, maintenance and other cost of operation. The cost structure shows the bank is engaged in a capital intensive operation with huge start up cost, entry and operation cost. It is in a highly competitive industry but intensely regulated because of the 509 bank failures experienced since 2000 and the mortgage meltdown recently. Although entry cost is high, we have over 9,459 competitors in the industry of which 4,893 has over $100Million in assets, 3517 has between $100 to $500M, 859 has $500M to $5Billion, 150 has $5B to 50Billion, 22 has more than $50Billion depending on the level of banking business engaged in. Some of the new regulations affecting the bank are the Dodd-Frank Regulations, tax and anti-money laundry laws that discourages the bank from taking too much risk, performing better due diligence and prevent future financial failures. Also, through open market operation (OMO), The Federal Reserve Bank is able to mop out excess fund in circulation and regulate money supply in the economy. This keeps interest rate low and inflation at bay so the government is able to encourage or discourage spending.
3. M&T BANK GROWTH PROSPECT AND REGULATIONS M&T bank has grown in size and scope since inception through various mergers and acquisition. They acquired All State Financial in April 2003 that lead to 50.2% increase in deposit, Wilmington Trust in May 2011 that increased deposits by 17.5% and currently finalizing the purchase of Hudson City Bancorp in New Jersey pending regulatory body approval. Profit margin as at March 31, 2013 increased by 26.34%. Although the banking market can be described as a perfect competition so no notable barriers to entry exist, it can although prove very expensive to set up a bank because of the high capital requirement and required fund with Federal Reserve Bank. The average M&T Bank customer has had a deposit with the bank for 15 years and they reward customer loyalty with low interest on loans and fee waivers. But most of the bank product is similar to other competitors product like the traditional checking account, savings account, save for college, retirement planning, mortgage, online and mobile banking. They do offer very few specialized product like health savings account and sale of bank properties, M&T Reward program and web trading. Although the United States has approximately 20.1% under-banked population according to FDIC, M&T bank face immense threat from competitors in the subprime mortgage industry, threat from bigger banks like Chase and Bank of America that can lower rate and take more risk, threat from loosing customers to national banks that have braches across the country. Having just surpassed $100Billion in Assets, the bank is exposed to a different level of risk which include high commercial loan portfolio risk, jumbo loans default and law suit from aggrieved customers so the need to appoint a team of risk managers lead by a Chief Risk Officer. This team has over 100 highly paid staff with offices across the region thereby increasing the banks operation cost in the short run but saving the bank Billions in the long run.
4. M&T BANK AND THE MACROECONOMIC ENVIRONMENT M&T bank is pro-cyclical because it is positively correlated with the state of the economy. When the bank increases lending to small scale business owners, they in turn spend money investing into small scale manufacturing, retail, restaurants etc. which in turn stimulate the economy. The bank on their end benefit on the interest on loans and improved stock price (now $106.25). So both the demand side and supply side benefit from a robust banking institution. Evidence of the stock price increase is shown below. On the aggregate level, when the combined 9,459 banks in the United States lends to businesses and individual, it will contribute to increased GDP of the country because of the investment growth associated with it. In the long run unemployment will be kept low, inflation will not rise out of control and savings will increase. The circle now goes back to the banking industry who will benefit from higher savings and extend this savings for loans, investments, portfolio management and equipment leasing. Also, interest rate on loans will fall because of stiff competition. For instance if a customer trying to buy a new car does not get funding from the car dealership in house finance, they can be approved by other lenders. Often times, the buyer can choose from multiple finance option and will go for the one with the lowest rate. Overall, M&T Bank has had an above average result in the face of varying macroeconomic environment. For instance, they have consistently paid increased dividend to shareholder from the bank’s profit even during the just concluded financial crisis. Evidence of this is shown in the graph below. Although the bank adopted better lending policy, it has not reduced the amount of loans to it’s core customers like small business owners and individuals even when interest rate were up. Government expansion or contraction policy through Federal Reserve Bank over the years has not affected the bank much because it has continued to innovate by tapping into un-banked and under-banked part of the region to grow customer base.
5. M&T BANK INTERNATIONAL BUSINESS ENVIRONMENT After the acquisition of Wilmington Trust, the bank expanded it’s international presence to England, Spain, Canada, Northern Ireland, Germany, India and China. They now operate Trust Services in Europe and Asia. In India, they maintain a full Operation Department that helps with data entry functions and it is directly headed by the Vice President of Treasury Operations. Through correspondence and minor holding of the bank, they provide banking services in Europe, Asia and South America. This means they are exposed to exchange rate fluctuations but are careful to stay up to date with information so it does not affect the bank adversely. They have an international trade and banking department based in North America that oversees international arm of the organization. The employees in that department are constantly trained on how to identify and report cases of fraud and money laundering across countries using the bank as disguise. An example of this kind of fraudulent activity includes Fraudulent official checks (international checks), Fake money orders, purchase scam, lottery scam. The IT department of the bank in North America also oversees the entire operation that includes money transfers, email messages, data center and security of the clients information. Although, they are constantly exposed to fraudulent activities like Phishing (technic used to gain personal information for the purpose of identity theft using email and instant messaging that seem to originate from the bank), Vishing ( technic used to gain personal information for the purpose of identity theft using the telephone that seem to originate from the bank), Pretexting (getting personal information under false pretenses; including written fraudulent statements and impersonation, Popularly called social engineering). They have been able to reduce loss associated with these kind of activities over the years. M&T Bank has successfully meet the challenges of doing business across the globe by putting in place solid IT Security Department, state of the art fire wall systems and encouraging people to call the Federal Trade Commission when they notice or become victim of fraudulent activities. They also abide by the financial laws of foreign countries they do business in including applicable tax laws.
6. M&T BANK- CONCLUSION M&T Bank is a strong financial institution with record of performance based on the stock price, financial statements, dividend paid out to date and growth both in size and scope. They have strictly abided by required government regulations during period of high volatility and competition without taking unreasonable risk. M&T Bank is committed to providing profitable customer relationship with it’s numerous clients as shown in their mission statement “M&T strive to be the best company our employees ever work for, the best bank our customer ever do business with and the best investment our shareholder ever made”. The bank constantly strive to protect customers information worldwide.
7. MTB STOCK PRICE INCREASE FROM OCTOBER 4TH, 1991 TO MAY 1ST, 2013 MTB STOCK
8. MTB STOCK PRICE GRAPH SHOWS AN INCREASING TREND IN 21 YEARS ON A MONTHLY BASIS EXCEPT 2008-2009 DURING THE FINANCIAL MELTDOWN
9. MTB STOCK PRICE INCREASE FROM 2008-2012 WITH A SLIGHT DECREASE IN 2011
10. M&T DIVIDEND PAYOUT
11. MTB DIVIDEND PAYMENT GRAPH SHOWS INCREASE OVER THE YEARS
12. MTB INCOME STATEMENT AS AT DECEMBER 2012 SHOWS A HIGH NET INCOME IN 2012 AS SHOWN IN BOLD BLUE BELOW View: Annual Data | Quarterly Data All numbers in thousands Period Ending Dec 30, 2012 Dec 30, 2011 Dec 30, 2010 Total Revenue 4,608,955 4,374,999 3,837,895 Cost of Revenue 116,586 157,435 187,685 Gross Profit - - - Operating Expenses Research Development - - - Selling General and Administrative 2,448,629 2,416,451 1,856,734 Non Recurring - - - Others 264,631 331,617 426,103 Total Operating Expenses - - - Operating Income or Loss - - - Income from Continuing Operations Total Other Income/Expenses Net - - - Earnings Before Interest And Taxes 1,779,109 1,469,496 1,367,373 Interest Expense 226,583 244,896 274,584 Income Before Tax 1,552,526 1,224,600 1,092,789 Income Tax Expense 523,028 365,121 356,628 Minority Interest - - - Net Income From Continuing Ops 1,007,987 835,248 710,393 Non-recurring Events Discontinued Operations - - - Extraordinary Items - - - Effect Of Accounting Changes - - - Other Items - - - Net Income 1,029,498 859,479 736,161 Preferred Stock And Other Adjustments - - - Net Income Applicable To Common Shares 1,029,498 859,479 736,161
13. MTB BALANCE SHEET COMPARISM FOR 3 YEARS 2009-2012 SHOWS AN INCREASE IN TOTAL ASSET AND SHAREHOLDERS EQUITY
14. MTB BALANCE SHEET COMPARISM FOR 3 YEARS 2009-2012 SHOWS AN INCREASE IN TOTAL ASSET AND SHAREHOLDERS EQUITY
15. REFERENCES https://www.mtb.com/aboutus/Pages/Index.aspx http://finance.yahoo.com/q/ks?s=MTB+Key+Statistics http://www.federalreserve.gov/bankinforeg/default.htm http://www.wilmingtontrust.com/wtcom/index.jsp?section=Corp&fileid=1146064965000 http://research.stlouisfed.org/fred2/search?st=USA+Bank+GDP http://finance.yahoo.com/q/hp?s=MTB&a=00&b=1&c=1970&d=04&e=1&f=2013&g=m&z=66&y=0 M&T 2012 Annual Report M&T Insider on the bank intranet Professor Jeffrey W. Smith BUS 635 Power Point Contemporary Economics by Robert J. Carbaugh. 6th Edition 2011.