Essay about Financial Statement Analysis

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Wells Fargo & Co. and SunTrust Bank are two of the largest US banks, both in the top on SNL Financial’s list of 2012’s largest banks (Forbes, 2012). Although both companies are in the same business they each do business in different ways, with different focuses. Wells Fargo is a larger national bank, with branches and ATM’s in 39 states, SunTrust is a slightly smaller regional bank with branches located in only the south east in 9 states. Both banks use customer deposits to fund their primary income source of loans and mortgages, as well as offering financial advisors and investments.
Over the recent recession both banks have found ways to remain profitable, Wells Fargo even used to opportunity to expand its market with the takeover of Wachovia Banks, expanding their branches into 15 more states and the District of Columbia beginning December 31, 2008 (WF, 2009). Along with new opportunities the recent financial crisis has brought more stringent regulation in the banking industry. Because of the importance of banks in the local, state, and federal economies the financial industry is heavily regulated at each level. After the weaknesses exposed by the recent financial crisis new regulations were put in place. Among these regulations was the Dodd-Frank Act, signed into law July 21, 2010, the Dodd-Frank Act mandates annual stress tests to ensure intended to ensure institutions have sufficient capital to absorb losses and support operations during adverse economic conditions so that they do not pose risks to their communities, other institutions, or the broad economy” (FRB, 2013). The most recent of these stress tests just concluded at the beginning of March 20 13. Other areas of consideration for both financial institutions are the interest rates, both the discount rate the Federal Reserve charges banks to borrow money, as well as the rates both paid and charged by competing banks and credit unions. If a competing bank offers significantly higher interest on deposit accounts then clients may move money away, leaving the banks less capital available to lend, similarly if competing banks or credit unions offer loans with significantly lower interest rates the bank may also lose customers, or lose income as they try to match the lower interest rates. Additionally the economy as a whole greatly affects the banking industry; higher unemployment will mean fewer deposits are being held in the bank lowering the total amount the banks can lend out to their customers, higher unemployment also results in less borrowing as customers have less disposable income to buy new cars, make home improvements, or buy a new home. A sagging housing market results in lower home prices so the mortgages that are taken
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