Financial analysis

The Objective: The purpose of this project is for you to analyze and understand the risk exposure and risk management of Canadian financial institutions (FIs) by examining the financial statements of a specific Canadian bank. You are to approach the assignment from the perspective of an analyst who has been asked to prepare a business report. The focus of the study this term is the foreign exchange risk and international exposure of Canadian FIs.

Source of data:

  1. Go to http://www.rbc.com/investorrelations/  and download the FI’s 2012 Annual Report from the Investor Relations section of the bank’s web site. You should also download the quarterly reports and any press releases that you think are relevant.

1.

  1. PriceWaterhouseCoopers provides analysis of the Canadian banking environment and individual Canadian banks. PWC’s report, Canadian Banks 2013 A new normal: Perspectives on the Canadian banking industry provides comparisons of the banks and is available in pdf format at:

http://www.pwc.com/ca/en/banking-capital-markets/canadian-banks.jhtml

 

  1. The Office of the Superintendent of Financial Institutions (OSFI): http://www.osfi-bsif.gc.ca/

Here you can download the latest monthly and quarterly reports to OSFI by all Canadian banks.

 

  1. The Canadian Banker’s Association provides a summary of Basel III (Global Banking Regulations and Banks in Canada, September 2013) as it relates to Canadian banks, and also discusses the regulations pending in the U.S. You can download a pdf file this report here:

http://www.cba.ca/en/media-room/50-backgrounders-on-banking-issues/667-global-banking-regulations-and-banks-in-canada

 

  1.  Use any other sources of information such as newspapers, analyst’s reports etc. and documents that help you understand your bank.

5.

 

What to Do:

Your report will cover the following topics:

Part 1: Introduction (approximately 2 pages)

Provide an introduction to the bank that you have chosen to study: what does this bank do? What does the bank recognize as its major sources of risk? How does it manage risk?

 

Part 2: Foreign Exchange Risk and International Exposure (approximately 5 pages)

1. Discuss the foreign exchange risk exposure of your chosen bank. Which countries? What types of on balance sheet assets contain foreign exposure (show total dollar amounts and percentage of the total assets)? What is the percentage of total assets for each country or region? What types of off balance sheet items have a foreign exposure (dollar amounts and percentage of the total)? Is your bank globally diversified?

2. Given the exposure that you have described above, does your FI have a regulatory risk related to their operations? For example, if your bank operates in the U.S., Europe, South America or Asia, has the bank identified risks of changing regulations or currencies that could put their operations at risk? Describe the impact on your bank.

3. How does a change in the value of the Canadian dollar affect your bank’s income? Its balance sheet?

 

Part 3: Comparison with A Canadian Life Insurance Company (approximately 2 pages)

Canadian life insurance companies also have extensive international exposure. Compare the international exposure (U.S. and other countries) of your bank with either Manulife Financial or Sun Life Financial. How do the foreign exchange risks and the foreign exposure differ between your bank and the life insurance company?

 

Part 4: Conclusion: Your bank as a Global FI (approximately 1 page)

Chapter 5 of the PWC 2013 report states that Canadian banks are ‘considered to be some of the safest banks globally’ (PWC 2013, page 26) as does the CBA Report (CBA 2013, page 1). Explain why (or why not) the bank that you have studied is ‘safe’. Summarize your analysis and your view of this bank’s place as a Canadian and global financial intermediary.

 

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