Equity Spreadsheet by nhu20575

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									                          Performance of
                      Financial Services Firms
                                          Week 2 –
                                        August 31, 2006



J. K. Dietrich - FBE 525 - Fall, 2006
    Stock Performance:
    Market Rate of Return
             Most  important to investors
             Increase in wealth is focus
                   – Can be measured by share price changes
                   – Standard way is to look at rate of return
                                 Dt  Pt  Pt 1
             Definition: RORt 
                                      Pt 1
             Interpretation:           Dividend Yield + Gain


J. K. Dietrich - FBE 525 - Fall, 2006
    Assessing Performance
             Interpretation            must be careful
                   – Market performance
                   – Comparable firm performance
                   – Risk and return must be considered
             Compare  biggest banks since 1990
             What are the best firms in banking?
                   – Answer in terms of market rate of return
                   – Future may not be like past


J. K. Dietrich - FBE 525 - Fall, 2006
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    Performance since 2000
                                                               Bank Stocks Since 2000


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                           1-2000   7-2000   1-2001   7-2001     1-2002         7-2002   1-2003     7-2003   1-2004   7-2004
                                                                                Date

                                                                Citi      JPM      WFC    VwtdRet


J. K. Dietrich - FBE 525 - Fall, 2006
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                                                                                                                                                              ONE AND MEL 1990 2004




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                                                                                                                                                                                      Bank Performance – ONE and MEL




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    Alternative Valuation Measures
             Price-earnings            multiples (P-Es)
                   – Related to cash payouts, growth, risk-adjusted discount
                     rate
                   – Think of a price of a dollar of earnings
                   – Effect of differing P-Es on acquisitions
             Book-to-market  ratios
             Cash flow to price (price of a dollar of cash flow)
             Liquidation value (Assets – Liabilities)
             Discounted cash flow (DCF) methods
             Value Line examples

J. K. Dietrich - FBE 525 - Fall, 2006
    Cost of Equity
             CAPM                 estimates
                   – Source of betas
                   – Problems with CAPM
                   – Alternatives (APT, 2-factor models)
             Average  historical returns
             Growth methods based on dividend yield
              and return on equity times retention rate
             Necessary to evaluate future cash flows to
              equity
J. K. Dietrich - FBE 525 - Fall, 2006
    Accounting Performance:
    Return on Equity
             Analysis     for financial firms must be tailored
                 to specifics of their operations
                   –   Deposit-taking
                   –   Insurance
                   –   Securities firms
                   –   Asset management firms
                   –   Others
             Analysis                  proceeds in stages


J. K. Dietrich - FBE 525 - Fall, 2006
    Steps to Financial Analysis
             Step 1 - Obtain data
             Step 2 - Simplify financial statements
             Step 3 - Basic ratio analysis
             Step 4 - Segment analysis
             Steps 5 and 6 - Benchmarks and analysis
             These steps required for Part 1 of project




J. K. Dietrich - FBE 525 - Fall, 2006
    Bank Income Statement (WFC)
    WELLS FARGO & CO
    TICKER SYMBOL: WFC                                  SIC: 6020
    FINANCIAL SERVICES
    ($ MILLIONS, EXCEPT

                                                                   Dec-04                 Dec-03                 Dec-02                  Dec-01                Dec-00                 Dec-99                 Dec-98                 Dec-97                 Dec-96                 Dec-95
    Total Interest Income                                       20,967.00               19,418.00              18,459.00              19,201.00              18,725.00              14,375.00              14,055.00               6,697.40               6,318.30               5,717.30
    Total Interest Expense                                        3,817.00                    1
                                                                                          3,41 .00              3,977.00               6,741.00               7,860.00               5,020.00               5,065.00               2,664.00               2,617.00               2,448.00
    Net Interest Income                                           7,1
                                                                 1 50.00                16,007.00              14,482.00              12,460.00              10,865.00               9,355.00               8,990.00               4,033.40               3,701.30               3,269.30
    Provision for Loan Losses                                       ,71
                                                                   1 7.00                1,722.00               1,684.00               1,780.00               1,329.00               1,045.00               1,545.00                   524.7                  394.7                  312.4
    Net Interest Income After Provision
    for Loan Losses                                              15,433.00              14,285.00              12,798.00              10,680.00               9,536.00               8,310.00               7,445.00               3,508.70               3,306.60               2,956.90

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Other Noninterest Inc/Exp (Net)                                         .                      .                      .                      .                      .                      .                      .                      .                      .                      .
    Special Items                                                      -174                       0                      0            -1,484.00                    -701                       0               ,1
                                                                                                                                                                                                            -1 52.00                    27.3                       0                      0
    Total Other Income                                                      .                      .                      .                      .                      .                      .                      .                      .                      .                      .

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Salaries, Occupancy & Equipment                                         .                      .                      .                      .                      .                      .                      .                      .                      .                      .
    Salaries, Depreciation                                        3,449.00               4,305.00               4,297.00               2,961.00               1,790.00               1,893.00               1,205.00                   853.2                  681.6                     1
                                                                                                                                                                                                                                                                                      31 .8
    Total Other Expenses                                                    .                      .                      .                      .                      .                      .                      .                      .                      .                      .
    Pretax Income                                                10,769.00               9,477.00               8,854.00               5,479.00               6,549.00               5,948.00               3,293.00               2,049.70                1,781.50              1,422.80
    Income Taxes                                                  3,755.00               3,275.00               3,144.00               2,056.00               2,523.00               2,201.00               1,343.00                   698.7                  627.6                  466.8
    Minority Interest                                                     C                      C                      C                      C                      C                      C                      C                      C                      C                      C
    Income Before Extraordinary Items
    and Discontinued Operations                                   7,014.00               6,202.00               5,710.00               3,423.00               4,026.00               3,747.00               1,950.00                1,351.00                ,1
                                                                                                                                                                                                                                                           1 53.90                     956
    Preferred Dividends                                                    0                      3                      4                     14                     17                    35                     35                    17.8                   17.8                   41.2
    Available for Common                                          7,014.00               6,199.00               5,706.00               3,409.00               4,009.00               3,712.00                 ,91
                                                                                                                                                                                                             1 5.00                1,333.20                1 36.1
                                                                                                                                                                                                                                                            ,1   0                   914.8
    Savings Due to Common Stock
    Equivalents                                                            0                      0                      0                      0                      0                      0                      0                      0                      0                      0
    Adjusted Available for Common                                 7,014.00               6,199.00               5,706.00               3,409.00               4,009.00               3,712.00                 ,91
                                                                                                                                                                                                             1 5.00                1,333.20                1 36.1
                                                                                                                                                                                                                                                            ,1   0                   914.8
    Extraordinary Items                                                    0                      0                  -276                       0                      0                      0                      0                      0                      0                      0
    Discontinued Items                                                     0                      0                      0                      0                      0                      0                      0                      0                      0                      0

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Adjusted Net Income                                           7,014.00               6,199.00               5,430.00               3,409.00               4,009.00               3,712.00                 ,91
                                                                                                                                                                                                             1 5.00                1,333.20                1 36.1
                                                                                                                                                                                                                                                            ,1   0                   914.8

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Earnins Per Share (Primary) -
    Excluding Extra Items & Disc Ops                                    4.15                  3.69                   3.35                    1.99                  2.36                   2.26                    .1
                                                                                                                                                                                                                  18                     1.78                  3.07                   2.76

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Earnins Per Share (Primary) -
    Including Extra Items & Disc Ops                                    4.15                  3.69                    3.19                   1.99                  2.36                   2.26                    .1
                                                                                                                                                                                                                  18                     1.78                  3.07                   2.76

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Earnins Per Share (Fully Diluted) -
    Excluding Extra Items & Disc Ops                                   4.09                   3.65                   3.32                    1.97                  2.33                   2.23                    .1
                                                                                                                                                                                                                  17                     1.75                  3.07                   2.73

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    Earnins Per Share (Fully Diluted) -
    Including Extra Items & Disc Ops                                   4.09                   3.65                    3.16                   1.97                  2.33                   2.23                    .1
                                                                                                                                                                                                                  17                     1.75                  3.07                   2.73

    -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
    EPS from Operations                                                 4.21                  3.69                   3.35                   2.56                   2.63                   2.26                    1.64                   1.75                  3.07                   2.76


    Source: S&P COMPUSTAT data delivered by WRDS http://wrds.wharton.upenn.edu/.


J. K. Dietrich - FBE 525 - Fall, 2006
       Bank Balance Sheet (WFC)
 WELLS FARGO & CO
 TICKER SYMBOL: WFC           SIC: 6020
 FINANCIAL SERVICES ANNUAL BALANCE SHEET
 ($ MILLIONS)

                                                              Dec-04                 Dec-03                 Dec-02                  Dec-01                Dec-00                 Dec-99                 Dec-98                 Dec-97
ASSETS
Cash & Due from Banks                                       16,526.00              18,292.00             20,994.00               19,498.00              18,576.00              14,804.00              14,248.00               5,926.10
Loans                                                     287,586.00             253,073.00             192,478.00             172,499.00              1 ,1
                                                                                                                                                        61 24.00               1
                                                                                                                                                                              1 9,464.00            107,994.00              54,776.60
Less: Allowance for Loan Loss                                3,762.00               3,891.00               3,819.00               3,761.00               3,719.00               3,170.00               3,134.00               1,233.90
Net Loans                                                 283,824.00             249,182.00             188,659.00             168,738.00             157,405.00               1
                                                                                                                                                                              1 6,294.00            104,860.00              53,542.70
Net Premises and Equipment                                   3,850.00               3,534.00               3,688.00               3,549.00               3,415.00               2,985.00               3,130.00               1,295.50
Intangibles                                                 18,582.00              17,277.00              15,226.00              16,900.00              16,322.00              13,701.00              12,254.00               2,774.90
Assets Held for Sale                                       38,674.00              36,722.00               58,014.00              35,321.00              16,479.00              16,835.00             25,265.00               12,305.30
Investment Securities                                      44,430.00               41,872.00             40,450.00                   1
                                                                                                                                 48,1 9.00             42,432.00                 ,1
                                                                                                                                                                               41 85.00               31,997.00               9,21
                                                                                                                                                                                                                             1 8.00
Investments at Equity                                                  .                      .                      .                      .                      .                      .                      .                      .
Other Assets                                                20,514.00              15,898.00              17,445.00              1 ,382.00
                                                                                                                                  1                     13,655.00               8,951.00              10,721.00              -6,522.30

-------------------------------------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
TOTAL ASSETS                                              427,849.00             387,798.00             349,197.00             307,569.00             272,426.00                8,1
                                                                                                                                                                              21 02.00              202,475.00               88,540.19

-------------------------------------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
LIABILITIES
Short Term Borrowings                                       21,962.00             24,659.00              33,446.00              37,782.00              28,989.00              27,995.00               15,897.00               9,557.00
Total Deposits                                            274,858.00             247,527.00                6,91
                                                                                                         21 6.00               187,266.00             169,559.00             132,708.00             136,788.00               55,457.10
Long Term Debt                                             73,580.00              63,642.00              50,205.00              38,530.00               32,981.00              24,160.00             20,494.00               12,766.70
Minority Interest                                                    C                      C                      C                      C                      C                      C                      C                      C
Other Liabilities                                           19,583.00              17,501.00                8,31 .00
                                                                                                           1 1                   16,777.00              14,409.00                1 08.00
                                                                                                                                                                                1 ,1                   8,537.00               3,737.20

-------------------------------------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
EQUITY
Preferred Stock                                                     -19                    -15                     61                    64                    267                    271                    463                    188
Common Stock                                                 2,894.00               2,894.00               2,894.00               2,894.00               2,894.00               2,777.00               2,769.00                 ,281
                                                                                                                                                                                                                               1 .90
Capital Surplus                                              9,806.00               9,643.00               9,498.00               9,436.00               9,337.00               8,785.00               8,670.00                   409.5
Retained Earnings                                          27,432.00              23,780.00               20,331.00              16,757.00              15,065.00              12,088.00               9,508.00               5,417.60
Less: Treasury Stock                                         2,247.00               1,833.00               2,465.00               1,937.00               1,075.00               1,790.00                     651                  274.8
Common Equity                                              37,885.00              34,484.00              30,258.00               27,150.00              26,221.00              21,860.00             20,296.00                6,834.20

-------------------------------------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
TOTAL EQUITY                                               37,866.00              34,469.00               30,319.00              27,214.00             26,488.00                   31
                                                                                                                                                                               22,1 .00              20,759.00                7,022.20

-------------------------------------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
TOTAL LIABILITIES AND EQUITY                              427,849.00             387,798.00             349,197.00             307,569.00             272,426.00                8,1
                                                                                                                                                                              21 02.00              202,475.00               88,540.19
 Source: S&P COMPUSTAT data delivered by WRDS http://wrds.wharton.upenn.edu/.




J. K. Dietrich - FBE 525 - Fall, 2006
     Bank Ratio Analysis (WFC)
   WELLS FARGO & CO
   TICKER SYMBOL: WFC                                  SIC: 6020
   FINANCIAL SERVICES
   (Percentage except as

                                                                  Dec-04                 Dec-03                 Dec-02                  Dec-01                Dec-00                 Dec-99                 Dec-98                 Dec-97                 Dec-96                 Dec-95
   PROFIT ABILIT Y
   Pretax Profit Margin                                              31.79                   29.8                  30.29                   19.31                 23.76                  27.29                  16.08                  21.28                  20.06                  18.76
   Net Profit Margin                                                  20.7                    19.5                 19.54                  12.06                    14.6                   7.1
                                                                                                                                                                                         1 9                    9.52                  14.03                  12.99                   12.61
   Return on Assets                                                    1.64                    1.6                   1.63                    .1
                                                                                                                                             11                    1.47                    1.7                  0.95                    1.51                   1.42                   1.27
   Return on Equity                                                   18.51                 17.98                  18.86                  12.56                  15.29                  16.98                   9.44                   19.51                 19.34                  18.26
   Return on Investment                                               7.24                   7.22                       9                   6.13                  7.93                   1 .28
                                                                                                                                                                                          1                       5.7                  7.46                   6.88                    6.13
   Net Interest Margin                                                4.89                   5.08                   5.53                   5.36                   5.35                   5.66                   5.79                   5.74                   5.63                   5.58
   Risk-Adjusted Capital Ratio - Total                               12.08                   12.21                  1 .44
                                                                                                                     1                    10.45                    10.4                   10.5                   10.9                  1 .01
                                                                                                                                                                                                                                        1                    10.42                    0.1
                                                                                                                                                                                                                                                                                     1 8
   Risk-Adjusted Capital Ratio - Tier 1                               8.42                   8.42                     7.7                  6.99                   7.29                   8.07                   8.08                   9.09                   8.63                    8.11
   Risk-Adjusted Capital Ratio - Tier 2                               3.66                   3.79                   3.74                   3.46                    3.11                  2.43                   2.82                    1.92                   1.79                  2.07

   -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
   DIVIDENDS
   Dividend Payout                                                   44.91                  40.76                  32.83                  50.16                  39.14                  34.83                  51.28                  34.63                  33.94                  32.42
   Dividend Yield                                                     2.99                   2.55                   2.35                     2.3                   1.62                   1.94                   1.75                   1.59                   2.41                  2.73
   Dividends per Share                                                 1.86                    1.5                     1.1                     1                    0.9                  0.79                     0.7                  0.62                    1.05                    0.9
   One Year Total Return                                                   .                -5.25                 -20.41                  -7.25                   28.11                -27.38                   -1.24                 -2.97                 -43.87                 -24.14

   -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
   BALANCE SHEET
   % of Total Assets
   Reserve for Loan                                                   0.88                       1                   1.09                   1.22                   1.37                   1.45                   1.55                   1.39                    1.3                   1.27
   Total Deposits                                                    64.24                  63.83                  62.12                  60.89                  62.24                  60.85                  67.56                  62.63                  62.53                  58.26
   Investment Securities                                             10.38                    10.8                  1 .58
                                                                                                                     1                    15.64                  15.58                  18.88                    15.8                  21.71                 21.39                  22.39
   Shareholder's Equity                                               8.85                   8.89                   8.68                   8.85                   9.72                   1 5
                                                                                                                                                                                          0.1                  10.25                   7.93                   7.56                   7.36
   Total Debt                                                        22.33                  22.77                  23.96                  24.81                  22.75                  23.91                  17.97                  25.21                  25.76                  30.78
   Assets for Sale                                                    9.04                   9.47                   16.61                   1
                                                                                                                                           1 .48                  6.05                   7.72                  12.48                    13.9                   1
                                                                                                                                                                                                                                                              1 .49                 13.72
   Net Loans                                                         66.34                  64.26                  54.03                  54.86                  57.78                  53.32                  51.79                  60.47                  59.25                  62.51
   Total Nonperforming Assets ($MM)                              1,572.00               1,662.00                1,691.00               1 3.00
                                                                                                                                        ,81                  1,350.00                     855                    884                  228.5                    200                    206
   Nonperforming Assets                                               0.37                   0.43                   0.48                   0.59                     0.5                  0.39                   0.44                   0.26                   0.25                   0.29
   Total Net Charge-Offs ($MM)                                  -1,666.00               -1 9.00
                                                                                          ,71                 -1,725.00              -1,779.00               -1 9.00
                                                                                                                                                               ,21                 -1,049.00                 ,61
                                                                                                                                                                                                           -1 7.00                   -499.7                 -382.4                 -304.2
   Net Charge-Offs                                                   -0.39                  -0.44                  -0.49                  -0.58                  -0.45                  -0.48                    -0.8                 -0.56                  -0.48                  -0.42

   -------------------------------------------------    --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------   --------------------
   Other
   Net Loans/Total Deposits                                         103.26                 100.67                  86.97                   90.11                 92.83                  87.63                  76.66                  96.55                  94.77                 107.29
   Nonperforming Assets/Allowance for
   Loan Losses                                                       41.79                  42.71                  44.28                  48.21                   36.3                  26.97                  28.21                  18.52                  19.22                  22.46
   Nonperforming Assets/Common
   Equity                                                              4.15                  4.82                   5.59                   6.68                    5.15                   3.91                  4.36                   3.34                     3.4                   4.11
   Nonperforming Assets/Net Loans                                     0.55                   0.67                     0.9                   1.07                  0.86                   0.74                   0.84                   0.43                   0.42                   0.46
   Net Charge-Offs/Allowance for Loan
   Losses                                                           -44.28                 -44.18                 -45.17                  -47.3                 -32.78                 -33.09                   -51.6                 -40.5                 -36.74                 -33.17
   Net Charge-Offs/Net Loans                                         -0.59                  -0.69                   -0.91                  -1.05                 -0.77                    -0.9                  -1.54                 -0.93                    -0.8                 -0.67

   Allowance for Loan Losses/Net Loans                                 1.33                   1.56                  2.02                   2.23                   2.36                   2.73                   2.99                     2.3                   2.19                  2.03


   Source: S&P COMPUSTAT data delivered by WRDS http://wrds.wharton.upenn.edu/.



J. K. Dietrich - FBE 525 - Fall, 2006
    Dupont Analysis
             Relate balance sheet to income statement
             Simple spreadsheet PV-FSI.xls follows text
              discussion
             Analysts all follow somewhat different
              approaches
                   – Breakdown of categories (e.g. fees, expenses)
                   – Use of quarter-ending, annual ending, averages
             Objective                 is to project future performance

J. K. Dietrich - FBE 525 - Fall, 2006
    Simplify financials:
    Example, WFC 2001-2002
                                            2001       2002
         Basic Financial Data                                            FIRST
         INCOME STATEMENT                   HISTORICAL         % CHG
         Interest Revenue                  19,201    18,832     -1.92%
         Interest Expense                   6,741     3,977    -41.00%
         Provision for Loan Losses          1,780     1,733     -2.64%
         Non-Interest Revenue               7,690     9,641     25.37%
         Non-Interest Expense              12,891    13,909      7.90%
         Earnings Before Tax                5,479     8,854     61.60%
         Tax                                2,056     3,144
         Net Income                         3,423     5,710
         Preferred Dividends                   17        17
         Earnings Available for Common      3,406     5,693    67.15%
         Dividends                          1,569     1,569
         Adjustments to Net Cash          (13,025)  (19,671)
         Operating Cash Flows              (9,619)  (13,978)
         # SHARES (Million)              1,736.38  1,736.38
         Earnings per Share                 $1.96     $3.28
         Operating Cash Flow per Share     ($5.54)   ($8.05)
         Common Dividends per Share                   $0.90
         BALANCE SHEET (PARTIAL)
         Cash and Reserves                16,968     17,820     5.02%
         Fixed and Other Assets           33,072     40,682    23.01%
         Total Assets                    307,569    349,259    13.55%
         Book Value of Equity             27,214     30,358    11.55%

J. K. Dietrich - FBE 525 - Fall, 2006
    Calculate Ratios
          RATIO ANALYSIS                 HISTORICAL     %CHG
          BROR                          12.52%    18.75% 49.84%
          Composed of:
          PULLTHRU x                    62.16%   64.30%    3.43%
          LEVERAGE x                     11.30    11.50    1.79%
          EBT/TA (Before Tax)            1.78%    2.54%   42.31%
          EBT/TA (After Tax)             1.11%    1.63%
          EBT/TA composed of:
          ((IR-IE)/EA -                  4.84%    5.11%   5.60%
          PLL/EA) x                      0.69%    0.60% -13.77%
          EA/TA +                       83.73%   83.25% -0.57%
          (NIR-NIE)/TA                  -1.69%   -1.22% -27.73%
          (IR-IE)/EA composed of:
          IR/EA -                        7.46%    6.48% -13.13%
          IE/L x                         2.40%    1.25% -48.13%
          L/EA                          1.0886   1.0968   0.75%

J. K. Dietrich - FBE 525 - Fall, 2006
    Valuation of Financial Firms
             Best approach is based on discounted cash flows
              and, following Copeland et al, we use cash flows
              to equity
             Spreadsheet PV-FSI is abbreviated but captures
              more complete models
             You are free to change the spreadsheet
                   – Add product lines (we will discuss NEWPVFSI briefly
                     but it is available)
                   – Change forecast and continuing value periods


J. K. Dietrich - FBE 525 - Fall, 2006
    Valuation and Projections
             Dividendable   cash flows correspond to cash
              flows to equity
             Spreadsheet has two years of history and a
              five year explicit forecast horizon
             Continuing value captured with multipliers
              of fifth year values
                   – Book-to-market
                   – Price-earnings


J. K. Dietrich - FBE 525 - Fall, 2006
    PV-FSI - Overview
      J. K. Dietrich - FBE525 - (Fall 2003)                        Analysis of Wells Fargo Corporation
                                              2001     2002                                                               2003          2004           2005          2006
      Basic Financial Data                                               FIRST-YEAR          YEARS 2-5
      INCOME STATEMENT                      HISTORICAL        % CHG     ASSUMPTIONS        ASSUMPTIONS
      Interest Revenue                     19,201     18,832   -1.92%                                                   20,378        23,043         24,195        25,404
      Interest Expense                      6,741      3,977  -41.00%                                                    5,486         7,407          7,777         8,166
      Provision for Loan Losses             1,780      1,733   -2.64%                                                    2,195         2,304          2,419         2,540
      Non-Interest Revenue                  7,690      9,641   25.37%      g=    10.00%       g=        10.00%          10,605        11,666         12,832        14,115
      Non-Interest Expense                 12,891     13,909    7.90%      g=     5.00%       g=         5.00%          14,604        15,335         16,101        16,906
      Earnings Before Tax                   5,479      8,854   61.60%                                                    8,698         9,663         10,729        11,907
      Tax                                   2,056      3,144                                                             3,044         3,382          3,755         4,168
      Net Income                            3,423      5,710                                                             5,653         6,281          6,974         7,740
      Preferred Dividends                      17         17                                                                17            17             17            17
      Earnings Available for Common         3,406      5,693   67.15%                                                    5,636         6,264          6,957         7,723
      Dividends                             1,569      1,569               p=    30.00%       p=        30.00%           1,691         1,879          2,087         2,317
      Adjustments to Net Cash             (13,025)   (19,671)                                                            2,195         2,304          2,419         2,540
      Operating Cash Flows                 (9,619)   (13,978)                                                            7,831         8,568          9,376        10,263
      # SHARES (Million)                 1,736.38   1,736.38              #=      1,736      #=          1,736
      Earnings per Share                    $1.96      $3.28                                                       $      3.25   $      3.61    $      4.01   $      4.45
      Operating Cash Flow per Share        ($5.54)    ($8.05)                                                      $      4.51   $      4.93    $      5.40   $      5.91
      Common Dividends per Share                       $0.90
      BALANCE SHEET (PARTIAL)
      Cash and Reserves                    16,968     17,820    5.02%   R/TA=     5.50%    R/TA=          5.50%         20,650        21,682         22,767        23,905
      Fixed and Other Assets               33,072     40,682   23.01%   F/TA=    11.00%    F/TA=        11.00%          41,300        43,365         45,533        47,810
      Total Assets                        307,569    349,259   13.55%      g=     7.50%       g=          5.00%        375,453       394,226        413,937       434,634
      Book Value of Equity                 27,214     30,358   11.55%                                 Calculated        32,648        34,281         35,995        37,794
      RATIO ANALYSIS                        HISTORICAL        %CHG
      BROR                                 12.52%     18.75%   49.84%                                 Calculated        17.26%        18.27%         19.33%        20.43%
      Composed of:
      PULLTHRU x                           62.16%     64.30%    3.43%      t=    35.00%       t=        35.00%          64.80%        64.82%         64.84%        64.86%
      LEVERAGE x                            11.30      11.50    1.79%    Lev=      11.50    Lev=          11.50          11.50         11.50          11.50         11.50
      EBT/TA (Before Tax)                   1.78%      2.54%   42.31%                                 Calculated         2.32%         2.45%          2.59%         2.74%
      EBT/TA (After Tax)                    1.11%      1.63%                                          Calculated         1.50%         1.59%          1.68%         1.78%
      EBT/TA composed of:
      ((IR-IE)/EA -                         4.84%      5.11%    5.60%                                 Calculated         4.75%         4.75%          4.75%         4.75%
      PLL/EA) x                             0.69%      0.60% -13.77%    Ratio=    0.70%    Ratio=         0.70%          0.70%         0.70%          0.70%         0.70%
      EA/TA +                              83.73%     83.25%   -0.57%   Ratio=   83.50%    Ratio=       83.50%          83.50%        83.50%         83.50%        83.50%
      (NIR-NIE)/TA                         -1.69%     -1.22% -27.73%                                     -1.50%         -1.07%        -0.93%         -0.79%        -0.64%
      (IR-IE)/EA composed of:
      IR/EA -                               7.46%      6.48% -13.13%     Rea=     6.50%     Rea=         7.00%           6.50%         7.00%          7.00%         7.00%
      IE/L x                                2.40%      1.25% -48.13%      RL=     1.75%      RL=         2.25%           1.60%         2.06%          2.06%         2.06%
      L/EA                                 1.0886     1.0968    0.75%                                                   1.0935        1.0935         1.0935        1.0935
      VALUATION OF CASH FLOWS TO EQUITY
      Cash Flow After Pref Div.            (9,619)   (13,978)                                                           7,831          8,568          9,376      10,263
       - Equity Required (Financ'g Chgs.)      N/A    (3,144)                                                          (2,290)        (1,632)        (1,714)     (1,800)
      Dividendable Cash Flow                   N/A   (17,122)                                                           5,541          6,936          7,662       8,463
                                                                                 Discount Rate   =        8.00%           12%            14%         Terminal Value Assumptions
                                                                                   PV with P-E   =     $120,846      $101,556        $93,342           P-E=           16
                                                                                   PV with P/B   =      $89,661       $75,556        $69,544           P/B=          2.3
                                                                         Per Share PV with P-E   =   $    69.60    $    58.49    $     53.76
                                                                         Per Share PV with P/B   =   $    51.64    $    43.51    $     40.05




J. K. Dietrich - FBE 525 - Fall, 2006
    Past Analysis and Assumptions
     J. K. Dietrich - FBE525 -   (Fall 2003)                       Analysis of W ells Fargo Corporation
                                               2001   2002
     Basic Financial Data                                                FIRST-YEAR          YEARS 2-5
     INCOME STATEMENT                       HISTORICAL        % CHG     ASSUMPTIONS        ASSUMPTIONS
     Interest Revenue                      19,201     18,832   -1.92%
     Interest Expense                       6,741      3,977  -41.00%
     Provision for Loan Losses              1,780      1,733   -2.64%
     Non-Interest Revenue                   7,690      9,641   25.37%      g=    10.00%       g=      10.00%
     Non-Interest Expense                  12,891     13,909    7.90%      g=     5.00%       g=       5.00%
     Earnings Before Tax                    5,479      8,854   61.60%
     Tax                                    2,056      3,144
     Net Income                             3,423      5,710
     Preferred Dividends                       17         17
     Earnings Available for Common          3,406      5,693   67.15%
     Dividends                              1,569      1,569               p=    30.00%       p=      30.00%
     Adjustments to Net Cash              (13,025)   (19,671)
     Operating Cash Flows                  (9,619)   (13,978)
     # SHARES (Million)                  1,736.38   1,736.38              # =     1,736       # =         1,736
     Earnings per Share                     $1.96      $3.28
     Operating Cash Flow per Share         ($5.54)    ($8.05)
     Common Dividends per Share                        $0.90
     BALANCE SHEET (PARTIAL)
     Cash and Reserves                     16,968     17,820    5.02%   R/TA=     5.50%    R/TA=        5.50%
     Fixed and Other Assets                33,072     40,682   23.01%   F/TA=    11.00%    F/TA=      11.00%
     Total Assets                         307,569    349,259   13.55%      g=     7.50%       g=        5.00%
     Book Value of Equity                  27,214     30,358   11.55%                               Calculated
     RATIO ANALYSIS                         HISTORICAL        %CHG
     BROR                                  12.52%     18.75%   49.84%                               Calculated
     Composed of:
     PULLTHRU x                            62.16%     64.30%    3.43%      t=    35.00%       t=      35.00%
     LEVERAGE x                             11.30      11.50    1.79%    Lev=      11.50    Lev=        11.50
     EBT/TA (Before Tax)                    1.78%      2.54%   42.31%                               Calculated
     EBT/TA (After Tax)                     1.11%      1.63%                                        Calculated
     EBT/TA composed of:
     ((IR-IE)/EA -                          4.84%      5.11%    5.60%                               Calculated
     PLL/EA) x                              0.69%      0.60% -13.77%    Ratio=    0.70%    Ratio=       0.70%
     EA/TA +                               83.73%     83.25%   -0.57%   Ratio=   83.50%    Ratio=     83.50%
     (NIR-NIE)/TA                          -1.69%     -1.22% -27.73%                                   -1.50%
     (IR-IE)/EA composed of:
     IR/EA -                                7.46%      6.48% -13.13%     Rea=     6.50%     Rea=          7.00%
     IE/L x                                 2.40%      1.25% -48.13%      RL=     1.75%      RL=          2.25%
     L/EA                                  1.0886     1.0968    0.75%
     VALUATION OF CASH FLOW S TO EQUITY
     Cash Flow After Pref Div.             (9,619)   (13,978)
      - Equity Required (Financ'g Chgs.)       N/A    (3,144)
     Dividendable Cash Flow                    N/A   (17,122)


J. K. Dietrich - FBE 525 - Fall, 2006
    Projections: Cash Flows
     J. K. Dietrich - FBE525 - (Fall 2003)
                                                2003          2004          2005          2006          2007
     Basic Financial Data
     INCOME STATEMENT
     Interest Revenue                         20,378        23,043        24,195        25,404        26,675
     Interest Expense                          5,486         7,407         7,777         8,166         8,574
     Provision for Loan Losses                 2,195         2,304         2,419         2,540         2,667
     Non-Interest Revenue                     10,605        11,666        12,832        14,115        15,527
     Non-Interest Expense                     14,604        15,335        16,101        16,906        17,752
     Earnings Before Tax                       8,698         9,663        10,729        11,907        13,208
     Tax                                       3,044         3,382         3,755         4,168         4,623
     Net Income                                5,653         6,281         6,974         7,740         8,585
     Preferred Dividends                          17            17            17            17            17
     Earnings Available for Common             5,636         6,264         6,957         7,723         8,568
     Dividends                                 1,691         1,879         2,087         2,317         2,571
     Adjustments to Net Cash                   2,195         2,304         2,419         2,540         2,667
     Operating Cash Flows                      7,831         8,568         9,376        10,263        11,236
     # SHARES (Million)
     Earnings per Share                 $       3.25   $      3.61   $      4.01   $      4.45   $      4.93
     Operating Cash Flow per Share      $       4.51   $      4.93   $      5.40   $      5.91   $      6.47
     Common Dividends per Share
     BALANCE SHEET (PARTIAL)
     Cash and Reserves                        20,650        21,682        22,767        23,905        25,100
     Fixed and Other Assets                   41,300        43,365        45,533        47,810        50,200
     Total Assets                            375,453       394,226       413,937       434,634       456,366
     Book Value of Equity                     32,648        34,281        35,995        37,794        39,684


J. K. Dietrich - FBE 525 - Fall, 2006
    Valuation and Ratios
  RATIO ANALYSIS
  BROR                                  17.26%      18.27%    19.33%      20.43%        21.59%
  Composed of:
  PULLTHRU x                            64.80%      64.82%    64.84%      64.86%        64.87%
  LEVERAGE x                             11.50       11.50     11.50       11.50         11.50
  EBT/TA (Before Tax)                    2.32%       2.45%     2.59%       2.74%         2.89%
  EBT/TA (After Tax)                     1.50%       1.59%     1.68%       1.78%         1.88%
  EBT/TA composed of:
  ((IR-IE)/EA -                          4.75%       4.75%     4.75%       4.75%         4.75%
  PLL/EA) x                              0.70%       0.70%     0.70%       0.70%         0.70%
  EA/TA +                               83.50%      83.50%    83.50%      83.50%        83.50%
  (NIR-NIE)/TA                          -1.07%      -0.93%    -0.79%      -0.64%        -0.49%
  (IR-IE)/EA composed of:
  IR/EA -                                6.50%       7.00%     7.00%       7.00%         7.00%
  IE/L x                                 1.60%       2.06%     2.06%       2.06%         2.06%
  L/EA                                  1.0935      1.0935    1.0935      1.0935        1.0935
  VALUATION OF CASH FLOWS TO EQUITY
  Cash Flow After Pref Div.              7,831       8,568     9,376       10,263       11,236
   - Equity Required (Financ'g Chgs.)   (2,290)     (1,632)   (1,714)      (1,800)      (1,890)
  Dividendable Cash Flow                 5,541       6,936     7,662        8,463        9,346
                                           12%         14%     Terminal Value Assumptions
                                      $101,556     $93,342      P-E=            16     137,094
                                       $75,556     $69,544      P/B=           2.3      91,273
                                   $     58.49 $     53.76
                                   $     43.51 $     40.05


J. K. Dietrich - FBE 525 - Fall, 2006
    Case Discussion: AIG
             Introduction to insurance industry
             Assessment of financial performance
              performance
             Application of analysis of financial
              information to understand reasons for
              performance variations
             Think about valuation issues in terms of
              insurance application to PV-FSI


J. K. Dietrich - FBE 525 - Fall, 2006
    For Next Two Weeks
             Prepare AIG case for discussion on September 7 –
              see questions in objectives for Week 3
             Organize team and choose firms for your segment
              of financial services industry
             Prepare to discuss Chapter 8 during class Week 4
                   – We will discuss underlying economics of value creation
                     in financial services and specifically in credit-related
                     services discussed in Chapter 8
             Part        I of project is due in class of Week 4


J. K. Dietrich - FBE 525 - Fall, 2006

								
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