Introduction And Project Methodology Management Essay

Introduction And Project Methodology Management Essay As firms grow the role of the founder needs to change (Burns 2007, p242). For the growth of a firm as well as for the behaviour of its entrepreneur-cum-leader, academic and business knowledge offers numerous simplistic models and frameworks. A key question is not only whether these models from two different subjects growth model on one hand and leadership model on the other hand fit together, but whether a certain industry with certain entrepreneurs demonstrates behaviour different to theory. In this project, the group will explore how different entrepreneurs with different leadership styles and personality can still be successful in taking their creation through different stages of business growth for the same product/ service and how they can continue to maintain the differentiation. In the assignment, we will also test our findings (matching patterns and exceptions) with what we have studied in this module. Greiners five phase growth model and five stages of a business growth have been used (and sometime interchangeably) by us to test patterns from practice with theory for the low cost airlines (LCC low cast carriers). Project Methodology First, we did a group discussion to familiarise with the topic of growth stages and leadership approaches based on material of the MBA modules Entrepreneurship and Innovation Management and Perspectives of Leadership. Section 2 gives a brief overview of the groups understanding of leadership approaches from academic knowledge and experience to be linked with practical evaluation later. As from the second step the focus was from practice to theory which is covered in Section 3. We decided for the Low-Cost-Carrier Industry to be evaluated. Third, we defined which LCC Airlines to be evaluated and compared to each other and which features would be evaluated. Second and third stage of the project methodology is covered by Section 3.1. Fourth, we collected primary and secondary data through intense research in press, internet, articles, personal interviews, etc. and bundled them into a template (see Appendix 2). Fifth, we evaluated and compared the collected data for analysing as result (section 3.3). Sixth, the results were interpreted to derive key messages and to test models (with what we have learnt in the MBA module on Entrepreneurship and Innovation Management) (section 3.4). At last, we felt responsible to use our findings for recommendations for the future of the LCC organisations and its entrepreneurs (Section 3.5). A conclusion covers the project groups lessons learned based on this project (section 4). 2. Groups Understanding and Theoretical Background Academic research and general knowledge gives us frameworks to investigate practical examples of entrepreneurs concerning the development of their business and of themselves as leaders. Hence it is important to point out what kind of understanding the group has in terms of business growth models as well as entrepreneurial personality and leadership. 2.1. Growth Models Our groups understanding of business growth is definitely not that growth is the shortest connection between the starting point and the current point of time. Growth demonstrates phases of business increase as well as of decrease, stability, crisis, and changes. One of the most used growth models was developed by Greiner (1972) who pointed out alternating phases of evolution (creativity, direction, delegation, coordination, collaboration) and of revolution (leadership, autonomy, control, red tape). Each phase of growth is followed by a crisis that necessitates a change in the way the founder manages the business if it is to move on and continue to grow (Burns 2007, p210). Churchill and Lewis (1983) developed a growth model covering five stages of existence, survival, success, take-off, and maturity. Very close to this is the five-stage model proposed by Scott and Bruce (1987) embracing the stages of inception, survival, growth, expansion, and maturity with focus on top management role, management style, and organizational structure. At least Burns (1996) suggested a four-stage model covering stages of existence, survival, success and take-off and summarizing the main business imperatives as a firm grows in terms of the orientation of the firm (à ¢Ã¢â€š ¬Ã‚ ¦) (Burns 2007, p218). After an evaluation of several models the project group decided to consider Greiners five phase growth model and five stages of business growth as the theoretical framework to compare our findings. 2.2. Leadership Our group understanding of leadership is that it is a relationship through which one person influences the behaviour or actions of other people. For our investigations on entrepreneurs we are aware that there is a difference between leadership and management. The 7-S framework used in strategic management provides a distinction that managers rely on strategy, structure and systems whereas leaders are concerned with the soft Ss of style, staff, skills and shared goals. A key questions discussed in this group was Is an entrepreneur a manager or a leader? At least he is both in one person. Hence it is valuable to consider both of an entrepreneur his managerial role as well as his leadership approach. Mintzberg (1990) classifies the activities of organized sets of behavior associated with a position based on formal authority and status. He points out ten managerial roles divided into three groups which are linked to the evaluations of this project in section 3.4. Regarding general approaches to leadership, we face in real business life, there is no mutual exclusiveness. Hence contemporary entrepreneurs may demonstrate several leadership approaches in one person. For this project, main leadership models of historic and contemporary research were to be considered, such as leadership as a behavioral category, the styles of leadership approach, the situational approach of contingency theories, the transformational leadership approach and inspirational or visionary leadership. 3. From Practice to Theory 3.1. Frame of Evaluation We decided that to ensure valuable evaluation, the industry of choice should be a young industry and it should provide industry and market growth within the last ten to thirty years, several start-ups associated with single entrepreneurial idea, and some industry consolidation. To bring in domain knowledge, we discussed that the whole group should be familiar with the industry either as customers or as managers working in that industry. At last we decided on the Low-Cost-Carrier (LCC) Industry since we all are frequent customers and one group member is in charge of a full service airline in a leading management position. 3.1.1. The Low Cost Carrier Industry A low-cost carrier or low-cost airline (also known as a no-frills, discount or budget carrier or airline) is an airline that generally has lower fares as compared to full service airlines like British Airways, KLM, Air France, Lufthansa, American Airlines, etc.. To make up for the revenue lost in decreased ticket price, the airline may charge for extras like food, priority boarding, seat allocation, baggage etc.. The key characteristics of LCCs are multiple frequencies on a short/mid haul sectors, quick turnaround, secondary/tertiary airports, offerings in economy class only, usage of web/call centre based reservation system and not the GDS (Global Distribution systems), no food and rarely any loyalty programme. Low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares. The reasons why LCC airlines came up in practice dates back to 1960s. Until late 1960s, travelling by air was restricted to the higher classes of the society. Only from 1960s, it percolated to the upper middle class, as costs came down and the fuel prices were low. There was increased demand for the huge middle class to travel by air if the same became cheaper. This underlying need was captured by the entrepreneurs in the form of Low Cost Carriers which was pioneered by Southwest Airlines in USA and was replicated in different ways all over the world. The momentum gathered steam with the increased globalization and integration from 1980s onward. The regulatory regime defined by agreements between countries or regional groupings became more liberal and the frequencies of flights increased bringing the overall cost platform down. Further, the cost of the aircrafts and air travel came down due to the technological improvements leading to lower cost at higher volume. The technological strides in ICT (information and communication technology) brought the booking system of the airlines at the doorstep of the passenger. He could be sitting in his environment, book a ticket, choose his own seat and print a boarding card. This reduction in costs due to technological innovations opened up an opportunity for LCC to establish its foothold by cutting on costs at different steps of its supply chain. According to Vesper (1990) the LCC industry demonstrates execution of two business entry strategies. Firstly, the strategy to develop a better product or service which is appropriate because of unsatisfied demand in terms of cheap flights providing no frills. The established competitors on the carrier market such as British Airways, KLM, Lufthansa etc. reacted against these new entrants but more or less very late. Hence some LCC airlines already established their own operations. Second, the strategy to meet supply shortages, particularly on the short-haul marke t, there was a market parallel to the railway industry. Currently, in spite of demand and supply in balance, some LCC airlines maintain their competitive advantages and continue to drive the market. Since there were numerous LCC airlines operating globally (Appendix 1), considerations in deciding for LCC airlines to be investigated were to ensure diversity over different geographical markets to emphasise on a whole industry in terms of entrepreneurial behaviour and availability of information. We decided on 5 airlines as mentioned in table 1. (Please refer to Appendix 2 for data). Table 1: Companies and entrepreneurs to be investigated 3.1.2. Key Evaluation Features Burns (2007, p30) points out four different influences on owner-managers and entrepreneurs. Whereas culture of society and situational factors are not the focus of this project, personal character traits and antecedent influences were investigated to draw a picture of the individual background of the entrepreneurs. In addition we looked at individual leadership approach. In terms of organizational development and business growth we focused on five milestones (Table 2). Table 2: Key features to be evaluated on chosen entrepreneur and his LCC airline. Derived from the collected data based on the key features described above, three main issues were investigated to ensure a solution on growth models and associated leadership approaches in the LCC industry at least: Why did they succeed whereas so many after and before them failed? Development of the culture in the organization if any Recommendations for the future 3.2. Data Please see Appendix 2 for the secondary data that were gathered through research on internet, press and media, newspapers, and television. 3.3. Results The key question for description and interpretation of the results is Is there any pattern or consistency over all evaluated LCC airlines or not? In terms of the investigated background and leadership of the founders Burns describes antecedent influences on an entrepreneur which are most likely to result in them successfully growing their business (2007, p45): Well-educated: Two (Air Berlin and Ryan Air) of five investigated entrepreneurs do not have any academic graduation whereas the other three entrepreneurs have diverse degrees from Bachelor to Honorary PhDs. But all of them already had broad and in-depth managerial and professional experience at the point of time of idea generation. Starts business because of positive motivations. All entrepreneurs had positive motivations towards their own idea and were convinced strongly that their business will be successful and will grow. Leaves managerial job to start business: This was found to be different. Although all entrepreneurs had managerial experience before, their prevailing last step before becoming an entrepreneur in LCC industry was distinct. One was unemployed (Air Berlin), two had their own business (Southwest and Easy Jet), one was manager in the same LCC organization (Ryan Air), and one (Air Asia) was manager in a different industry. Middle-aged (or very young?): We found a range between 28-40 in the age of the entrepreneurs for the point of time of the businesses starting point. They were 28 (Easy Jet), 30 (Ryan Air), 37 (AirAsia), 40 (Air Berlin), and 40 (Southwest) years old. Obviously no one entrepreneur was close to retirement and no one was very young (begin of twenties or even younger). Willing to share ownership of business: All entrepreneurs shared ownership from the very beginning but in different ways and it is not obvious whether they had a general inclination to that or whether it was needed, e.g. to collect enough money for their start-up. In terms of personal character traits all of the following were founded as high in every investigated entrepreneur: Commitment, determination and opportunity obsession. Tolerance of risk, ambiguity and uncertainty. Creativity, self reliance and ability to excel. Most of the entrepreneurs pioneered the LCC model for their home market as first mover and developed LCC business models later. Control and rewards. We saw very strong control by the entrepreneur in all investigated organizations mostly aiming to bring down costs. In terms of values, ethics, beliefs and norms all of the entrepreneurs worked very hard (Everything for the company) and expected a similar inclination from their staff. In daily business they appreciate each resource and hence aim to be most efficient. Concerning leadership all entrepreneurs provided an autocratic and patriarchic style with strong control, centralized decision-making and high closeness to their employees. A vision is part of their leadership approach as well derived more or less obviously from their individual targets for their life. Honesty, reliability and action as an example are further aspects; they all practice what they preach. This remains even during the growth of their businesses but the entrepreneurs developed different leadership styles. Some tried to keep the autocratic style whereas others tended to be more participative but all of them kept strong control. According to a major research study of the University of Michigan Institute for Social Research, the most effective leader provides four common characteristics: Delegation of authority and avoidance of close supervision; interest and concern in their subordinates as individuals; participative problem-solving; high standards of performance. Except t he former and the latter we found all aspects in later stages of growth but not consistently and not whilst the inception stage. Regarding the motive for entrepreneurship, it is obvious that there is consistency in the way of idea generation. In all of the five airlines, idea for LCC was generated by individuals. For Southwest and Ryan Air, there were more people involved in implementation in addition to idea generator. Two of the promoters (Air Berlin and Air Asia) were forced to choose entrepreneurship due to professional circumstances. There has been a considerable variance in the duration of the inception phase/ start-up. For example this phase in the case of Air Asia lasted for a year but for Air Berlin it took about ten years. But generally the other airlines exhibited a period of around five years. All organizations were run by the promoters except Ryan Air which had Michael Leary as its head due to the losses at Ryan Air. Financials were pooled by the promoters themselves but there was a variance in the financial capabilities from deep pockets to just enough money to make operations run for a year. Two of the entrepreneurs (Easy Jet and Ryan Air) had strong financial backing. In terms of environmental factors (PESTER) each airline had a different set of compelling factors. Due to the dismantling of the Berlin wall, airlines had a new segment opening up which was tapped by Air Berlin (political). Low fares attract more customers; try to wean away customers from other modes of transport tapped by all the LCCs (economic). The target consumer base for budget airlines was enormous: 500 million people live within three hours of Air Asias hubs in Kuala Lumpur and Bangkok, more than Western Europes entire population (social). Ryan Air started when there was a partial de-regulation changing the way the airlines flew (regulation). Consistency in all LCC airlines was evaluated in terms of delegation (highly centralized with all the major decisions being made by the promoters/funders), coordination (there was a very high level of coordination in three airlines while high coordination in two them), and control (in Air Berlin there was very high level of control, while in the other airlines it ranged from medium to high). For all the airlines the survival and growth stage has been a pretty long time except for Air Asia which has achieved tremendous growth in the few years of its start-up. In this stage the LCC airlines demonstrated some small distinct behavior. The delegation level increased during this phase of the business except in the case of Air Berlin which followed low delegation. Coordination was medium in Easy Jet while was high in the remaining four. Control was very high in Air Berlin, high in Southwest, Ryan Air and AirAsia, and was medium in Easy Jet. In four of the airlines original founder and management team are in place. The only exception is Easy Jet which had a CEO right from its start-up in 1995. This could be because the founder of Easy Jet had been a business man before this start-up and knew well how to delegate and where to focus. Clear patterns of consistency can be seen in that all the airlines went for IPO in this phase, thus showing the willingness of entrepreneurs to share the growth of the firm. Furthermore, all LCC airlines took equity stakes and formed alliances with other airlines. For example Air Asia formed a partnership with Shin corporation in Thailand, Easy Jet purchased a 40% stake in Swiss charter airline TEA Basle. The reasons were two fold one to take care of certain regulatory issues in their markets and secondly to help grow faster. In addition all airlines initiated cost cutting techniques to take on the competition. In the maturity stage the delegation level decreased for two of the airlines (Ryan Air and Southwest) in view of the precarious business model while continues low for Air Berlin. For Easy Jet and Air Asia the delegation level remains high. On the other hand coordination and control are on high level in all airlines. All the founders maintain a very high level of control on the overall strategy and functioning of the airlines. The external environment factors like the financial crisis, high oil prices, etc. have had the effect on the management structure and control mechanisms for majority of the airlines. There also have been roll backs on the investment plans. The promoters continue to hold power. Diversified equity base in terms of type of shareholders, further additional finances were raised through debt. We perceive a clear distinction in terms of strategy and business models. Except for Air Berlin and Air Asia which have a hub and spoke model, all the airlines offer a point to point service. All LCC carriers have the same configuration of aircraft but Air Berlin differs on this aspect too. LCCs achieve breakeven at much lower level of load factors (seat occupancy) than a Full Service Carrier. It has been observed that in all the LCCs, the primary focus is to have high load factor in order to make good profits. All the LCCs evaluated have a high on-time performance, offering customer the facility to make a reservation through web and call centre. Most of them have no prior seating arrangement and have additional charges for check-in baggage. Meals on board are charged and no refund is applicable in case of a missed fights. All the LCCs are deriving good revenue from ancillary service offerings like hotels, cars and other packages through their website. All LCCs except Ryanair do worry about customer complaints and feedback. Ryanair has a bad name in terms of customer service and misleading statements to gain publicity. Loyalty in their targeted segments is driven by the overriding need for cheap travel, good timings, multiple frequencies and lower expectations in terms of customer service. Few LCCs like Southwest Airlines, Air Berlin provide a rudimentary loyalty programme in terms of facilities and privileges to its members when compared with a Full Service Carrier, but it is enough for the targeted segments expectation We can summarize all the above LCCs on a continuum which depicts a pure LCC on the left side and a Full Service Carrier on the extreme right. Figure 1: Continuum of LCC Airlines 3.4. Derivations There is clear differentiation in the development of culture in the organization. Air Berlin exhibits an autocratic culture which is represented through its boss. Air Asia exhibits the culture of its boss too, open and cheerful. Southwest and Easy Jet exhibit a less hierarchical structure, full of freedom to the employees while Ryanair exhibits a culture in between the spectrum. Ryanair is process driven organization with little freedom to employees for decision making. Important decisions are highly centralized. It has grown so much that if he centralizes any further, the structure cannot sustain it. Hence there is no consistent pattern among these airlines from cultural perspective. However, we can definitely say that culture in these organizations is a reflection of the leadership behaviour of the founder entrepreneur. Nevertheless all the evaluated LCC airlines did succeed so far whereas so many after and before them failed. Reasons for this can be seen in this project work. During inception stage there is consistency in high level of delegation, coordination and control. All entrepreneurs had been able to recognize and to deal with the most important and influencing environmental factors on their home markets. All the airlines focused on cost leadership as a competitive advantage and made concrete efforts to mitigate the risks. Air Berlin formed subsidiaries to do away with labor unions. Air Asia formed a JV in Thailand with the Thailands Prime Minster family business to keep the political risk in check. The use of standard aircrafts to the extent possible and internet check-in as the model of bookings were part of the scheme to reduce costs. Hence the evaluated LCCs can be depicted as follows on five stages of business growth. (Figure 2). Figure 2: Five Stages of LCC Business Growth With reference to figure 2, we can consider that LCC is a product being sold by these airlines. There has been no basic RD on this product by any of these airlines. What they have done is to do applied research on the basic model of airline travel, to bring out LCC. Southwest Airlines pioneered this in the USA followed by modified versions of this by other airlines in other geographies. The trend in the figure 2 demonstrates that the growth of LCC has followed five stages of business growth, with the corresponding time taken by them for each phase and how the efficiency has changed. However, they are at different stages for example Southwest, Easy Jet and Ryan Air are in the expansion stages hitting the maturity stage in the current model, while Air Asia and Air Berlin seem to be in Growth/ expansion stages. Now the LCC carriers are facing competition from the full service airlines. This is because, full services play airlines are planning certain percentage of their seats at low p rices to compete with LCCs. Hence the efficiency of the LCC product sale for our sample airlines has reached a plateau. Now the time has come for the LCC carriers to apply development RD to give an S curve to this trend to modify the features of the product LCC. Different LCC airlines are doing this in different ways, e.g., Ryan airlines are cutting all possible costs, Easy Jet has targeted business passengers, Air Berlin wants to do everything possible for a good customer services, etc. This fits with the assertion of Schumpeter (1950), in that the technological progress can be seen as a continuous process in which capitalism constantly demands better value. Figure 3: LCC Airlines in Greiners Five-Stage Model of Growth (source: Greiner 1972) When we try to review (figure 3) the leadership and management styles within these five airlines vis-à  -vis, our finding is that it largely reflects the leadership style of the founder entrepreneur than the stages of Greiners five phase growth model. For example, Easy Jet and Southwest demonstrate collaboration in their management style, while Air Asia is in between the control and collaboration stages. Air Berlin and Ryan Air has high level of control and less delegation. Figure 4: Key Resource Factors in the Stages of Growth for LCC With reference to figure 4, we have reviewed the resource requirement of the five LCCs. All the five airlines display that they had the resource requirements (financial, business, system and personnel resources) for different phases of growth as shown in this figure. For example, airline being an asset intensive business, they all had huge capital requirements at the start-up. They used a combination of models to meet their requirements leasing aircrafts to purchasing them during start-up and survival phases. But in subsequent stages, they all followed the same strategy owning aircrafts. To reduce on cost, Ryan Airlines had purchased old aircrafts also which was criticized by Easy Jet as cutting corners on safety aspects which could hit the LCC industry in case there were any problems to happen. With regard to figure 5, we see that there is a commonality between what was practiced in different environments globally and the typical 5 stage growth model linked to leadership. Initially, in the start-up stage, everything is centralized and business and personal goals are the same for entrepreneurs which get decentralized, delegated and a formal structure coming in at the expansion and maturity stages. The financing is done primarily through personal resources initially which later on is internally generated and additionally through tapping of the stock markets and taking on debt from banks. As most have avenues for growth, they do not follow an active dividend policy and reward shareholders through capital appreciation Figure 5: Key Management Factors in the Stages of Growth for LCC Derived from our evaluation the entrepreneurship model on antecedent influences, personal character traits, and leadership approach can be illustrated only for the stage of idea generation and inception (see Figure 6). Figure 6: Model of entrepreneurial antecedent influences, personal character traits and leadership approach in the stage of idea generation and inception for LCC Most important is that the autocratic leadership approach (Tannenbaum and Schmidt 1973) is dominant which is in close relation to McGregors supposition of Theory X (boss-centered leadership) in contrast to Theory Y (subordinate-centered leadership). The contingency model of leadership by Vroom and Yetton (1973) covers the evaluated leadership behaviour as Autocratic I and II. Bass (1985) points out four basic components of transformational leadership. First, idealized influence (leader charisma, respect of followers), second, inspirational motivation (display meaning and challenge to the work of followers), third, intellectual stimulation (new approaches for solutions, creative problem solutions), and fourth, individualized consideration (leader listens and provide concern to needs and development of individual followers). For the last two points the autocratic style of LCC airlines seems to be a contraindication. Yukl (2006) formulates some guidelines for transformational leadership which cover the results of our investigations: Articulate a clear and appealing vision, explain how the vision can be attained, act confident and optimistic, express confidence in followers, use dramatic, symbolic actions to emphasize key values, and lead by example. This is very close to inspirational or visionary leadership. Here the focus is on leaders skills of motivating and inspiring people aiming to bring together goals and values of the organization and individual needs and values. Particularly in the stage of idea generation and in the inception stage the entrepreneurs took all ten managerial roles which Mintzberg (1990) pointed out. The entrepreneurs took a figurehead role (the manager as a symbol who represents the organization in terms of formality), a leader role (demonstrating responsibility for staffing, motivation and guidance of subordinates) and a liaison role (with focus on horizontal relationships between manager and individuals/groups as well as the organizations environment). In terms of informational roles we found the entrepreneurs in a monitor role (the manager receives formal/informal information from internal/external sources and develops an understanding of the working of the organization and its environment) as well as in a disseminator role (the manager as centre of information who transmits external information through his liaison role (see above) to the organization and internal information through his leader role amongst subordinates) and in a spokesperson role (the manager as a formal authority communicating to distinct stakeholders). And even in terms of so called decisional roles all en trepreneurs were very active. Here we saw the entrepreneurs in an entrepreneurial role (he is expected to initiate and plan controlled change by exploiting opportunities, solving problems and taking action for improvement of an existing situation and he may play a major part in aiming improvement and delegate responsibilities to subordinates), in a disturbance handler role (the manager reacts on involuntary and unpredictable situations and he is expected to correct a situation in case of unexpected disturbance), in a resource allocator role (the manager makes choices about resources allocation) and least in a negotiator role (this role arises from managers authority, credibility, access to information and responsibility for resources allocation and the manager participates actively in negotiation with stakeholders, e.g. works council). 3.5. Recommendation for the Future We clearly see that future growth in LCCs will be through collaboration with other LCCs and full service carrier. In other words, Southwest will grow collaborating with full service carriers like United, American, and Lufthansa and vice versa. Though the early stages of growth were in different segments , having established in their own markets, both LCCs and full service carriers are moving towards the middle of the continuum and we will see increased collaboration between them in future. Also the majority of the airlines are deliberating entering the lo

Developing an Eating Disorder Essay -- Eating Disorders Health Psychol

Why is it that people develop eating disorders? There is no simple explanation, and no one answer that applies everyone. There are several types of eating disorders, but the most prevalent in adolescent and young adult females are anorexia nervosa and bulimia (Larocca, 1986). There are six main areas that potentially explain just why it is that people succumb to anorexia and bulimia. These factors are biological, psychological, family, social, cultural, and media (Siegel, Brisman & Weinshel, 2002). One of the factors contributing to the development of anorexia and bulimia is biological. To some extent, it has been proven that temperament can be genetically determined. (Siegel, Brisman & Weinshel, 2002). This can easily be observed if a person looks at two children coming from the same parents and how different from each other they can turn out. â€Å"Biological factors that appear to play a role in the development of bulimia are a predisposition to depression and factors related to having a weight and shape that do not conform to the ideal standards promoted by society. These factors are for the most part due to heredity† (Sherman & Thompson, 1990, p. 63). Also, a person whose parents have a low metabolism and were predisposed to be on the heavy side will likely produce offspring of the same physical kind. This can lead to a daughter having a higher set-point weight than she will be content with, and finding it more difficult to lose weight and be as thin as she would like. Not surprisingly, anything that increases the liklelihood of having a higher weight and decreases the likelihood of being able to lose weight and keep it off should increase the probability of developing an eating disorder (Sherman & Thompson, 199... ... teenage girls showed serious signs of eating disorders† (Siegel, Brisman & Weinshel, 2002). Anorexia and bulimia are two very complicated disorders. Their cause(s) can be ambiguous at times; there is no specific reason that everyone with anorexia or bulimia develops it. There are many contributing factors to possibly explain the onset of one of the disorders. Good news is that years of research has narrowed the causes down somewhat to the six main areas that potentially explain just why it is that people succumb to anorexia or bulimia: biological, psychological, family, social, cultural, and media reasons, and in doing that, families and friends of people with anorexia and bulimia can do their best to get to the root of the problem/cause and give their friend or family member who is suffering hopefully another chance at a healthy, productive, fulfilling life.

Italo Calvino :: Essays Papers

Italo Calvino b. Oct. 15, 1923, Santiago de las Vegas, Cuba--d. Sept. 19, 1985, Siena,Italy), Italian journalist, short-story writer, and novelist, whose whimsical and imaginative fables made him one of the most important Italian fiction writers in the 20th century. Calvino left Cuba for Italy in his youth. He joined the Italian Resistance during World War II and after the war settled in Turin, obtaining his degree in literature while working for the Communist periodical L'Unità   and for the publishing house of Einaudi. From 1959 to 1966 he edited, with Elio Vittorini, the left-wing magazine Il Menabà ² di letteratura. Two of Calvino's first fictional works were inspired by his participation in the Italian Resistance: the Neorealistic novel Il sentiero dei nidi di ragno (1947; The Path to the Nest of Spiders), which views the Resistance through the experiences of an adolescent as helpless in the midst of events as the adults around him; and the collection of stories entitled Ultimo viene il corvo (1949; Adam, One Afternoon, and Other Stories). Calvino turned decisively to fantasy and allegory in the 1950s, producing the three fantastic tales that brought him international acclaim. The first of these fantasies, Il Visconte Dimezzato (1952; "The Cloven Viscount," in The Nonexistent Knight & the Cloven Viscount), is an allegorical story of a man split in two--a good half and an evil half--by a cannon shot; he becomes whole through his love for a peasant girl. The second and most highly praised fantasy, Il Barone Rampante (1957; The Baron in the Trees), is a whimsical tale of a 19th-century nobleman who one day decides to climb into the trees and who never sets foot on the ground again. From the trees he does, however, participate fully in the affairs of his fellow men below. The tale wittily explores the interaction and tension between reality and imagination. The third fantasy, Il Cavaliere Inesistente (1959; "The Nonexistent Knight,"in The Nonexistent Knight & the Cloven Viscount), is a mock epic chivalric tale. Among Calvino's later works of fantasy is Le Cosmicomiche (1965; Cosmicomics), a stream-of-consciousness narrative that treats the creation and evolution of the universe.

Massai Warriors- National Geographic Report :: essays research papers

In the September 1999, issue of National Geographic Magazine, there is quite an interesting article that has been written by Carol Beckworth and Angela Fisher. It deals with the Masai Warriors of Kenya, and how their culture recognizes an adolescent male that is becoming a man, or entering manhood.   Ã‚  Ã‚  Ã‚  Ã‚   The Masai warriors are a group of semi- nomadic people who live on the border of Kenya and Tanzania. They are a relatively small group, with only about 300,000 people in their culture. They hunt for their food with spears, they live in small homes made out of cow dung, and their most advanced form of technology seems to be the bark shoes that they wear on their feet. They are fairly quiet, subdued people, and they seem to ignore the changing world around them. Their customs greatly differ from the outside world, and many of them would nowadays be called very inhumane and primitive. But these ways are the only ways that they know. But, unfortunately, it may not always be that way.   Ã‚  Ã‚  Ã‚  Ã‚   The Masai culture finds the changing of boy to man to be a very important event in life. It is not something that will just happen on it’s own. It is not something that takes place over the course of a decade, either. It is a very spiritual ritual that occurs over a four-day period. This event is known as Eunoto. It is a very rigorous, very challenging, and almost an inhumane ceremony. Eunoto involves the slaying of a lion, the skinning of a buffalo, sexual intercourse with prepuburtal and uncircumcised young girls, the erection of a new building for each young man involved, and very often, the hysterical trance of a young man, during which he may attempt to slay himself with a spear. The young man being initiated finally ends the ritual by having his hair cut off by his mother. This very important event symbolizes the end of the maternal bond between the two. The morals of this culture seem to leave a little something to be desired, however. Marriage, for instance, doesn’t mean quite what it means here (although in some cases, they are more loyal to their spouses there than people are here). A man may be married to more than one wife there, and sex out of wedlock doesn’t appear to be frowned upon there. Many times before the Eunoto is carried out, the young men (18 – 19 years of age) sleep with 9- 11 year old girls.

Financial Analysis of Bank of America

Financial Statement Analysis of Bank of America Group 1 Chen, Yelin Dong, Xiaoxu Gransbach, Jennifer Shuai, Wang Weiss, Charles 1Financial Statements of Bank of America1 1. 1Balance sheet1 1. 2Income statement2 1. 3Regulatory capital ratios2 1. 4Investment portfolio2 1. 5Impact of the FSP FAS 115-2 and FAS 124-2 on OTTI3 1. 5. 1Bank of America3 1. 5. 2JP Morgan Chase3 1. 5. 3Citi Group3 1. 6Netting Financial Instruments3 1. 6. 1Bank of America4 1. 6. 2Comparable banks4 1. 6. 3Analysis of the impact4 2Fair Value Accounting for Financial Instruments4 2. Fair value accounting4 Table 6 Summary of the Fair Value Income5 2. 2Opinions about fair value accounting5 3Interest Rate Risk and Net Interest Earnings6 3. 1Net interest margin6 3. 2Interest rate risk7 4Credit Risk and Losses7 4. 1Main loss reserve adequacy ratios8 4. 2Policy to designate past due loans as non-performing8 4. 3Adequacy of the bank’s allowance for loan losses8 4. 4Disclosure policies relating to loans8 5Appendix9 * Part 1 Financial Statements of Bank of America . 1. 1 Balance sheetBank of America’s balance sheet has total assets of $2,129,046 million in 2011, which is less than last year’s $2,264,909 million, a fairly significant decline. There are a few primary assets on the balance sheet. The largest asset is loans and leases which makes up 41. 92% of the total assets. The next largest asset was Available-For-Sale securities making up 12. 97% of total assets. Total liabilities on the balance sheet were $1,898,945 million, with the primary liability being deposits in U. S. offices both interest bearing and noninterest bearing, at 50. 4% of total liabilities. The next largest liability was long-term debt at 19. % of total liabilities. In millions| 2011| % of total assets| 2010| % of total assets| % chg from 2010-2011| Total asset| 2,029,046 | 100. 00%| 2,264,909 | 100. 00%| -10. 41%| Loans and leases| 892,417 | 43. 98%| 898,555 | 39. 67%| -0. 68%| Available-for-sale| 276,151 | 13. 61%| 337,627 | 14. 91%| -18. 21%| Total liabilities| 1,898,945 | 93. 59%| 2,036,661 | 89. 92%| -6. 76%| Total deposits| 1,033,041 | 50. 91%| 1,010,430 | 44. 61%| 2. 24%| Deposits in U. S. offices| 957,042 | 47. 17%| 930,913 | 41. 10%| 2. 81%| Long-term debt| 372,265 | 18. 35%| 448,431 | 19. 80%| -16. 98%| Leverage ratio| 14. 0 | ? | 8. 92 | ? | 63. 58%| Table 1 Selected Financial Data from Balance Sheet of Bank of America Chase and Citi are fairly similar in size and distribution of their balance sheets. Chase and Citi have total assets of 2,265,792 and 1,873,878( ) respectively, both with slightly lower loans as a percentage of total assets at slightly over 30%, while AFS securities are around 16% of total assets for each. Liabilities are also very similar, with Chase having total liabilities of $2,082,219 million and Citi $1,694,305 million. The primary line items are also very similar once again with Chase’s total deposits 54. 6% and long-term debt 22. 77% of total lia bilities, while Citi has deposits 51. 11% and long-term debt of 19. 09%. According to the deposits in U. S. offices, BOA focus more in U. S market and Citi focus more on market outside U. S. In millions| Bank of America| % of total assets| JP Morgan Chase| % of total assets| Citi Group| % of total assets| Total asset| 2,129,046 | 100. 00%| 2,265,792 | 100. 00%| 1,873,878 | 100. 00%| Loans and leases| 892,417 | 41. 92%| 696,111 | 30. 72%| 617,127 | 32. 93%| Available-for-sale| 276,151 | 12. 97%| 364,793 | 16. 10%| 293,413 | 15. 66%| ? | ? | ? | ? | ? | ? | ? |In millions| Bank of America| % of total liabilities| JP Morgan Chase| % of total liabilities| Citi Group| % of total liabilities| Total liabilities| 1,898,945 | 100. 00%| 2,082,219 | 100. 00%| 1,694,305 | 100. 00%| Total deposits| 1,033,041 | 54. 40%| 1,127,806 | 54. 16%| 865,936 | 51. 11%| Long-term debt| 372,265 | 19. 60%| 256,775 | 22. 77%| 3,235,050 | 190. 94%| Leverage ratio| 8. 25 | ? | 11. 34 | ? | 9. 44 | ? | | | | | | | | In millions| Bank of America| % of total deposits| JP Morgan Chase| % of total deposits| Citi Group| % of total deposits| Deposits in U. S. offices| 957,042 | 92. 64%| 851,534 | 75. 0%| 343,288 | 39. 64%| Table 2 Selected Financial Data from Balance Sheets of Three Banks in 2011 In the event of a bank run, Bank of America will be in trouble due to its high leverage, similar to many banks. Bank of America has deposits of $1,033,041 million, among which liquid assets only have $314,425 million, including cash and cash equivalents of $120,102 million, time deposits and other short-term investments of $26,004 million and trading assets of $169,319 million. Even with the ability to liquidate those non-cash assets, it will still only be able to honor slightly more than 30% of its depositors.Income statement The primary line item on Bank of America’s income statement is net income of $1,446 million, which increased compared to a net loss of 2,238 in 2010. Interest income was $66 ,236 million, down from $75,497 million in 2010. Total interest expense was $21,620 million, which makes the net interest income become $44,616 million, down 13. 4% from the previous year. Lastly, total noninterest income was $48,838 million, decreased by 16. 8% from 2010. This is partly due to the big loss of mortgage banking income, decreasing from $2,734 million in 2010 to $(8,830) million in 2011.Chase and Citi had similar trends, both slightly increasing their bottom line while having net interest income decrease slightly. Regulatory capital ratios 2011| Bank of America| JP Morgan Chase| Citi Group| To be well capitalized| Leverage ratio| 7. 53%| 6. 80%| 7. 19%| 5%| Tier 1 risk-based capital ratio| 12. 40%| 12. 30%| 13. 55%| 6%| Total risk-based| 16. 75%| 15. 40%| 16. 99%| 10%| Table 3 Regulatory Capital Ratios of Three Banks in 2011 In 2011, Bank of America was considered well capitalized for all three regulatory ratios–Tier 1 capital, risk-based capital and leverage.Ba nk of America slightly increased all of its ratios from 2010 to 2011. Its tier 1 capital ratio was 12. 4% while 6% is considered well capitalized, its risk based capital ratio was 16. 75% while 10% is considered well capitalized, and its leverage ratio was 7. 53% while 5% is considered well capitalized. ( Table 4, Table 3) Chase and Citi had very similar ratios to Bank of America. Chase was slightly below Bank of America and Citi for all three ratios but still well above the floor to be well capitalized.Citi had a slightly lower leverage ratio and slightly higher tier 1 capital and risk based capital ratios. Regulatory ratios are fairly important; however there are some issues with them. The ratios are backwards looking, so there could be a large amount of change since in the numbers. There are also lots of adjustments made by the company to the different numbers that make up the ratio that might not even make sense such as ignoring AFS losses. The current risk weighting is also ve ry simplistic currently and might not reflect the actual risk of the assets.One important thing to note is that the newly released Basel III norms by Basel Committee on Banking Supervision (BCBS) would require a higher regulatory capital ratio on banks. It is recommended that Basel III be implemented by January 1, 2015. According to the new rules, the mandatory Tier 1 common capital ratio would be 7%. Banks should maintain conservation buffer of 2. 5% and reserves amounting to 8. 5% of assets. Therefore, in order for Bank of America to meet the future requirements and be well capitalized in face of potential financial meltdowns, it should hold more and better quality capital, carry more liquid ssets, and limit leverage. ( , ) Investment portfolio The net unrealized gains on HTM securities of $177 million = $181 million + ($4) million that have not been recognized in OCI as of the end of 2011 are attributable to HTM securities that have not been deemed other than temporarily (OTT) i mpaired, so that amortized cost is the carrying value. Amortized cost is a highly limited valuation basis for risky securities. There was very little mention of reclassification in Bank of America’s 10-K. There was a mention of a reclassification of $26. billion primarily due to noninterest earning equity securities being moved from trading account assets to other assets, but no mention of anything else. Impact of the FSP FAS 115-2 and FAS 124-2 on OTTI Bank of America According to FSP FAS 115-2 and FAS 124-2, banks are allowed to report non-credit related OTTI in Other Comprehensive Income (OCI). Only credit-related OTTI is recognized in net income. The Total OTTI losses (unrealized and realized) for 2011 is $360 million, and portion of other-than-temporary impairment losses recognized in other comprehensive income is about $61 millions.The net amount is $299 million which is recognized in earnings on AFS debt securities in 2011, compared to $970 million on AFS debt and mark etable equity securities in 2010. When we compute the regulatory Tier One Capital, the unrealized losses on AFS investments are (added back) excluded. Thus, the $61 million is added back to calculate the Tier One Capital. With adding back, Tier 1 risk-based capital ratio is 12. 40% as shown on 2011 Y9C. In absence of adding back, the ratio is (159,231,999-61,000)/ 1,284,466,933=12. 39%. JP Morgan Chase For JP Morgan Chase, the10K shows Total other-than-temporary impairment losses for are 27, 94, nd 946 million for year 2011, 2010 and 2009 respectively. ( ) However, it doesn’t divide these amounts into credit-related portion and non-credit related portion. Based on the other two banks examples, we can infer that the Tier One Capital for JP Morgan Chase will go up after adoption. Citi Group Citigroup also adopted the same rules above in first quarter of 2009. As a result of the FSP, Company’s Consolidated Statement of Income reflects the full impairment on debt securiti es that the Company intends to sell or would more-likely-than-not be required to sell before the expected recovery of the amortized cost basis.As a result of the adoption of the FSP, Citigroup’s income in the first quarter of 2009 was higher by $631 million on a pretax basis ($391 million on an after-tax basis) and AOCI was decreased by a corresponding amount. However, 2011 10K does not gives details about regarding the credit loss component of OTTI in 2011. When we compute the regulatory Tier One Capital for Citigroup, the unrealized losses from non-credit loss component on debt securities are (added back) excluded, which leads to an increase in Tier One Capital.Netting Financial Instruments | Â  | Bank of America| JP Morgan Chase| Citi Group| IFRS(Before netting)| Total assets| 2,130,796| 3,976,317| 2,749,470| | Total debt| 1,900,695| 3,792,742| 2,564,671| | Total equity| 230,101| 183,575| 184,799| | Leverage ratio| 8. 26| 20. 66| 13. 88| GAAP(After netting)| Total assets| 2,129,046| 2,265,792| 1,873,878| | Total debt| 1,898,945| 2,082,219| 1,694,305| | Total equity| 230,101| 183,573| 179,573| | Leverage ratio| 8. 25| 11. 34| 9. 44| Table 4 Netting Adjustments for Three Banks in 2011 Bank of AmericaAccording to Note 4—Derivatives, Bank of America had legally enforceable master netting agreement that would reduce both derivative assets and derivative liabilities by the same amount of 1,749. 9 million, respectively. Moreover, cash collateral was applied to net off derivative assets by 58. 9 million and derivative liabilities by 51. 9 million, respectively. However, the reduction caused by cash collateral wouldn’t affect total assets and total liabilities. If Band of America were to adopt IFRS, it would report higher gross derivative assets and liabilities by an increase of 1,749. million. However, the adjustment (1,749. 9 million) was insignificant compared to Bank of America’s total asset base (2,129,046 million, about 0. 08%). Th erefore, the leverage ratio would only increase slightly due to this change, from 8. 25 under GAAP to 8. 26 under IFRS. Comparable banks J. P. Morgan Chase’s gross derivative assets were offset by 1,710,525 million netting adjustments and gross derivative liabilities by 1,710,523. Such adjustments almost made up of 75% of Chase’s total asset base which is 2,265,792 million.Therefore, if to adopt IFRS, Chase would record a much higher assets and liabilities up to 3,976,317 million and 3,792,742 million, respectively. Leverage ratio, accordingly, would rise from 11. 34 to 20. 66, with an almost doubled increase. Citi Group’s netting adjustments of 875,592 million against derivative assets made up 46. 7% of total assets, and 870,366 million against derivative liabilities made up 33. 9% of total liabilities. When adopting IFRS, Citi would report a higher assets and liabilities, with its leveraging ratio growing from 9. 44 to 13. 88 due to the significant amount of t he netting adjustments. Analysis of the impactFrom the above table, we can see that Bank of America was merely affected by the presentation of netting financial instruments, while the other two banks were greatly affected in terms of leverage ratio. The main reason to such a distinguished difference is that Bank of America had the smallest investment in derivative instruments, compared to Chase and Citi. The gross approach would definitely give a more comprehensive picture of banks’ derivative instruments; however, it would overstate risk to some extent. Market risk of the derivative positions can be better evaluated using the gross presentation which is more detailed.Firstly, net figures are by far more relevant metrics than the gross amounts. Naturally, this comes about from looking to the way that derivatives are traded under an enforceable master netting agreement. The master netting agreement allows for the aggregation of all trades and the replacement by a single net am ount. Secondly, another metric to measure derivative portfolios is volatility which is driven by the risk of open market positions and the potential changes in net asset values and not the size of gross derivatives amounts.Therefore, gross balance sheet amounts are not particularly useful indicators of how much net derivative asset values would have to change before solvency is affected. Finally, as the third most important metric when evaluating the risks, collateral together with cash settlement procedures results in a liquidity profile that is more aligned with net presentation. Collateral amounts further reduce the risks and have to be taken into consideration for reporting derivatives Fair Value Accounting for Financial InstrumentsFair value accounting From table 5 and the three computation tables in Appendix, we can see that under Full Fair Value method, Bank of America’s net income would grow from 1,446 million to 2,750 million, an increase of 90. 2%. Similarly, Citi w ould experience an increase of 128. 2% in net income from 11,067 million to 25,257 million. However, full fair value method had insignificant impact on Chase, with a total adjustment of 1,773 million compared to its pre-adjustment net income of 18,976 million.In millions| Bank of America| JP Morgan Chase| Citi Group| Adjustments for assets and liabilities at HC on balance sheet| 6,127 | 1,140 | 12,000 | Adjustments for assets and liabilities at FV on balance sheet with gains and losses in OCI| -4,819 | 633 | 2,190 | Total adjustment| 1,308 | 1,773 | 14,190 | Net income as per financial statements| 1,446 | 18,976 | 11,215 | Full fair value income with information available| 2,754 | 20,749 | 25,405 | * Table 5 Summary of the Fair Value IncomeAnother thing to note is that BOA stands out as it had a significant unrealized loss of 4,819 million on AFS, while its comparable banks, Chase and Citi, had a positive gain of 633 million and 2,190 million, respectively. Based on our analysis, su ch difference was driven by the following factors. (1). According to its disclosure, Bank of America recognized $299 million of other-than-temporary impairment (OTTI) losses in earnings on AFS debt securities in 2011 compared to $970 million on AFS debt and marketable equity securities in 2010, which contributes greatly in such a large amount of unrealized loss on AFS.The recognition of OTTI losses on AFS debt and marketable equity securities is based on a variety of factors, including the length of time and extent to which the market value has been less than amortized cost, the financial condition of the issuer of the security including credit ratings and any specific events affecting the operations of the issuer, underlying assets that collateralize the debt security, other industry and macroeconomic conditions, and management’s intent and ability to hold the security to recovery. (2).According to its disclosure, Bank of America presents debt securities purchased for longer term investment purposes which are as part of asset and liability management (ALM) and other strategic activities, as available-for-sale (AFS) securities, and report these securities at fair value with net unrealized gains and losses included in accumulated OCI. In 2011, the fair value of net ALM contracts decreased $7. 9 billion to a gain of $4. 7 billion, compared to $12. 6 billion in 2010. The decrease was primarily attributable to changes in the value of U. S. dollar-denominated pay-fixed interest rate swaps of $9. billion, foreign exchange contracts of $1. 8 billion and foreign exchange basis swaps of $1. 4 billion. The decrease was partially offset by a gain from the changes in the value of U. S. dollar-denominated receive-fixed interest rate swaps of $6. 6 billion. Opinions about fair value accounting Fair Value Accounting has many advantages and disadvantages as listed below. FVA advantages include the following: FVA depicts a clearer picture of the company’s financi al situation, as it provides an accurate asset and liability valuation as the prices are reflected in the market price.Fair value accounting limits managers’ ability to manipulate the reported net income, as the gains and losses are reported in the period they occur, not when they are realized as the result of a transaction. For Level 1 & 2, the price for financial instruments, are available in a liquid market. While under amortized accounting method, firms can manage their income through the selective realization of cumulative unrealized gains and losses on positions, an activity referred to as gains trading.FVA provides investors with more accurate, timely, and comparable financial information versus other alternative accounting approaches, even during extreme market conditions. Gains & losses resulting from changes in fair value estimates indicate economic events that companies and investors may find worthy of additional disclosures. Under amortized accounting, income typi cally is persistent for as long as firms hold positions, but becomes transitory when positions mature or are disposed of and firms replace them with new positions at current market terms.Disadvantages of FVA include: The price for certain assets and liabilities may fluctuate often, resulting in higher volatility than other accounting methods. When the market is volatile, the price for financial instruments may change a lot, so companies may recognize gains/losses. This volatility of earnings would make it more difficult for users to predict future performance and make regulatory capital ratio vary dramatically across periods. A solution for this disadvantage is regulatory capital should be delinked from fair value and reported by using historic cost information.After the market stabilizes, the price may change back to the normal level. Not every asset or liability can be easily fair valued. For financial instruments in level 3, there is no fair value in the liquidity market. Manager s need model to estimate the value of financial instruments in level 3. Using fair value accounting may have adverse effect on a down market. Companies may sell some financial instruments whose value decreased because of the drop in the current market price. They may not realize the drop without the fair value accounting.The market may stabilize over time, and the price for the financial instruments will return to their normal level. Another issue with fair value accounting is that when the market for instruments freezes up and there’s no liquidity in the market, financial instruments would have to be valued by using mark-to-model which in many situations are not reliable and transparent to investors. A solution to this is that regulators provide more specific guidance on how to determine fair value for financial statements.Disclosure requirements would include disclosure of fair value of all financial instruments along with method adopted to determine fair values, any signif icant assumptions used in their estimation, some indications of the sensitivity of the estimated fair value to these assumptions, and discussion of risk exposure and issues associated with the estimation of fair value. In addition, fair value accounting has very significant feedback effects, especially during financial crisis.Fair value accounting would further contribute to the deterioration in the value of a company’s financial instruments or assets and make it more difficult for companies to recover from the crisis. Recommendation here is that in special situations, regulators would allow companies that face severe crisis to adopt other accounting methods temporarily and minimize the loss of these companies. In summary, fair value has both advantages and disadvantages under today’s economy. FVA provides better insight of the financial statements, in ddition to limiting the potential for manipulation. However, in my opinion, under today’s economy situation, it is hard to fully implement the fair value accounting. Every disadvantage has proposed solutions to resolve the issues identified. Overall, FVA is recommended for use. Interest Rate Risk and Net Interest Earnings Net interest margin The net interest yield on a FTE basis was 2. 48 percent for 2011 compared to 2. 78 percent for 2010. Net interest income on a FTE basis decreased $7. 1 billion in 2011 to $45. 6 billion. The decline was primarily due to: (1).There’s a noticeable decrease in the yield on consumer loans from 6. 04% in 2010 to 5. 37% in 2011, which reduces net interest income by about 4,244 million (633,507 million * 0. 57%). * Debt securities and residential mortgage mainly contributed to the decline. The yield rate for debt securities decreased from 3. 66% to 2. 85%, and the residential mortgage from 4. 78% to 4. 18%. (2). Noninterest income declined from the previous year due to lower mortgage banking income, reflecting$11. 6 billion in representations and warrant ies costs and decline of $3. billion income from trading account profits. Noninterest income being the major source of Bank of America's income drastically impacts the profitability of the company. (3). In 2011 Bank of America had a decreased investment security yields, including the acceleration of purchase premium amortization from an increase in modeled prepayment expectations, and increased hedge ineffectiveness. (4). Bank of America’s declining net interest margin was partially offset by ongoing reductions in its debt footprint and lower rates paid on deposits.The total U. S interest-bearing deposits had an average yield of 0. 36%, compared to 0. 55% in 2008. Such downward trend in net interest margin can be observed in other banks as well. The following table presents total interest-earning assets rate and total interest-bearing liabilities for all three banks over 2009 to 2011. As shown, all banks experienced a decline in interest-earning assets rate over three years: 1) BOA from 4. 31% in 2009 to 3. 65% in 2011, with an average decrease of 8% every year; 2) Chase from 4. 04% to 3. 1%, with an average decrease of 6. 8%; 3) Citi from 4. 78% to 4. 27%, with an average decrease of 5. 5%. The main reasons for the other two banks’ declining net interest margin were higher deposit balances with lower loan yields. | Bank of America| JP Morgan Chase| Citi Group| | 2011| 2010| 2009| 2011| 2010| 2009| 2011| 2010| 2009| Total interest-earning assets rate| 3. 65%| 4. 02%| 4. 31%| 3. 51%| 3. 83%| 4. 04%| 4. 27%| 4. 55%| 4. 78%| Total interest-bearing liabilities| 1. 39%| 1. 39%| 1. 77%| 0. 86%| 0. 84%| 1. 02%| 1. 63%| 1. 61%| 1. 3%| Table 6 Net Interest Margin of Three Banks Interest rate risk BOA’s net interest income decreased by $2,122 million in 2011 and $998 million in 2010 from a 1% downward parallel shift in interest rate. 1% downward change in interest rate results in a bigger decrease in net interest income in 2011 than in 2010. However , according Chase’s 10K, downward 100bps parallel shocks result in a Federal Funds target rate of zero and negative three- and six-month treasury rates. The earnings-at-risk results of such a low-probability scenario are not meaningful.For Citi, a 100 bps decrease in interest rates would imply negative rates for the yield curve, so not meaningful either. 1% downward shift| 2011| 2010| BOA| ($2,122)| ($998)| JP Morgan Chase| NM| NM| Citi Group| NM| NM| Table 7 The Impact of 1% downward shift on Net Interest Income BOA’s net interest income would increase by $1,505 million in 2011 and $601 million in 2010 from a 1% upward parallel shift in interest rate. The same as downward change, 1% upward change in interest rate also would result in a bigger increase in the net interest income in 2011 than in 2010.Compared with BOA, 1% upward shift in interest rate has a bigger impact for Chase and smaller impact for Citi. 1% upward shift| 2011| 2010| Bank of America| $1,505 | $601 | JP Morgan Chase| $2,326 | $1,483 | Citi Group| $97 | ($105)| Table 8 The Impact of 1% Upward Shift on Net Interest Income Credit Risk and Losses Main loss reserve adequacy ratios Policy to designate past due loans as non-performing Adequacy of the bank’s allowance for loan losses Disclosure policies relating to loans Appendix BOAIn $ millions| 2011| 2011| 2010| 2010| 2011| 2010| 2011| ? | Carrying Value| Fair Value| Carrying Value| Fair Value| CURG| CURG| URG| Adjustments for assets and liabilities at HC on balance sheet| Assets:| ? | ? | ? | ? | ? | ? | ? | Held-to maturity debt securities| 35,265 | 35,442 | 427 | 427 | 177 | – | 177 | Loans| 870,520 | 843,392 | 876,739 | 861,695 | (27,128)| (15,044)| (12,084)| Total assets| 905,785 | 878,834 | 877,166 | 862,122 | (26,951)| (15,044)| (11,907)| Liabilities:| ? ? | ? | ? | ? | ? | ? | Deposits| 1,033,041 | 1,033,248 | 1,010,430 | 1,010,460 | 207 | 30 | 177 | Long-term debt| 372,265 | 343,211 | 448,431 | 441,672 | (29,0 54)| (6,759)| (22,295)| Total liabilities| 1,405,306 | 1,376,459 | 1,458,861 | 1,452,132 | (28,847)| (6,729)| (22,118)| Pretax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | 1,896 | (8,315)| 10,211 | Aftertax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | ? ? | 6,127 | Adjustments for assets and liabilities at FV on balance sheet with gains and losses in OCI? | Aftertax adjustment for AFS securities| ? | ? | ? | ? | ? | ? | (4,270)| Aftertax adjustment for CFH derivatives| ? | ? | ? | ? | ? | ? | (549)| Total adjustment to net income| ? | ? | ? | ? | ? | ? | 1,308 | Net income as per financial statements| ? | ? | ? | ? | ? | ? | 1,446 | Full fair value income with information available| ? | ? | ? | ? | ? | ? | 2,754 | JP Morgan ChaseIn $ millions| 2011| 2011| 2010| 2010| 2011| 2010| 2011| ? | Carrying Value| Fair Value| Carrying Value| Fair Value| CURG| CURG| URG| Adjustments for assets and liabilities at HC on balance sheet| Assets:| ? | ? | ? | ? | ? | ? | ? | Loans| 696,100 | 695,800 | 660,700 | 663,500 | (300)| 2,800 | (3,100)| Other| 66,300 | 66,800 | 64,900 | 65,000 | 500 | 100 | 400 | Total assets| 762,400 | 762,600 | 725,600 | 728,500 | 200 | 2,900 | (2,700)| Liabilities:| ? | ? | ? | ? | ? | ? | ? |Deposits| 1,127,800 | 1,128,300 | 930,400 | 931,500 | 500 | 1,100 | (600)| Accounts payable and other liabilities| 167,000 | 166,900 | 138,200 | 138,200 | (100)| – | (100)| Beneficial interests issued by consolidated VIEs| 66,000 | 66,200 | 77,600 | 77,900 | 200 | 300 | (100)| Long-term debt and junior subordinated deferrable interest debentures| 256,800 | 254,200 | 270,700 | 271,900 | (2,600)| 1,200 | (3,800)| Total liabilities| 1,617,600 | 1,615,600 | 1,416,900 | 1,419,500 | (2,000)| 2,600 | (4,600)| Pretax adjustments before AFS securities and CFH derivatives| ? | ? ? | ? | 2,200 | 300 | 1,900 | Aftertax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | ? | ? | 1,140 | Adjustment s for assets and liabilities at FV on balance sheet with gains and losses in OCI| Aftertax adjustment for AFS securities| ? | ? | ? | ? | ? | ? | 1,067 | Aftertax adjustment for CFH derivatives| ? | ? | ? | ? | ? | ? | (279)| Cash flow hedge| ? | ? | ? | ? | ? | ? | (155)| Total adjustment to net income| ? | ? | ? | ? | ? | ? | 1,773 | Net income as per financial statements| ? | ? | ? | ? | ? | ? | 18,976 | Full fair value income with information available| ? ? | ? | ? | ? | ? | 20,749 | Citi Group In $ millions| 2011| 2011| 2010| 2010| 2011| 2010| 2011| ? | Carrying Value| Fair Value| Carrying Value| Fair Value| CURG| CURG| URG| Adjustments for assets and liabilities at HC on balance sheet? | Assets:| ? | ? | ? | ? | ? | ? | ? | Investment| 293,400 | 292,400 | 318,200 | 319,000 | (1,000)| 800 | (1,800)| Loans| 614,600 | 603,900 | 605,500 | 584,300 | (10,700)| (21,200)| 10,500 | Total assets| 908,000 | 896,300 | 923,700 | 903,300 | (11,700)| (20,400)| 8,700 | Liabilities:| ? ? | ? | ? | ? | ? | ? | Deposits| 865,900 | 865,800 | 845,000 | 843,200 | (100)| (1,800)| 1,700 | Long-term debt| 323,500 | 313,800 | 381,200 | 384,500 | (9,700)| 3,300 | (13,000)| Total liabilities| 1,189,400 | 1,179,600 | 1,226,200 | 1,227,700 | (9,800)| 1,500 | (11,300)| Pretax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | (1,900)| (21,900)| 20,000 | Aftertax adjustments before AFS securities and CFH derivatives| ? ? | ? | ? | ? | ? | 12,000 | Adjustments for assets and liabilities at FV on balance sheet with gains and losses in OCI| Aftertax adjustment for AFS securities| ? | ? | ? | ? | ? | ? | 2,360 | Cash flow hedge| ? | ? | ? | ? | ? | ? | (170)| Total adjustment to net income| ? | ? | ? | ? | ? | ? | 14,190 | Net income as per financial statements| ? | ? | ? | ? | ? | ? | 11,215 | Full fair value income with information available| ? | ? | ? | ? | ? | ? | 25,405 | Financial Analysis of Bank of America Financial Statement Analysis of Bank of America Group 1 Chen, Yelin Dong, Xiaoxu Gransbach, Jennifer Shuai, Wang Weiss, Charles 1Financial Statements of Bank of America1 1. 1Balance sheet1 1. 2Income statement2 1. 3Regulatory capital ratios2 1. 4Investment portfolio2 1. 5Impact of the FSP FAS 115-2 and FAS 124-2 on OTTI3 1. 5. 1Bank of America3 1. 5. 2JP Morgan Chase3 1. 5. 3Citi Group3 1. 6Netting Financial Instruments3 1. 6. 1Bank of America4 1. 6. 2Comparable banks4 1. 6. 3Analysis of the impact4 2Fair Value Accounting for Financial Instruments4 2. Fair value accounting4 Table 6 Summary of the Fair Value Income5 2. 2Opinions about fair value accounting5 3Interest Rate Risk and Net Interest Earnings6 3. 1Net interest margin6 3. 2Interest rate risk7 4Credit Risk and Losses7 4. 1Main loss reserve adequacy ratios8 4. 2Policy to designate past due loans as non-performing8 4. 3Adequacy of the bank’s allowance for loan losses8 4. 4Disclosure policies relating to loans8 5Appendix9 * Part 1 Financial Statements of Bank of America . 1. 1 Balance sheetBank of America’s balance sheet has total assets of $2,129,046 million in 2011, which is less than last year’s $2,264,909 million, a fairly significant decline. There are a few primary assets on the balance sheet. The largest asset is loans and leases which makes up 41. 92% of the total assets. The next largest asset was Available-For-Sale securities making up 12. 97% of total assets. Total liabilities on the balance sheet were $1,898,945 million, with the primary liability being deposits in U. S. offices both interest bearing and noninterest bearing, at 50. 4% of total liabilities. The next largest liability was long-term debt at 19. % of total liabilities. In millions| 2011| % of total assets| 2010| % of total assets| % chg from 2010-2011| Total asset| 2,029,046 | 100. 00%| 2,264,909 | 100. 00%| -10. 41%| Loans and leases| 892,417 | 43. 98%| 898,555 | 39. 67%| -0. 68%| Available-for-sale| 276,151 | 13. 61%| 337,627 | 14. 91%| -18. 21%| Total liabilities| 1,898,945 | 93. 59%| 2,036,661 | 89. 92%| -6. 76%| Total deposits| 1,033,041 | 50. 91%| 1,010,430 | 44. 61%| 2. 24%| Deposits in U. S. offices| 957,042 | 47. 17%| 930,913 | 41. 10%| 2. 81%| Long-term debt| 372,265 | 18. 35%| 448,431 | 19. 80%| -16. 98%| Leverage ratio| 14. 0 | ? | 8. 92 | ? | 63. 58%| Table 1 Selected Financial Data from Balance Sheet of Bank of America Chase and Citi are fairly similar in size and distribution of their balance sheets. Chase and Citi have total assets of 2,265,792 and 1,873,878( ) respectively, both with slightly lower loans as a percentage of total assets at slightly over 30%, while AFS securities are around 16% of total assets for each. Liabilities are also very similar, with Chase having total liabilities of $2,082,219 million and Citi $1,694,305 million. The primary line items are also very similar once again with Chase’s total deposits 54. 6% and long-term debt 22. 77% of total lia bilities, while Citi has deposits 51. 11% and long-term debt of 19. 09%. According to the deposits in U. S. offices, BOA focus more in U. S market and Citi focus more on market outside U. S. In millions| Bank of America| % of total assets| JP Morgan Chase| % of total assets| Citi Group| % of total assets| Total asset| 2,129,046 | 100. 00%| 2,265,792 | 100. 00%| 1,873,878 | 100. 00%| Loans and leases| 892,417 | 41. 92%| 696,111 | 30. 72%| 617,127 | 32. 93%| Available-for-sale| 276,151 | 12. 97%| 364,793 | 16. 10%| 293,413 | 15. 66%| ? | ? | ? | ? | ? | ? | ? |In millions| Bank of America| % of total liabilities| JP Morgan Chase| % of total liabilities| Citi Group| % of total liabilities| Total liabilities| 1,898,945 | 100. 00%| 2,082,219 | 100. 00%| 1,694,305 | 100. 00%| Total deposits| 1,033,041 | 54. 40%| 1,127,806 | 54. 16%| 865,936 | 51. 11%| Long-term debt| 372,265 | 19. 60%| 256,775 | 22. 77%| 3,235,050 | 190. 94%| Leverage ratio| 8. 25 | ? | 11. 34 | ? | 9. 44 | ? | | | | | | | | In millions| Bank of America| % of total deposits| JP Morgan Chase| % of total deposits| Citi Group| % of total deposits| Deposits in U. S. offices| 957,042 | 92. 64%| 851,534 | 75. 0%| 343,288 | 39. 64%| Table 2 Selected Financial Data from Balance Sheets of Three Banks in 2011 In the event of a bank run, Bank of America will be in trouble due to its high leverage, similar to many banks. Bank of America has deposits of $1,033,041 million, among which liquid assets only have $314,425 million, including cash and cash equivalents of $120,102 million, time deposits and other short-term investments of $26,004 million and trading assets of $169,319 million. Even with the ability to liquidate those non-cash assets, it will still only be able to honor slightly more than 30% of its depositors.Income statement The primary line item on Bank of America’s income statement is net income of $1,446 million, which increased compared to a net loss of 2,238 in 2010. Interest income was $66 ,236 million, down from $75,497 million in 2010. Total interest expense was $21,620 million, which makes the net interest income become $44,616 million, down 13. 4% from the previous year. Lastly, total noninterest income was $48,838 million, decreased by 16. 8% from 2010. This is partly due to the big loss of mortgage banking income, decreasing from $2,734 million in 2010 to $(8,830) million in 2011.Chase and Citi had similar trends, both slightly increasing their bottom line while having net interest income decrease slightly. Regulatory capital ratios 2011| Bank of America| JP Morgan Chase| Citi Group| To be well capitalized| Leverage ratio| 7. 53%| 6. 80%| 7. 19%| 5%| Tier 1 risk-based capital ratio| 12. 40%| 12. 30%| 13. 55%| 6%| Total risk-based| 16. 75%| 15. 40%| 16. 99%| 10%| Table 3 Regulatory Capital Ratios of Three Banks in 2011 In 2011, Bank of America was considered well capitalized for all three regulatory ratios–Tier 1 capital, risk-based capital and leverage.Ba nk of America slightly increased all of its ratios from 2010 to 2011. Its tier 1 capital ratio was 12. 4% while 6% is considered well capitalized, its risk based capital ratio was 16. 75% while 10% is considered well capitalized, and its leverage ratio was 7. 53% while 5% is considered well capitalized. ( Table 4, Table 3) Chase and Citi had very similar ratios to Bank of America. Chase was slightly below Bank of America and Citi for all three ratios but still well above the floor to be well capitalized.Citi had a slightly lower leverage ratio and slightly higher tier 1 capital and risk based capital ratios. Regulatory ratios are fairly important; however there are some issues with them. The ratios are backwards looking, so there could be a large amount of change since in the numbers. There are also lots of adjustments made by the company to the different numbers that make up the ratio that might not even make sense such as ignoring AFS losses. The current risk weighting is also ve ry simplistic currently and might not reflect the actual risk of the assets.One important thing to note is that the newly released Basel III norms by Basel Committee on Banking Supervision (BCBS) would require a higher regulatory capital ratio on banks. It is recommended that Basel III be implemented by January 1, 2015. According to the new rules, the mandatory Tier 1 common capital ratio would be 7%. Banks should maintain conservation buffer of 2. 5% and reserves amounting to 8. 5% of assets. Therefore, in order for Bank of America to meet the future requirements and be well capitalized in face of potential financial meltdowns, it should hold more and better quality capital, carry more liquid ssets, and limit leverage. ( , ) Investment portfolio The net unrealized gains on HTM securities of $177 million = $181 million + ($4) million that have not been recognized in OCI as of the end of 2011 are attributable to HTM securities that have not been deemed other than temporarily (OTT) i mpaired, so that amortized cost is the carrying value. Amortized cost is a highly limited valuation basis for risky securities. There was very little mention of reclassification in Bank of America’s 10-K. There was a mention of a reclassification of $26. billion primarily due to noninterest earning equity securities being moved from trading account assets to other assets, but no mention of anything else. Impact of the FSP FAS 115-2 and FAS 124-2 on OTTI Bank of America According to FSP FAS 115-2 and FAS 124-2, banks are allowed to report non-credit related OTTI in Other Comprehensive Income (OCI). Only credit-related OTTI is recognized in net income. The Total OTTI losses (unrealized and realized) for 2011 is $360 million, and portion of other-than-temporary impairment losses recognized in other comprehensive income is about $61 millions.The net amount is $299 million which is recognized in earnings on AFS debt securities in 2011, compared to $970 million on AFS debt and mark etable equity securities in 2010. When we compute the regulatory Tier One Capital, the unrealized losses on AFS investments are (added back) excluded. Thus, the $61 million is added back to calculate the Tier One Capital. With adding back, Tier 1 risk-based capital ratio is 12. 40% as shown on 2011 Y9C. In absence of adding back, the ratio is (159,231,999-61,000)/ 1,284,466,933=12. 39%. JP Morgan Chase For JP Morgan Chase, the10K shows Total other-than-temporary impairment losses for are 27, 94, nd 946 million for year 2011, 2010 and 2009 respectively. ( ) However, it doesn’t divide these amounts into credit-related portion and non-credit related portion. Based on the other two banks examples, we can infer that the Tier One Capital for JP Morgan Chase will go up after adoption. Citi Group Citigroup also adopted the same rules above in first quarter of 2009. As a result of the FSP, Company’s Consolidated Statement of Income reflects the full impairment on debt securiti es that the Company intends to sell or would more-likely-than-not be required to sell before the expected recovery of the amortized cost basis.As a result of the adoption of the FSP, Citigroup’s income in the first quarter of 2009 was higher by $631 million on a pretax basis ($391 million on an after-tax basis) and AOCI was decreased by a corresponding amount. However, 2011 10K does not gives details about regarding the credit loss component of OTTI in 2011. When we compute the regulatory Tier One Capital for Citigroup, the unrealized losses from non-credit loss component on debt securities are (added back) excluded, which leads to an increase in Tier One Capital.Netting Financial Instruments | Â  | Bank of America| JP Morgan Chase| Citi Group| IFRS(Before netting)| Total assets| 2,130,796| 3,976,317| 2,749,470| | Total debt| 1,900,695| 3,792,742| 2,564,671| | Total equity| 230,101| 183,575| 184,799| | Leverage ratio| 8. 26| 20. 66| 13. 88| GAAP(After netting)| Total assets| 2,129,046| 2,265,792| 1,873,878| | Total debt| 1,898,945| 2,082,219| 1,694,305| | Total equity| 230,101| 183,573| 179,573| | Leverage ratio| 8. 25| 11. 34| 9. 44| Table 4 Netting Adjustments for Three Banks in 2011 Bank of AmericaAccording to Note 4—Derivatives, Bank of America had legally enforceable master netting agreement that would reduce both derivative assets and derivative liabilities by the same amount of 1,749. 9 million, respectively. Moreover, cash collateral was applied to net off derivative assets by 58. 9 million and derivative liabilities by 51. 9 million, respectively. However, the reduction caused by cash collateral wouldn’t affect total assets and total liabilities. If Band of America were to adopt IFRS, it would report higher gross derivative assets and liabilities by an increase of 1,749. million. However, the adjustment (1,749. 9 million) was insignificant compared to Bank of America’s total asset base (2,129,046 million, about 0. 08%). Th erefore, the leverage ratio would only increase slightly due to this change, from 8. 25 under GAAP to 8. 26 under IFRS. Comparable banks J. P. Morgan Chase’s gross derivative assets were offset by 1,710,525 million netting adjustments and gross derivative liabilities by 1,710,523. Such adjustments almost made up of 75% of Chase’s total asset base which is 2,265,792 million.Therefore, if to adopt IFRS, Chase would record a much higher assets and liabilities up to 3,976,317 million and 3,792,742 million, respectively. Leverage ratio, accordingly, would rise from 11. 34 to 20. 66, with an almost doubled increase. Citi Group’s netting adjustments of 875,592 million against derivative assets made up 46. 7% of total assets, and 870,366 million against derivative liabilities made up 33. 9% of total liabilities. When adopting IFRS, Citi would report a higher assets and liabilities, with its leveraging ratio growing from 9. 44 to 13. 88 due to the significant amount of t he netting adjustments. Analysis of the impactFrom the above table, we can see that Bank of America was merely affected by the presentation of netting financial instruments, while the other two banks were greatly affected in terms of leverage ratio. The main reason to such a distinguished difference is that Bank of America had the smallest investment in derivative instruments, compared to Chase and Citi. The gross approach would definitely give a more comprehensive picture of banks’ derivative instruments; however, it would overstate risk to some extent. Market risk of the derivative positions can be better evaluated using the gross presentation which is more detailed.Firstly, net figures are by far more relevant metrics than the gross amounts. Naturally, this comes about from looking to the way that derivatives are traded under an enforceable master netting agreement. The master netting agreement allows for the aggregation of all trades and the replacement by a single net am ount. Secondly, another metric to measure derivative portfolios is volatility which is driven by the risk of open market positions and the potential changes in net asset values and not the size of gross derivatives amounts.Therefore, gross balance sheet amounts are not particularly useful indicators of how much net derivative asset values would have to change before solvency is affected. Finally, as the third most important metric when evaluating the risks, collateral together with cash settlement procedures results in a liquidity profile that is more aligned with net presentation. Collateral amounts further reduce the risks and have to be taken into consideration for reporting derivatives Fair Value Accounting for Financial InstrumentsFair value accounting From table 5 and the three computation tables in Appendix, we can see that under Full Fair Value method, Bank of America’s net income would grow from 1,446 million to 2,750 million, an increase of 90. 2%. Similarly, Citi w ould experience an increase of 128. 2% in net income from 11,067 million to 25,257 million. However, full fair value method had insignificant impact on Chase, with a total adjustment of 1,773 million compared to its pre-adjustment net income of 18,976 million.In millions| Bank of America| JP Morgan Chase| Citi Group| Adjustments for assets and liabilities at HC on balance sheet| 6,127 | 1,140 | 12,000 | Adjustments for assets and liabilities at FV on balance sheet with gains and losses in OCI| -4,819 | 633 | 2,190 | Total adjustment| 1,308 | 1,773 | 14,190 | Net income as per financial statements| 1,446 | 18,976 | 11,215 | Full fair value income with information available| 2,754 | 20,749 | 25,405 | * Table 5 Summary of the Fair Value IncomeAnother thing to note is that BOA stands out as it had a significant unrealized loss of 4,819 million on AFS, while its comparable banks, Chase and Citi, had a positive gain of 633 million and 2,190 million, respectively. Based on our analysis, su ch difference was driven by the following factors. (1). According to its disclosure, Bank of America recognized $299 million of other-than-temporary impairment (OTTI) losses in earnings on AFS debt securities in 2011 compared to $970 million on AFS debt and marketable equity securities in 2010, which contributes greatly in such a large amount of unrealized loss on AFS.The recognition of OTTI losses on AFS debt and marketable equity securities is based on a variety of factors, including the length of time and extent to which the market value has been less than amortized cost, the financial condition of the issuer of the security including credit ratings and any specific events affecting the operations of the issuer, underlying assets that collateralize the debt security, other industry and macroeconomic conditions, and management’s intent and ability to hold the security to recovery. (2).According to its disclosure, Bank of America presents debt securities purchased for longer term investment purposes which are as part of asset and liability management (ALM) and other strategic activities, as available-for-sale (AFS) securities, and report these securities at fair value with net unrealized gains and losses included in accumulated OCI. In 2011, the fair value of net ALM contracts decreased $7. 9 billion to a gain of $4. 7 billion, compared to $12. 6 billion in 2010. The decrease was primarily attributable to changes in the value of U. S. dollar-denominated pay-fixed interest rate swaps of $9. billion, foreign exchange contracts of $1. 8 billion and foreign exchange basis swaps of $1. 4 billion. The decrease was partially offset by a gain from the changes in the value of U. S. dollar-denominated receive-fixed interest rate swaps of $6. 6 billion. Opinions about fair value accounting Fair Value Accounting has many advantages and disadvantages as listed below. FVA advantages include the following: FVA depicts a clearer picture of the company’s financi al situation, as it provides an accurate asset and liability valuation as the prices are reflected in the market price.Fair value accounting limits managers’ ability to manipulate the reported net income, as the gains and losses are reported in the period they occur, not when they are realized as the result of a transaction. For Level 1 & 2, the price for financial instruments, are available in a liquid market. While under amortized accounting method, firms can manage their income through the selective realization of cumulative unrealized gains and losses on positions, an activity referred to as gains trading.FVA provides investors with more accurate, timely, and comparable financial information versus other alternative accounting approaches, even during extreme market conditions. Gains & losses resulting from changes in fair value estimates indicate economic events that companies and investors may find worthy of additional disclosures. Under amortized accounting, income typi cally is persistent for as long as firms hold positions, but becomes transitory when positions mature or are disposed of and firms replace them with new positions at current market terms.Disadvantages of FVA include: The price for certain assets and liabilities may fluctuate often, resulting in higher volatility than other accounting methods. When the market is volatile, the price for financial instruments may change a lot, so companies may recognize gains/losses. This volatility of earnings would make it more difficult for users to predict future performance and make regulatory capital ratio vary dramatically across periods. A solution for this disadvantage is regulatory capital should be delinked from fair value and reported by using historic cost information.After the market stabilizes, the price may change back to the normal level. Not every asset or liability can be easily fair valued. For financial instruments in level 3, there is no fair value in the liquidity market. Manager s need model to estimate the value of financial instruments in level 3. Using fair value accounting may have adverse effect on a down market. Companies may sell some financial instruments whose value decreased because of the drop in the current market price. They may not realize the drop without the fair value accounting.The market may stabilize over time, and the price for the financial instruments will return to their normal level. Another issue with fair value accounting is that when the market for instruments freezes up and there’s no liquidity in the market, financial instruments would have to be valued by using mark-to-model which in many situations are not reliable and transparent to investors. A solution to this is that regulators provide more specific guidance on how to determine fair value for financial statements.Disclosure requirements would include disclosure of fair value of all financial instruments along with method adopted to determine fair values, any signif icant assumptions used in their estimation, some indications of the sensitivity of the estimated fair value to these assumptions, and discussion of risk exposure and issues associated with the estimation of fair value. In addition, fair value accounting has very significant feedback effects, especially during financial crisis.Fair value accounting would further contribute to the deterioration in the value of a company’s financial instruments or assets and make it more difficult for companies to recover from the crisis. Recommendation here is that in special situations, regulators would allow companies that face severe crisis to adopt other accounting methods temporarily and minimize the loss of these companies. In summary, fair value has both advantages and disadvantages under today’s economy. FVA provides better insight of the financial statements, in ddition to limiting the potential for manipulation. However, in my opinion, under today’s economy situation, it is hard to fully implement the fair value accounting. Every disadvantage has proposed solutions to resolve the issues identified. Overall, FVA is recommended for use. Interest Rate Risk and Net Interest Earnings Net interest margin The net interest yield on a FTE basis was 2. 48 percent for 2011 compared to 2. 78 percent for 2010. Net interest income on a FTE basis decreased $7. 1 billion in 2011 to $45. 6 billion. The decline was primarily due to: (1).There’s a noticeable decrease in the yield on consumer loans from 6. 04% in 2010 to 5. 37% in 2011, which reduces net interest income by about 4,244 million (633,507 million * 0. 57%). * Debt securities and residential mortgage mainly contributed to the decline. The yield rate for debt securities decreased from 3. 66% to 2. 85%, and the residential mortgage from 4. 78% to 4. 18%. (2). Noninterest income declined from the previous year due to lower mortgage banking income, reflecting$11. 6 billion in representations and warrant ies costs and decline of $3. billion income from trading account profits. Noninterest income being the major source of Bank of America's income drastically impacts the profitability of the company. (3). In 2011 Bank of America had a decreased investment security yields, including the acceleration of purchase premium amortization from an increase in modeled prepayment expectations, and increased hedge ineffectiveness. (4). Bank of America’s declining net interest margin was partially offset by ongoing reductions in its debt footprint and lower rates paid on deposits.The total U. S interest-bearing deposits had an average yield of 0. 36%, compared to 0. 55% in 2008. Such downward trend in net interest margin can be observed in other banks as well. The following table presents total interest-earning assets rate and total interest-bearing liabilities for all three banks over 2009 to 2011. As shown, all banks experienced a decline in interest-earning assets rate over three years: 1) BOA from 4. 31% in 2009 to 3. 65% in 2011, with an average decrease of 8% every year; 2) Chase from 4. 04% to 3. 1%, with an average decrease of 6. 8%; 3) Citi from 4. 78% to 4. 27%, with an average decrease of 5. 5%. The main reasons for the other two banks’ declining net interest margin were higher deposit balances with lower loan yields. | Bank of America| JP Morgan Chase| Citi Group| | 2011| 2010| 2009| 2011| 2010| 2009| 2011| 2010| 2009| Total interest-earning assets rate| 3. 65%| 4. 02%| 4. 31%| 3. 51%| 3. 83%| 4. 04%| 4. 27%| 4. 55%| 4. 78%| Total interest-bearing liabilities| 1. 39%| 1. 39%| 1. 77%| 0. 86%| 0. 84%| 1. 02%| 1. 63%| 1. 61%| 1. 3%| Table 6 Net Interest Margin of Three Banks Interest rate risk BOA’s net interest income decreased by $2,122 million in 2011 and $998 million in 2010 from a 1% downward parallel shift in interest rate. 1% downward change in interest rate results in a bigger decrease in net interest income in 2011 than in 2010. However , according Chase’s 10K, downward 100bps parallel shocks result in a Federal Funds target rate of zero and negative three- and six-month treasury rates. The earnings-at-risk results of such a low-probability scenario are not meaningful.For Citi, a 100 bps decrease in interest rates would imply negative rates for the yield curve, so not meaningful either. 1% downward shift| 2011| 2010| BOA| ($2,122)| ($998)| JP Morgan Chase| NM| NM| Citi Group| NM| NM| Table 7 The Impact of 1% downward shift on Net Interest Income BOA’s net interest income would increase by $1,505 million in 2011 and $601 million in 2010 from a 1% upward parallel shift in interest rate. The same as downward change, 1% upward change in interest rate also would result in a bigger increase in the net interest income in 2011 than in 2010.Compared with BOA, 1% upward shift in interest rate has a bigger impact for Chase and smaller impact for Citi. 1% upward shift| 2011| 2010| Bank of America| $1,505 | $601 | JP Morgan Chase| $2,326 | $1,483 | Citi Group| $97 | ($105)| Table 8 The Impact of 1% Upward Shift on Net Interest Income Credit Risk and Losses Main loss reserve adequacy ratios Policy to designate past due loans as non-performing Adequacy of the bank’s allowance for loan losses Disclosure policies relating to loans Appendix BOAIn $ millions| 2011| 2011| 2010| 2010| 2011| 2010| 2011| ? | Carrying Value| Fair Value| Carrying Value| Fair Value| CURG| CURG| URG| Adjustments for assets and liabilities at HC on balance sheet| Assets:| ? | ? | ? | ? | ? | ? | ? | Held-to maturity debt securities| 35,265 | 35,442 | 427 | 427 | 177 | – | 177 | Loans| 870,520 | 843,392 | 876,739 | 861,695 | (27,128)| (15,044)| (12,084)| Total assets| 905,785 | 878,834 | 877,166 | 862,122 | (26,951)| (15,044)| (11,907)| Liabilities:| ? ? | ? | ? | ? | ? | ? | Deposits| 1,033,041 | 1,033,248 | 1,010,430 | 1,010,460 | 207 | 30 | 177 | Long-term debt| 372,265 | 343,211 | 448,431 | 441,672 | (29,0 54)| (6,759)| (22,295)| Total liabilities| 1,405,306 | 1,376,459 | 1,458,861 | 1,452,132 | (28,847)| (6,729)| (22,118)| Pretax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | 1,896 | (8,315)| 10,211 | Aftertax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | ? ? | 6,127 | Adjustments for assets and liabilities at FV on balance sheet with gains and losses in OCI? | Aftertax adjustment for AFS securities| ? | ? | ? | ? | ? | ? | (4,270)| Aftertax adjustment for CFH derivatives| ? | ? | ? | ? | ? | ? | (549)| Total adjustment to net income| ? | ? | ? | ? | ? | ? | 1,308 | Net income as per financial statements| ? | ? | ? | ? | ? | ? | 1,446 | Full fair value income with information available| ? | ? | ? | ? | ? | ? | 2,754 | JP Morgan ChaseIn $ millions| 2011| 2011| 2010| 2010| 2011| 2010| 2011| ? | Carrying Value| Fair Value| Carrying Value| Fair Value| CURG| CURG| URG| Adjustments for assets and liabilities at HC on balance sheet| Assets:| ? | ? | ? | ? | ? | ? | ? | Loans| 696,100 | 695,800 | 660,700 | 663,500 | (300)| 2,800 | (3,100)| Other| 66,300 | 66,800 | 64,900 | 65,000 | 500 | 100 | 400 | Total assets| 762,400 | 762,600 | 725,600 | 728,500 | 200 | 2,900 | (2,700)| Liabilities:| ? | ? | ? | ? | ? | ? | ? |Deposits| 1,127,800 | 1,128,300 | 930,400 | 931,500 | 500 | 1,100 | (600)| Accounts payable and other liabilities| 167,000 | 166,900 | 138,200 | 138,200 | (100)| – | (100)| Beneficial interests issued by consolidated VIEs| 66,000 | 66,200 | 77,600 | 77,900 | 200 | 300 | (100)| Long-term debt and junior subordinated deferrable interest debentures| 256,800 | 254,200 | 270,700 | 271,900 | (2,600)| 1,200 | (3,800)| Total liabilities| 1,617,600 | 1,615,600 | 1,416,900 | 1,419,500 | (2,000)| 2,600 | (4,600)| Pretax adjustments before AFS securities and CFH derivatives| ? | ? ? | ? | 2,200 | 300 | 1,900 | Aftertax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | ? | ? | 1,140 | Adjustment s for assets and liabilities at FV on balance sheet with gains and losses in OCI| Aftertax adjustment for AFS securities| ? | ? | ? | ? | ? | ? | 1,067 | Aftertax adjustment for CFH derivatives| ? | ? | ? | ? | ? | ? | (279)| Cash flow hedge| ? | ? | ? | ? | ? | ? | (155)| Total adjustment to net income| ? | ? | ? | ? | ? | ? | 1,773 | Net income as per financial statements| ? | ? | ? | ? | ? | ? | 18,976 | Full fair value income with information available| ? ? | ? | ? | ? | ? | 20,749 | Citi Group In $ millions| 2011| 2011| 2010| 2010| 2011| 2010| 2011| ? | Carrying Value| Fair Value| Carrying Value| Fair Value| CURG| CURG| URG| Adjustments for assets and liabilities at HC on balance sheet? | Assets:| ? | ? | ? | ? | ? | ? | ? | Investment| 293,400 | 292,400 | 318,200 | 319,000 | (1,000)| 800 | (1,800)| Loans| 614,600 | 603,900 | 605,500 | 584,300 | (10,700)| (21,200)| 10,500 | Total assets| 908,000 | 896,300 | 923,700 | 903,300 | (11,700)| (20,400)| 8,700 | Liabilities:| ? ? | ? | ? | ? | ? | ? | Deposits| 865,900 | 865,800 | 845,000 | 843,200 | (100)| (1,800)| 1,700 | Long-term debt| 323,500 | 313,800 | 381,200 | 384,500 | (9,700)| 3,300 | (13,000)| Total liabilities| 1,189,400 | 1,179,600 | 1,226,200 | 1,227,700 | (9,800)| 1,500 | (11,300)| Pretax adjustments before AFS securities and CFH derivatives| ? | ? | ? | ? | (1,900)| (21,900)| 20,000 | Aftertax adjustments before AFS securities and CFH derivatives| ? ? | ? | ? | ? | ? | 12,000 | Adjustments for assets and liabilities at FV on balance sheet with gains and losses in OCI| Aftertax adjustment for AFS securities| ? | ? | ? | ? | ? | ? | 2,360 | Cash flow hedge| ? | ? | ? | ? | ? | ? | (170)| Total adjustment to net income| ? | ? | ? | ? | ? | ? | 14,190 | Net income as per financial statements| ? | ? | ? | ? | ? | ? | 11,215 | Full fair value income with information available| ? | ? | ? | ? | ? | ? | 25,405 |

Methods in Identifying Business Process Essay

Abstract This paper will discuss which information gathering methods can be used in analyzing requirements, identify which business process mapping methods should be used in analysis activities, discuss which business process mapping tools should be used in documenting analysis, indicate how the analyst would know if these methods and tools were effective in understanding the requirements, and explain how prototyping tools could be used to confirm these requirements. Assessment of Enterprise Level Business Systems Information gathering used in analyzing the requirements of a business are essential to ensure that the customer is getting the best possible product for their needs. It is important for the consulting team to know different methods of information gathering to obtain the best possible information they can as this will help to ensure a higher success rate for the overall implementation of the product. In today’s world, it is very easy for a customer to comparison shop the different products available to them. Browsing online and clicking a mouse is all it takes to move from one company to the next. The process starts when a customer starts narrowing down what they are looking for and begins to choose a few systems to have personally demonstrated to the company. Best practices would state that the consultant in charge of providing the demonstration of the software would do some homework on the company to find out what they do, start speaking with some of the stake holders to see what they expect from a new system (HR may not have the same requirements as IT, who may not have the same requirements as management or production). Meeting with a number of stakeholders within the different departments of a business will help the consultant narrow down the needs of the organization. This gives the consultant an edge and can help the consultant provide a customized demonstration of the software for the company. Digging deeper, the consultant should also have a team of experts on his or her side as well, someone that may be a subject matter expert, and a technical expert  will help as well. This is to ensure that input is taken from users and from IT and can be used to ensure the best possible user interface for those using the system and what resources are already in place vs. what is needed on the technical side. Every avenue available to the consultant should be examined to ensure the best system fit for the business. The business process mapping methods that should be used in analysis activities should be determined by what the business is doing. There are four main steps of process mapping that are needed. They are: * Process identification or attaining a comprehensive and well-rounded understanding of all the steps of a process. * Information gathering, or identifying objectives, risks and key controls in a process. * Interviewing and mapping or gaining the perspective of individuals in the process and designing actual maps to be used in the process. * Analysis or utilizing the tools and approaches used to make the process run in the most efficient and effective way possible. (Jacka, J. Mike) First, the process or processes used by the business must be identified so the consultant may gain a full understanding of what is to be expected in the new system. Without process identification, the project would be at a standstill. Gathering information around the processes helps identify what the objectives of a process might be, what risks might be involved within a process and what is needed to control the process from beginning to end. For example, if a company that makes fiberglass bathtubs were to put a process in place for the gel coating or painting procedure of a tub project, the process might show that the mold is to be positioned in the paint booth, dust and debris is to be removed from the mold using a wipe down cloth and air hose, the paint has to be a certain thickness, so one of the risks involved would be paint that is too thick or thin in spots. Finally we have the controls that maintain the process from beginning to end which may be manual or robotic. Other things could also come into play such as paint levels, catalyst and dry time, so it is important to obtain all information surrounding the process as possible. Interviewing individuals who currently run a process is important to ensuring that nothing is left out of the process. If it is possible, the consultant should interview a few different  people that perform the same function to obtain an objective look at the overall process and cover different ways of doing the same thing. From these interviews the process map could be created. Finally, we would analyze the process map and ensure that each step of the process is accounted for and is conducted in the efficient and effective way. The consultant may ask additional questions at this point to see if something within the current process is wasteful, and what may be done to improve on the process. Documenting the process of the analysis should be done meticulously as well. This can be done in a report fashion or in a flow chart fashion. Both have their merits, however, a flow chart can make a very complicated process seem very simple by breaking it down into steps and utilizing different shapes for these steps. A flowchart is a primary type of business process mapping the shapes or symbols used such as arrows, circles, diamonds, boxes, ovals or rectangles will mean something different for each step. Though a flowchart simplifies a process, it can detail the inputs, activities, decision points, and outputs of any process. An analyst could know that this type of documentation and mapping has shown its worth by the understanding and acceptance of those he has interviewed to understand the process in the first place. If the analyst allows the users to review the flowcharts and they understand each step of the process, then the documentation has done what was intended. Additionally, the users may be able to point out additional ways to make a process better at that time if they had not done so before. Prototyping tools allow the analyst to create a mockup of what the documented process may look like and how it may actually work in simulated real time. The prototype can show users what a version of the finished product may look like and how it will function. This is yet another failsafe built into the overall assessment process and may give the analyst another area to make process improvements based on the input of users, management and project stakeholders. The assessment of an enterprise level business system is lengthy and can be complicated if the right people are not included in the process. However, if the analyst follows time proven techniques to identify what is needed, gather information, document and map out the processes and use the analysis of the mapped out processes to create a good prototype, the analyst should be better able to create what is needed for the business. References Jacka, J. Mike & Paulette J. Keller (2011), Business Process Mapping: Improving Customer Satisfaction, Second Edition(6-10)