risk factors

Group assignment #1: Risk Factor Analysis

Risk Factor Disclosure Analysis for Wells Fargo / Bank of America

External Stakeholders need publicly available information to make their investment decisions. For publicly traded companies, the primary source is the ‘Risk Factor’ section (1-A) of the financial report as part of the 10k (SEC requirement). For banks there are additional Basel disclosures.

As discussed in class, the principles provided by the SEC for risk factor disclosures are not very prescriptive and don’t give much guidance except for 5 specific examples (company’s lack of operating history, lack of profitable operations in recent periods, financial positions, business or proposed business, and lack of a market for the companies’ securities)

New Bank of Manhattan (NBM) is a new commercial bank in the industry. As a new entrant, NBM is required to comply with several regulations and as a result have many competing priorities demanding valuable resources. The senior leadership of the bank is not only committed to exceptional customer service but also very particular about their investor relations and shareholder information and disclosures.

You are an ERM consultant for one of the Big 4 and your firm was engaged by NBM to help them determine the level of effort they should put into their SEC and Basel disclosures keeping in mind the commitment the bank has towards its shareholders.

Your engagement partner identified Bank of America and Wells Fargo as their direct competitors and directed you to do the following

1. Conduct a comparative 10K disclosure analysis using their SEC filings

2. Conduct a comparative Basel disclosure analysis

Having conducted the comparative analysis, your partner tasked you with answering the following questions that client’s request as they want to set a new standard and go beyond what their peers are doing

Obtain the most recent 10k and Basel disclosures for Wells Fargo and Bank of America from their respective websites. Do an analysis of the risk factors disclosed.

Questions to be answered:

1. Are there commonalities between the two bank risk factor disclosures? Analyze and explain.

Grading:

Your paper will be evaluated on the quality of the following:

• Research: Demonstrate high level of understanding of the risk disclosures. Reconcile commonalities and differences between the companies and disclosures. Understand the critical factors of success for each company.

• Analysis: Assess the quality of the risk disclosures; cite examples that are unique and fit the question the best. Be specific and precise. Support your conclusion with use of class material and concepts and form your own opinion. There are no exclusive correct answers; develop your view based on reasoned thought and supportive arguments.

• Writing style, grammar, expression: Your answers should be in a narrative style with clear and precise expression of your thoughts. Paper should have logical flow with only minor grammatical or style problems.