Building a Fortress Balance Sheet - Chase
erspective P
Insights for America’s Business Leaders
Building A Fortress Balance Sheet:
Protect Your Bank’s Financial Health While Positioning It For Growth
Executive Summary: - The Vauban Model - Current Market Overview - Stress Testing and the Fortress Balance Sheet - Capital-Raising Strategies
“Ultimately, market participants themselves must address the fundamental sources of financial strains – through deleveraging, raising new capital and improving risk management.”1 – Ben Bernanke
The Vauban Model
Throughout the remainder of the year, banks’ capital needs will accelerate as credit losses are expected to continue, despite easing monetary policies and government intervention. To weather the turbulence in an economy that shows no immediate signs of improving, bank management must simultaneously master the: • Offensive skills to raise capital and seize growth opportunities • Defensive skills to protect asset quality and fortify their balance sheets These requisite skills call to mind the exploits of Le Marechal de Vauban, the pre-eminent soldier and military engineer of 17th-century France. His genius for the offensive (capturing places) and the defensive (fortifying places) earned him a reputation as one of the great captains of his age. This white paper will provide insight into protecting your bank’s financial health and positioning it for growth, along with some offensive and defensive strategies for raising capital. The economic recovery is inevitable, so prepare to emerge from it with a roar instead of a whimper.
Cracks in the Dike
Many mid-sized banks with little or no sub-prime exposure and well-managed “capital cushions” were fortunate enough to avoid the burns of the sub-prime mortgage meltdown. However, many stood by nervously as the larger banks took the majority of the write-down body blows. While bankers and business leaders everywhere hope that the worst has passed, the aftershocks have left many with the premonition that the
Insights for America’s Business Leaders
Building A Fortress Balance Sheet:
Protect Your Bank’s Financial Health While Positioning It For Growth
Executive Summary: - The Vauban Model - Current Market Overview - Stress Testing and the Fortress Balance Sheet - Capital-Raising Strategies
“Ultimately, market participants themselves must address the fundamental sources of financial strains – through deleveraging, raising new capital and improving risk management.”1 – Ben Bernanke
The Vauban Model
Throughout the remainder of the year, banks’ capital needs will accelerate as credit losses are expected to continue, despite easing monetary policies and government intervention. To weather the turbulence in an economy that shows no immediate signs of improving, bank management must simultaneously master the: • Offensive skills to raise capital and seize growth opportunities • Defensive skills to protect asset quality and fortify their balance sheets These requisite skills call to mind the exploits of Le Marechal de Vauban, the pre-eminent soldier and military engineer of 17th-century France. His genius for the offensive (capturing places) and the defensive (fortifying places) earned him a reputation as one of the great captains of his age. This white paper will provide insight into protecting your bank’s financial health and positioning it for growth, along with some offensive and defensive strategies for raising capital. The economic recovery is inevitable, so prepare to emerge from it with a roar instead of a whimper.
Cracks in the Dike
Many mid-sized banks with little or no sub-prime exposure and well-managed “capital cushions” were fortunate enough to avoid the burns of the sub-prime mortgage meltdown. However, many stood by nervously as the larger banks took the majority of the write-down body blows. While bankers and business leaders everywhere hope that the worst has passed, the aftershocks have left many with the premonition that the
References: 1. Sloan, Steven, Bernanke: Market Needs Industry Help, American Banker, May 14, 2008. 2. Barry, Andrew, What to Bank On – Financial Stocks Have Been Trashed, But There Are Signs the Worst is Over and It’s Time to Buy, Barron’s, July 21, 2008. 3. Aversa, Jeannine, Paulson: Government Will Act to Aid Economy, biz.yahoo.com; Yahoo Finance, from the Associated Press, March 16, 2008. 4. Cole, Marine, Banks’ Pipelines to Fresh Capital Are Narrowing, Financial Week, June 23, 2008. Copyright 2008 JPMorgan Chase & Co. All rights reserved. JPMorgan is a marketing name for the investment banking businesses of JPMC. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by J.P. Morgan Securities Inc. or other appropriately licensed subsidiaries of JPMC, and lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A.; other activities may be provided by other affiliates or entities. Your JPMC contacts may be employees of any of the foregoing entities. JPMC makes no representation as to the legal, regulatory, tax or accounting implications of the matters referred to in this publication, and the information and opinions printed herein should not be considered legal, investment, accounting or tax advice. The opinions and estimates expressed herein constitute JPMC’s judgment and should be regarded as indicative and for illustrative purposes only. They are not designed to reflect appropriate procedures or advice that should be followed in any particular set of circumstances. The information herein is not an offer to sell, or solicit an offer to purchase, any securities by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which JPMC or the person making such an offer is not qualified to do so, or to anyone to whom it is unlawful to make such an offer or solicitation, or to anyone in any jurisdiction outside of the United States. This publication does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services.