U.S. Bank of Washington Harvard Case Solution & Analysis

Problem Statement:

The bank of Washington has to decide to approve the request of loan to Redhook Ale Brewery for $6.5 million with which Redhook is planning to expand the business. Harding has to decide whether to recommend the $6.5 million transaction to the loan committee.

Bank of Washington related to All U.S Insured Commercial Banks:

All U.S insured commercial banks held the loans and securities as assets, which are funded by the issuance of the deposits liabilities. In the 1980s, the expansion of the loan portfolio was the result of the strong growth in the real estate loans and the steady growth in the consumer loans, however there is a decline in the commercial and the industrial loan growth.

The real estate portfolios began to shift from the commercial to residential mortgage market due to the shrink of the thrift industry, which caused high commercial real estate losses and a record 204 federally insured banks failed due to that.

The US Bank is a commercial bank, which offers customers saving accounts, time services contracts and checking account. The main trade of the bank is financial securities however;the main source of the revenue for the US bank is various types of loans. These loans range from residential and commercial real estate loans, industry and other individual loans.

The performance of Bank of Washington as compared to the overall U.S commercial bank industry is better. The total assets of the U.S bank in 1989 are $17 billion. The U.S bank has well diversified financial services, which has enabled it to meet the financial needs of businesses and individuals.

The U.S. bank of Oregon was the largest bank in the state in 1990 with 193 branches and 42% of the banking deposits market share. The U.S Bank is also the third largest bank in the Northern California with 40 branches and 4% of the banking deposit market share. The U.S Bank of Washington was the fourth largest commercial bank of Washington in 1990 with 14% of the banking deposits market share.

As compared to the U.S commercial bank industry, the position of the U.S Bancorp is healthy with the net income of the year 1989 of $150.8 million, which increased by 22% from $123.9 million in 1988. The return on assets of the bank in 1989 achieved 1%, which was set as the goal by management however the industry return on assets in 1989 is only 0.51% which shows that return on assets for the U.S Bank is almost double compared to the industry.

The return on equity of the U.S Bank in 1989 was 15.12% as compared to the return on equity of industry in 1989 of 7.94%, which also shows that the return is more than double compared to the industry returns.

The company also has a well-diversified loan portfolio of 56% concentrated in commercial loans and also well-diversified between Oregon and Washington and also between the industry segments within the economies. The assets’ quality of the bank is also improving and the nonperforming assets have decreased to 1% of total loans and real estate owned, which was an important goal for the bank.

The bank has also reduced the level of its nonperforming assets to 1.7% of the total loans in 1989 from 2.3% in 1988. The net interest margin of the bank is also comparably more than the industry with 4.96% as compared to the 3.70%, which also shows that the performance of the company is better than the other banks in the industry.

The dividend paid by the industry is 0.44 while the dividend paid by the U.S bank is 0.89, which also shows the performance of the bank is much better than the rest of the industry................................

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