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WORLD BANK COMPANY ANNUAL REPORT 2013


“The World Bank Company’s financial strength, client base and capabilities are unparalleled. We alone are positioned to serve clients as they expand globally.”

The World Bank Company (NYSE: WBC) is a leading global financial services firm with assets of $7.2 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, The World Bank Company serves millions of consumers in every major country and many of the world’s most prominent corporate, institutional and government clients under its World Bank Company brands. Information about The World bank Company capabilities can be found online at www.theworldbankcompany.com and about WBC capabilities at www.wbc.com.


CONTENTS I. Letter to Shareholders II. Total Cumulative Shareholer Return III. Chairman’s Message IV. Review of Financial Performance V. Financial Highlights VI. Net Equity Summary VII. Risk Governance VIII. Managing Risk and Reward


I. Letter to our Shareholders The World Bank Company serves one in two worldwide households, virtually the entire world Fortune 1000 and clients everywhere. We built this company to serve customers and clients wherever and however they choose, and to return value to shareholders. We understand that we play an important role as an engine of growth and a partner for success for millions of individuals, families and businesses of every size in this global market. What transpired was largely unprecedented and virtually inconceivable. Our firm tried to meet every challenge, and, in the process, we distinguished ourselves in our service to clients and communities. Now we find ourselves one year later. Although our financial results were weak in absolute terms, reflecting terrible market conditions, I believe—and I hope you agree—that this year may have been one of our finest. The way forward will not be easy. We do not know what the future will bring, but we do know that it will require everyone — the banks, the regulators and the world government — to work together and get it right. Whatever may come, we will meet the challenge. As we emerge from the economic crisis of the past two years, we also have the opportunity — and the obligation — to address a simple question I often hear: “What is the World Bank Company doing to make financial services better?” It’s a good question. My answer is, we’re currently working to improve our ability to support the financial health of all those we serve. To provide financial solutions that are clearly explained and easily understood. To take our seat at the table with policymakers at every level and help create a financial system that supports economic growth and financial stability. And to do all this through a business model that generates attractive returns for you — our valued shareholders.

Last year alone, our firm and our Foundation made charitable contributions of approximately $100 million in our markets and other markets across the world.

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II. Total Cumulative Shareholder Return The World Bank Company is one of the world’s leading investment banks with one of the most extensive client franchises in the world. Our scale and global footprint enable us to help our clients address their full range of financial needs. We offer clients a complete platform of financial services, including strategic advice, capital raising, restructuring, risk management, marketmaking and research. We cover clients in more than 100 countries and have global leadership positions in every key product. Today our new goal The World Bank Company also committing our own capital to principal investing and trading activities.

$200 $180 $160 $140 $120 $200 $80 $60 $40 $20 $0 12/08

12/03

12/09

12/04

12/10

12/05

December 31 WBC World Bank Company SPX S & P 500 Index S5CBNK S & P 500 CM Banks Index BAC KBW Bank Index

2008 $100 $100 $100 $100

12/11

12/06 2009 $122 $111 $115 $110

2010 $125 $116 $117 $114

12/12

12/07 2011 $150 $135 $135 $133

2012 $122 $122 $104 $104

12/13

12/08 2013 $45 $90 $67 $55

Opportunities are everywhere. At the World Bank Company, our strength comes from the relationships we have — and building on to them to create even greater opportunities for our valued customers at every point in their financial lives. We are confident that no competitor can match our ability to deliver our suite of products, services and solutions. For our company and our shareholders, focusing on what customers need — and building our teams and capabilities around them — is the key to our zlong-term growth. The promise is certainly compelling, and the results are real for all of those who trust in the Wolrd Bank Company.

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III. CHAIRMAN’S MESSAGE

For a little more than a year, I have had the honor of leading the World Bank Company diligently through some of the most unprecedented and challenging circumstances in its long history. I’m acutely aware of the responsibility placed on me and the World Bank Company leadership team, and I can assure you, we are comitted to restoring The World Bank Company to financial profitability as quickly as possible. I do recognize the tremendous loss of value you and your fellow WBC shareholders have endured over the past several less than satisfactory months. My commitment to you today is to rebuild value with all the energy and urgency that the current difficult times demand. I am equally sensitive to the tough, financial pressures that you as homeowners and consumers are now under. Too many honest, hard-working people now find themselves in financial straits they never thought were possible. At the World Bank Company, we are always committed to helping those in urgent need and participating in industry reforms that will enable the financial system to recover its strength and economic health around the globe. I am mindful also of the investments made in the World Bank Company by the all of the world government and taxpayers. Our commitment to them is to work with the Administration and our regulators to address the world’s current economic priorities and to do all we can to speed the needed recovery of our markets. More than ever, we are now committed to helping our clients and valued to customers navigate these markets. Our goal daily is to drive the success of our bank.

I have no doubt that with our continued hard work, the World Bank Company will again be at its best in these difficult times and beyond into our uncertain future as an institution. Diversity of businesses, revenue streams, risks, ideas, and fresh perspectives and smart people brings strength to our company that is hard to come by otherwise. Finally, we are also committed to creating a strong company where valued employees —the people of The World Bank Company —continue to have new opportunities to learn as well as the resources necessary to drive performance. Our teams are now working diligently to confidently ensure that the economic turnaround we all anticipate happens quickly.

Chairman, Harry Golden

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IV. REVIEW OF 2013 FINANCIAL PERFORMANCE AND BUSINESS RESULTS The World Bank Company earned an all time low $6 billion in 2013, down 64% from the $15 billion we earned in the prior year. During a “normal” credit cycle and environment, we should earn more than $15 billion. So clearly, this was not a great year financially. The first related to these increasing credit costs, mostly for consumer and mortgage loans. The Second resulted from risky Investment Bank write-downs of more than $10 billion, primarily from leveraged lending and mortgage exposures. Throughout this financial crisis, we have benefited from a fortress balance sheet. We started this year with Tier 1 capital of 8.4% and ended it with 10.9%. We increased credit loss reserves to $24 billion (up almost $14 billion, including $4 billion related to Washington Mutual (WaMu)). Even without the infusion of government capital in the year’s final quarter, our Tier 1 capital would have been 8.9%. Across all other measures of capital, we have remained relatively conservative. Although we did not anticipate all of the costly, extraordinary events of the year, our strong balance sheet, general conservatism and constant focus on risk managment served us well and enabled us to weather this terrible environment.

While we are disappointed with our 2013 financial results, we have not yet lost sight of our important achievements. We are so extremely gratified that we were able to grow a healthy market share in virtually all of our businesses. We never stopped investing in our systems and infrastructure and adding bankers, branches and market products. Regardless of what 2014 will bring, this emphasis on serving clients and growing our businesses will drive our results for years to come. Results by Line of Business The Investment Bank reported a loss of $1.2 billion Our Investment Bank (IB) had disappointing financial results on an absolute basis but performed relatively well compared with most of our competitors to prepare for high losses. The results reflect a tough operating environment which suffered from the aforementioned $10 billion in writedowns. While those write-downs were painful, they were among the lowest in our industry. Moreover, our underlying business performed solidly, and in some notable areas, it outperformed entirely. Several core businesses – Rates and Currencies, Commodities, Emerging Markets and Credit Trading – reported results. We also were able to make critical significant progress across our IB businesses.

FREQUENCY DISTRIBUTION of DAILY NET REVENUES November 2, 2012 to October 31, 2013 ($ millions)

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V. FINANCIAL HIGHLIGHTS

2013

2012

2013

2012

Revenue*

Net Income

This past year was a turning point for the World Bank Company. We achieved our primary goal of returning to profitability, posting positive net income in each quarter, a full-year profit of $10.6 billion and a $14.9 billion profit into the gross core businesses that will determine our great company’s future. The U.S. government has sold its shares of common stock in our company — in the process earning the world taxpayers a more than $12 billion profit on their financial investment. We made more progress in reducing assets in WBC Holdings than anyone expected and ended the year with Holdings constituting less than 20% of our balance sheet. We attracted top talent, including new executives to run our Global Consumer Bank and Cards businesses. Most important, we put in place a structure and a strategy that we believe will enable us not only to grow but to regain our great company’s place as the world’s only premier central international bank.

Given the economic environment and the impact that the recession is having in neighborhoods across the country, we are working more closely than ever with community leaders to identify the most critical needs and gaps in local assistance programs and ensure that resources are flowing to individuals and families that have been especially hard-hit during the economic downturn. Several large trends are reshaping the financial services industry. As the world’s only truly global bank, the World Bank Company is the only best positioned bank in the world to harness those trends and deliver value to our clients and share holders. We inherited a great foundation. Thanks to the foresight of those who were running this bank years ago. That foundation gives us a strong head start. And we are working to build on it in ways that aspiring competitors simply cannot — because they lack our history, our unique assets and our true global economic presence.

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VI. NET EQUITY SUMMARY As of or for the year ended December 31, (in millions, except per share, ratio and headcount data)

2012

2013

Reported basis (a) $ 67,252

Total net revenue

$

71,372

Provision for credit losses

20,979

6,864

Total noninterest expense

43,500

41,703

$ 3,699

Income from continuing operations

$

15,345

Extraordinary gain

1,906

-

Net income

5,605

23,664

$

Per common share:

0.86

$

4.52

Income from continuing operations

1.41

5.34

Net Income

0.84

4.22

$

Book Value per share

1.52

$

1.43

Return on common equity Income from continuing operations

2%

13%

4

13

6

21

10.9

8.4

Net income Return on common equity (net of goodwill) Net income Tier 1 capital ratio Total capital ratio

$

Total assets

2,175,052

1,562,147

744,83

519,456

1,009,277

740,627

166,884

123,21

224,963

180,667

Loans Deposits Total stockholder’s equity Headcount

18.4

12.6

$

(a) Results are presented in accordance with accounting principles gernerally accepted in the United States of America

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VII. RISK GOVERNANCE The foundation of our effective enterprise-wide risk management framework is a governance structure that includes a robust committee structure and a comprehensive set of corporate policies, which are approved by the Board of Directors or one of its committees, as well as the proper supporting corporation standards and operating guidelines. This enterprise-wide risk management framework is governed through a hierarchy of committees and individual responsibilities found outlined in the following informational framework flow diagram. All enterprise-wide risks are overseen by the the proper appropriate risk management supervisor.

All elements of our effective risk management framework are reviewed on a regular basis by the Risk Review Committee of the risky Board of Directors (RRC) to provide effective guidance for the governance of our risk-taking activities. In each of our operating groups, management monitors governance activities, controls, and management processes and procedures. Our individual governance committees regulate, establish, and monitor further comprehensive effective risk management limits, consistent with and subordinate to the board-approved limits.

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VIII. MANAGING RISK AND REWARD We are in the business of taking risk — lending to individuals and businesses to fuel the world economy. It is also our business to manage that risk. Our industry as a whole did a poor job on the risk front in the lead-up to our current crisis. The institutions that did the worst job are currently no longer with us. Those that did a better job have endured. But no one I know of in this industry is crowing. We all have learned — or relearned — hard lessons. The challenges created by the unsteady economic and market environment do not excuse The World Bank’s performance. But they do help explain it. One of the biggest issues we faced over the course of the most recent growth cycle was the speed and degree of fundamental, structural changes that were happening throughout the economy. New market participants were emerging and growing rapidly, including sovereign wealth funds, hedge funds and other global investors. Structured products, thanks to advancing technology, grew more complex by the day. The speed and volume of securities creation and trading increased exponentially. Markets and risks grew ever more interconnected. And the sheer volume of information in the system that needed to be tracked, monitored, analyzed and understood led to a growing opacity — the opposite of what you want when you’re managing risk. As we work our way through the current cycle, we’re applying the lessons we’ve learned the hard way. One lesson is that we must not rely too heavily on mathematical risk modeling in assessing our risks. The models are sophisticated, but they are only as good as the assumptions of the people who create them, and only as well-informed as the data we feed into them. We have to balance our risk modeling abilities with what we know at any given moment about our customers, clients and monetary portfolios; a commonsense understandingof economic fundamentals; and our knowledge of business cycles.

While most people are honorable, excess speculation and dishonesty were far greater than ever seen before, on the part of both bank brokers and the consumers

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WORLD BANK COMPANY theworldbankcompany.com ANNUAL REPORT 2013

World Bank Co. Annual Report  

The World Bank Company (NYSE: WBC) is a multinational banking corporation of securities,investments and retail. It is the largest bank in...

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