Analysis of Nike, Inc.

Demand inside the economy slowed within the third-quarter during the actual enhance in gross national solution (GNP) of 2.8 percent recorded inside earlier months of 1996. Inflation is expected to be adversely affected as production falls behind final sales. Further, the labor industry is tight and the job price index indicated that wages during the private sector are rising.

With demand and supply indicators trending upward, financial markets have adjusted accordingly. The united states 90-day Treasury bill that commanded an interest rate of 4.88 percent in February 1996 rose to 5.4 percent in November 1996.

The equity stock industry has been in a different run-up mainly because ahead of the general election. Thus far, you can find no company indications how the run-up will end any time soon. The Dow-Jones Industrials average has closed at record high levels on many occasions in November 1996.

All of the causes discussed support a scenario other than a static interest rate environment. Thus, the board of Directors need to be prepared to consider changes from the bank's investment portfolio which will much better position the bank to achieve the objective in the recommended interest rate policy.

One strategy that may be recommended to lower the bank's interest rate risk is to marginally lower the quality-level requirement for investment securities to permit a higher interest rate return on investment securities. One selection becoming pursued by several larger banks is often a movement into mortgage-backed securities, which command a higher interest rate while marginally lowering the top quality of the underlying asset.

Depository institutions were specially important suppliers of credit score to both companies and households in 1996. Borrowers' desires have been concentrated inside the forms of credit history where depositories are conventional lenders and, on the offer side, commercial banks have continued to pursue new lending opportunities aggressively. The health and profitability of depositories have remained solid to date, even though federal regulators have cautioned depositories that their lending standards ought to take account in the capacity for deterioration of loan performance in a much less favorable economic climate. The general tenor from the Federal Reserve projections is that the future from the banking sector during the American economy appears to be extremely strong.

1. With respect to the interest rate margin, the shift inside investment portfolio would bring about here interest rate margins.

2. With respect to the overall interest rate profile, the shift within the investment portfolio would create a slightly higher overall risk level, as the risk on passthrough certificates is somewhat higher than the risk on a 90-day Treasury notes. The Treasury notes that would be sold to pay for the passthrough certificates would be the earlier maturing securities.

 

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