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can you determine what will happen to ROE if both operating revenues and expenses(including taxes) decline...

can you determine what will happen to ROE if both operating revenues and expenses(including taxes) decline by 10%, with a bank’s total assets and liabilities held constant ?
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Answer #1

Since, assets and liabilities will remain constant, total shareholder's equity would also remain the same.

Since operating revenue decreases by 10% along with operating expense and tax, total net income of the bank would also decrease.  

Suppose, that bank's operating revenue was $100 million and operating expenses was $25 million, tax being $5 million. Net Income would be $100 - 25 - 5 =$70=million.

After 10% decline, operating revenue would be $90 million operating expenses becomes $22.5 million and tax would be $4.5 million, new net income would be 90 - 22.5 - 4.5 = $63 million. Hence a 10% decline in the Net Income.  

Considering the shareholders equity remains the same, ROE would decrease by 10%, with 10% decline in operating revenue, operating expenses and tax.

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