Valuing Banks [electronic resource] : A New Corporate Finance Approach /
Beltrame, Federico.author.
Previtali, Daniele.author.
Bank valuation is one of the most difficult topics to address in corporate finance. The application of standard valuation methodologies can be limited and heavily influenced by the varying specifics of regulation, business process, equity and debt capital function (among others) among banks. Generally, these limitations result in the application of a simplified equity-side approach based on dividends. Yet, dividends represent a synthetic measure of cash and, therefore, often do not present an accurate view of the value creation process in terms of cash flows. This book aims to overcome the limitations the variations in bank-specifics impose by providing a bank-specific valuation theoretical framework and a new asset-side model. The book includes also a constructive comparison of equity and asset side methods. The authors present a novel framework entitled, the “Asset Mark-down Model”. This method incorporates an Adjusted Present Value model, which allows practitioners to identify the main value creation sources of a particular bank: from asset-based cash flow and the mark-down on deposits, to tax benefits on bearing liabilities. Through the implementation of this framework, the authors offer a more accurate and more specific approach to valuing banks.
Includes bibliographical references and index.
1) Valuation in Banking: Issues and Models -- 2) Value, Capital Structure and Cost of Capital: A Theoretical Framework -- 3) Measuring the Cash Flows of Banks: the FCFA Asset Side Approach -- 4) The Cost of Capital of Banks: Theories and Empirical Evidences -- 5) Banks’ Asset-Side Multiples: Profitability, Growth, Leverage and Deposits Effect -- 6) A Comparison Among Valuation Metrics on a Real Case.
Bank valuation is one of the most difficult topics to address in corporate finance. The application of standard valuation methodologies can be limited and heavily influenced by the varying specifics of regulation, business process, equity and debt capital function (among others) among banks. Generally, these limitations result in the application of a simplified equity-side approach based on dividends. Yet, dividends represent a synthetic measure of cash and, therefore, often do not present an accurate view of the value creation process in terms of cash flows. This book aims to overcome the limitations the variations in bank-specifics impose by providing a bank-specific valuation theoretical framework and a new asset-side model. The book includes also a constructive comparison of equity and asset side methods. The authors present a novel framework entitled, the “Asset Mark-down Model”. This method incorporates an Adjusted Present Value model, which allows practitioners to identify the main value creation sources of a particular bank: from asset-based cash flow and the mark-down on deposits, to tax benefits on bearing liabilities. Through the implementation of this framework, the authors offer a more accurate and more specific approach to valuing banks.
Banks and banking.
Capital market.
Corporations
Capital investments.
Risk management.
Banking.
Capital Markets.
Corporate Finance.
Investment Appraisal.
Risk Management.