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.

This book presents the main valuation approaches that can be used to value financial institutions. By sketching 1) the different business models of banks (both commercial and investment banks) and insurance companies (life, property and casualty and reinsurance); 2) the structure and peculiarities of financial institutions’ reporting and financial statements; and 3) the main features of regulatory capital frameworks for banking and insurance (ie Basel III, Solvency II), the book addresses why such elements make the valuation of financial institutions different from the valuation of non-financial companies. The book then features the valuation models that can be used to determine the value of banks and insurance companies including the Discounted Cash Flow, Dividend Discount Model, and Residual Income Model (with the appropriate estimation techniques for the cost of capital and cash flow in financial industries). The main techniques to perform the relative valuation of financial institutions are then presented: along the traditional multiples (P/E, P/BV, P/TBV, P/NAV), the multiples based on industry-specific value drivers are discussed (for example, P/Pre Provision Profit, P/Deposits, P/Premiums, P/Number of branches). Further valuation tools such as the “Value Maps” or the “Warranted Equity Method” will be explained and discussed. The closing section of the book will briefly focus on the valuation of specific financial companies/vehicles such as closed-end funds, private equity funds, leasing companies, etc.

The value of a bank is a complex and involved topic. Dertermining value requires an understanding of the purposed of the valuation, the underlying business, the assets involved, the outlook for the market served, competitive position, financial history, and a host of other factors. For example, establishing the value based solely on a bank's book value is a convenient shorthand, but not a good technique of establishing actual value. Regardless of the potential need for a proper valuation, commercial banks and bank holding companies have several characteristics that distinguishe them from other types of businesses and that influence the application of valuation techniques. It is critical to bear these in mind during the valuation process. Provides a thorough and practical discussion of valuation and techniques that apply to the banking and financial services industry. By necessity, however, the scope of the discussion goes beyond valuation. It is necessary to understand various transactional processes (e.g., the merger & acquisition process), target bank analysis, tax ramification, and specific accounting rules, in addition to valuation methodology. Consequently, this title is a beneficial primer for those with only a cursory knowledge of banking and valuation as well as a useful reference for seasoned professionals.

"Aswath Damodaran is simply the best valuation teacher around. If you are interested in the theory or practice of valuation, you should have Damodaran on Valuation on your bookshelf. You can bet that I do." -- Michael J. Mauboussin, Chief Investment Strategist, Legg Mason Capital Management and author of More Than You Know: Finding Financial Wisdom in Unconventional Places In order to be a successful CEO, corporate strategist, or analyst, understanding the valuation process is a necessity. The second edition of Damodaran on Valuation stands out as the most reliable book for answering many of today?s critical valuation questions. Completely revised and updated, this edition is the ideal book on valuation for CEOs and corporate strategists. You'll gain an understanding of the vitality of today?s valuation models and develop the acumen needed for the most complex and subtle valuation scenarios you will face.

Bank Valuation & Value-Based Management provides bankers, bank regulators, auditors, and risk managers with foundational concepts and practical tools for effectively managing a bank. An expert in asset and liability management, European financial markets, and banking theory, Jean Dermine provides rigorous foundations to discuss asset and liability management at a global level, with an integrated focus on an institution’s banking book. He covers bank valuation, fund transfer pricing, deposit and loan pricing, risk management, and performance measurement, and addresses two high-profile issues for banks worldwide: portfolio credit risk and liquidity risk. This thorough and innovative guide presents insightful coverage on the hazards of measuring portfolio credit risk, the impact of liquidity risk on fund transfer pricing, and the practice of performance measurement in the banking industry. Numerous real-world examples from the U.S. subprime crisis help illustrate the nature and dynamics of these issues. Inside, you will find a framework for discussing such managerial issues as: Bank valuation Fund transfer pricing Deposit pricing Capital management Loan pricing and provisioning Securitization Measurement of interest rate risk Performance measurement At the same time that it helps readers develop an intuitive sense for asset-liability management, this practical book follows through with rigorous mathematical formulas and examples from the international banking community. In addition,exercises are incorporated throughout the text to facilitate discussions of how theoretical concepts can be applied to real-world problems. This authoritative guide to bank management also features an exclusive companion Web site, www.mhprofessional.com/bankvaluation, which includes additional chapters and exercise solutions that serve as key supplements to the core text. Creating value in banking depends on a rocksolid understanding of what drives value and the right valuation model to help make the tough decisions that will enhance shareholder value. Bank Valuation & Value-Based Management is your one-stop reference for each of these critical issues.

This paper shows that banks use accounting discretion to overstate the value of distressed assets. Banks' balance sheets overvalue real estate-related assets compared to the market value of these assets, especially during the U.S. mortgage crisis. Share prices of banks with large exposure to mortgage-backed securities also react favorably to recent changes in accounting rules that relax fair-value accounting, and these banks provision less for bad loans. Furthermore, distressed banks use discretion in the classification of mortgage-backed securities to inflate their books. Our results indicate that banks' balance sheets offer a distorted view of the financial health of the banks.