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.

Autorentext

Federico Beltrame is Lecturer in Banking and Finance in the Department of Economics and Statistics, University of Udine, Italy. He holds a PhD in Business Science from the same University. His main research interests are related to SMEs' cost of capital, banks' capital structure and Mutual Guarantee Credit Institutions.

Daniele Previtali is post-doc fellow and lecturer at Luiss Guido Carli University, Rome, Italy. He holds a Ph.D. in Banking and Finance from University of Rome, Tor Vergata, Italy. In 2012, he was a visiting PhD candidate at Stern School of Business, New York, USA. His main research interests concern banks valuation, banks' capital structure and innovation.

Inhalt

Contents

List of Tables

List of Figures

Acknowledgements

About the Authors

Preface

Introduction

1. Valuation in Banking: issues and models

1.1 Introduction

1.1.1 A different role of equity: the regulatory constraints

1.1.2 The role of debt

1.1.3 Loan loss provisioning and charge-offs

1.1.4 Cash flow estimation

1.2 Valuation Methods of Banks: a critical review

1.2.1 Discounted cash flow models

1.2.2 Excess returns valuation

1.2.3 Asset and mixed-based valuation

1.2.4 Relative market valuation

1.2.5 Contingent claim valuation

1.3 Conclusions

2. Value, Capital structure and cost of capital: a theoretical framework

2.1 Introduction

2.2 Limitations of the Equity Side Approach

2.3 An Asset Side Approach to Banks Valuation: An Introduction

2.4 Banks' Cost of Capital and the Modigliani-Miller Propositions

2.5 Banks Valuation: A Scheme with Separate Quantification of Mark-Down 2.5.1 Valuation scheme without taxation and growth

2.5.2 Valuation scheme with tax benefits

2.5.3 Valuation scheme with taxation and growth

2.5.4 The AMM: an overview

2.6 The Restatement of Modigliani and Miller's Theories for the Banking Industry

2.6.1 Absence of taxes

2.6.2 Presence of taxes

2.7 Consistency of the AMM Model with Excess Returns Models

2.8 Conclusions

3. Measuring the Cash Flows of Banks: the FCFA Asset Side Approach

3.1 Introduction