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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.

Valuing Banks: A New Corporate Finance Approach

Contents

List of Tables

List of Figures

Acknowledgements

About the Authors

Preface

Introduction

1. Valuation inBanking: issues and models

1.1 Introduction

1.1.1 A different roleof equity: the regulatory constraints

1.1.2 The role of debt

1.1.3 Loan loss provisioningand charge-offs

1.1.4 Cash flowestimation

1.2 Valuation Methodsof Banks: a critical review

1.2.1 Discounted cashflow models

1.2.2 Excess returnsvaluation

1.2.3 Asset andmixed-based valuation

1.2.4 Relative marketvaluation

1.2.5 Contingent claimvaluation

1.3 Conclusions

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

2.1 Introduction

2.2 Limitations of theEquity Side Approach

2.3 An Asset SideApproach to Banks Valuation: An Introduction

2.4 Banks' Cost ofCapital and the Modigliani-Miller Propositions

2.5.1 Valuation schemewithout taxation and growth

2.5.2 Valuation schemewith tax benefits

2.5.3 Valuation schemewith taxation and growth

2.5.4 The AMM: anoverview

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

2.6.1 Absence of taxes

2.6.2 Presence of taxes

2.7 Consistency of theAMM Model with Excess Returns Models

3. Measuring the CashFlows of Banks: the FCFA Asset Side Approach

3.1 Introduction