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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 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