Introduction to Bank Valuation

Overview

Valuation is probably the most fundamental concept in finance and is a necessary skill to become a world-class financial analyst. Due to the nature of a bank’s operations, as well as banking regulations, we have to modify the most common valuation approaches. In this course, we will build a dividend discount model, a residual income model, mark a bank’s balance sheet to market value and discuss comparable valuation.

Highlights

• Understand how a bank differs from a regular company
• Comprehend why enterprise value is a meaningless metric for a bank
• Factor regulatory capital requirements into a dividend discount model
• Learn how to value a bank that doesn't pay a dividend
• Use similar banks and return on equity to value a bank's equity
• Mark a bank's balance sheet to market value

Objectives

• Review ways the operation of a bank differs from a non-bank.
• Understand why we cannot calculate enterprise value for banks and why we need to consider a bank's regulatory capital in our valuation.
• Discuss the most common bank valuation methodologies: the dividend discount model, the residual income model, comparable analysis and regression, and calculating a bank's net asset value.

Preparation

Attendees should have a basic understanding of valuation, modeling, and analyzing financial statements.