Bank Valuation - Advanced Course
In-house
This 2 day advanced course provides those involved in the appraisal, valuation or assessment of a bank with the essential tools and applications under the International Accounting standards, International Financial Reporting Standards and within the Basel II environment.
It takes full account of the impact of the credit crunch and explains how bank mergers add value, how to choose a target, the standards applicable to the preparation of financial statements by banks, all of the relevant mathematical formulae and the controversies in bank valuation.
The training will also bring delegates up to date with the compatibility of regulatory capital, liquidity and corporate governance with the traditional requirements of increasing shareholder value in real terms.
Delegates will have a chance to learn about:
- Assessing factors affecting bank valuations
- Applying market and equity value approach
- Exploring IAS/IFRS disclosure for banks
- Capital Management
- Applying Internal Capital Adequacy Assessment Process (ICAAP)
- Calculating book to market value
- Exploring market valuation models
- Preparing cash flow valuations for banks
- GAP vale drivers
- Applying equity value methodologies
- Enhancing bank value with credit derivatives
- Basel II and bank value
Who Should Attend
From Banks, Corporate Finance, Private Equity and Investment Funds
- Corporate Finance specialists
- Analysts from Banks, Investment Funds and Private Equity companies
- Corporate Planning and Strategy Managers
- M&A professionals
- Consultancies
Teaching Method
This is a highly practical course with many real life case studies and exercises. Tutor will be focused on teaching practical strategies that can be taken back to your business and put into immediate effect.
In order to help us establish your individual and business concerns, you will be asked to fill pre-course questionnaire.
Because of the nature of the course the number of places is limited and will be filled on first come, first accepted basis. We advise to book in advance in order to avoid disappointment.
Bank Valuation - 2 Day Programme
Session 1: Financial Crisis and it's Impact
- Unidentified, unmeasured risk is a killer!
- Are we getting it right?
- Case study – the subprime fiasco
- Collateralised Debt Obligations - CDOs
- Credit Default Swaps – CDSs
- What caused the crunch – the Lehman example
- What lessons have been learned
- What Regulatory responses are likely
- Impact on bank valuations
Session 2: Starting the Process of Valuing A Bank
- Factors affecting bank valuation
- How mergers add value
- What makes a merger unattractive
- Three-step valuation process
- Market value approach
- Equity value approach
Session 3: IAS/IFRS Disclosure for Banks
- Accounting policies under IFRS 7
- Preparation and Presentation of Banks' Financial Statements
- Cash Flow Statement for Banks
- Disclosure Requirements for Banks and Similar Institutions
- Maturities of Assets and Liabilities
- IAS 39 and hedging asset/liability mismatch
- Concentration of Assets, Liabilities and Off-Balance Sheet Items
- Losses on Loans and Advances
- Related party transactions and other disclosures
- Deficiencies of IFRS7
- Merger Accounting for Banks
Session 3: Risk Based Capital and Capital Management
- Economic capital and profit
- A modern capital management framework
- Components of capital management: investment, structuring, allocation and optimisation
- Classes of capital – Tiers 1, 2 & 3
- Funds Transfer Pricing – FTP
- Activity Based Costing – ABC
- Regulatory vs. economic capital
Session 4: Internal Capital Adequacy Assessment Process (ICAAP)
- The key principles
- Suggested framework, content and layout
- Prudence and conservatism
- Period to be covered
- Proportionality - how many ICAAP’s?
- The ICAAP process from preparation to Board approval
- Challenge and independent review
- Capital position – suggested content and layout
- Regulatory & economic capital – suggested content and layout
- Capital reconciliation – suggested content and layout
- ICAAP ‘Hot Buttons’ and regulatory feedback
Session 5: Book to Market Value
- Current market values versus historical costs
- FMV and a Bank’s Assets and Liabilities: book to market implications
- Determining the quality of the loan portfolio: a framework
- Market value of fixed assets
- Sales value of investment portfolio
- Goodwill and other adjustments
- Derivative financial instruments
- Off-balance sheet items
- Hedging issues
- Case study example of book value to fair market value
- Annex: Example of cash flow hedge
Session 6: Market Valuation Models
- Model Basis
- Appropriate discount rate
- Model usage for assets
- Model usage for liabilities
- Model equations and formulas
- Summary of valuation concepts
Day 2
Session 7: Cash Flow Valuation for Banks
- Cash flow and the equity approach
- Free cash flow to shareholders
- Discounted cash flow
- Application to a bank
- Estimating free cash flow
- Step 1: Identifying the relevant components of free cash flow
- Step 2: Developing an integrated historical perspective
- Step 3: Forecasting changes in net interest income (NII) and developing the forecast assumptions
- Step 4: Calculating and evaluating the resulting free cash flow forecast
Session 8: GAP Value Drivers
- Static and dynamic GAP
- Determinants of rate sensitivity
- Factors affecting net interest income
- Changes in the Level of Interest Rates
- Changes in the Relationship Between Short-Term Asset Yields and Liability
- Rate Sensitivity Reports
- Strengths and Weaknesses: Gap Analysis
- Managing the GAP
- Link Between Gap and Net Interest Margin
- Sensitivity and Simulation Analysis
- The Duration Gap: Managing the Market Value of Equity
- A Duration Application for Banks
- An Immunized Portfolio
- GAP versus Duration Gap: Which Model is Better?
- Macrohedging and the GAP
- Hedging and Duration Gap
Session 9: Equity Value Application
- Free cash flow valuation
- Capital asset pricing model (CAPM),
- Dividend valuation model, and
- Targeted return on equity model
- Case applications
- Premium to book value
- Premium to adjusted book value
- Price to earnings per share
- Price to prevailing share price
- Return on investment approach
- EPS dilution constraints
- Historical performance analysis
- Case study implication
- Nonfinancial considerations that affect mergers and acquisitions
Summary
Session 10: Enhancing Bank Value with Credit Derivatives
- Definition of credit derivatives
- Types of credit derivatives:
- Credit options,, swaps, credit-linked notes
- The credit default swap
- Settlement risk
- Correlation
- Protection buyers
- Optimizing returns on regulatory capital
- The total return swap
- Credit risk
- Maturity
- Value advantage
- The principal-protected structure
Session 11: Basel II and Bank Value
- Definitions of capital
- Background to Basel I
- Basel II:
- Pillar 1 – capital adequacy requirement
- Credit risk
- Market risk
- Operational risk
- Pillar 2 – supervisory review
- Pillar 3 – market discipline
- Internal growth rate of capital (IGRC): a measure of the link between profitability and capital
- Supplementary traditional capital ratios
- Can shareholder value be added under Basel II?
- Factors motivating regulatory capital arbitrage
- Capital arbitrage in practice
- Summary
Session 12 Course Summary
Our trainer is an investment and private banker with over 30 years experience in the UK corporate and private banking sector. He qualified as an associate of the Chartered Institute of Bankers in 1981 finishing as the top candidate for the year with distinctions and winning the Whitehead Prize for Monetary Theory. Mark has qualifications from Ecole Superieur des Affaires and the Chartered Institute of Securities as well as Investment for the Islamic Finance Qualification (IFQ).
He has been training for over 10 years and has lectured extensively throughout many parts of the world on a range on banking topics. He is a specialist in investment banking, Islamic finance, corporate governance and trade finance.
IN-HOUSE TRAINING
If you have a team of 4 or more this course can be customised and organised in-house at your convenience. Contact one of our advisors to find out more.
Call us now on +44 (0) 207 993 8597
or send an e-mail to enquiry@eurekafinancial.com
