tag:blogger.com,1999:blog-8152901575140311047.post7433039687992669693..comments2024-03-18T10:18:19.736-04:00Comments on Musings on Markets: Breach of Trust: Bank Valuation after the banking crisisAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-8152901575140311047.post-65087857549179980562013-06-17T05:25:54.328-04:002013-06-17T05:25:54.328-04:00Professor
This is not strictly related to the blo...Professor<br /><br />This is not strictly related to the blog post, but if possible could you shed some light on using the DDM model for companies that pay interim dividends?Radhikanoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-21285218869290683692012-09-15T00:16:06.057-04:002012-09-15T00:16:06.057-04:00Two banks in Nepal are going to merge and i am cur...Two banks in Nepal are going to merge and i am currently valuing a bank. let say it A and Bank B. According to our central bank the bank must increase their paid up capital to 2 billion by next year Bank A already has 2 billion and bank B doest not have . Bank B is 700 million short of 2 billion. Bank B cannot raise capital by issuing right share because or market not positive. so they are merging.<br /><br />i am using excess return model to value. i forecasted balance sheet and income statement of tw banks and came up with a certain value.<br /><br />Now how do i compensate for that less 700 million.krishnahttps://www.blogger.com/profile/09689476932912542362noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-66014937034551811212012-07-25T17:28:14.263-04:002012-07-25T17:28:14.263-04:00Prof Damodaran,
Given the bad performance of euro...Prof Damodaran,<br /><br />Given the bad performance of european banks lately, and the low price-to-book ratios, I have been drawing a few conclusions:<br />1. Banks' management clearly feel, ans show in their books, that their assets and equity have a higher price than what the market considers. From that point of view, if a Bank is trading at 0.5 price-to-book, and the Bank's CEO has accurately valued his BS, if he decides to liquidate, would he be doubling shareholders investment?Santiago Camilohttps://www.blogger.com/profile/06053572429659302157noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-84802389811763325292011-09-14T07:56:29.021-04:002011-09-14T07:56:29.021-04:00Thanks a lot for this interesting post. Could you ...Thanks a lot for this interesting post. Could you please point me towards your valuation of Deutsche Bank using the more complicated method? I could not find it on your website. thank you.Edhttps://www.blogger.com/profile/09560646738562614845noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-53710089764115102932011-06-26T18:00:03.247-04:002011-06-26T18:00:03.247-04:00Dear Professor,
This is a really interesting post...Dear Professor,<br /><br />This is a really interesting post; I’m wondering how this effects target valuation in a merger and acquisition situation as the "Deal Value to Book Value" is the key comparable in financial sector and an important determinant of premium price paid? Have investment banks adjusted their valuation methods?<br />Thanks.Ehsan Rafizadehhttps://www.blogger.com/profile/09172765874838201097noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-74801552243393945022011-05-31T06:30:11.107-04:002011-05-31T06:30:11.107-04:00Dear sir,
you wrote that the conservative banks, ...Dear sir,<br /><br />you wrote that the conservative banks, who hold higher capital than required should be at premium (because of lower risk involved) than the banks which are aggressive.<br />But, at the same time these conservative banks will be loosing on the other front as their WACC (Normally) will be on higher side because of high weight of equity. <br /><br /><br /><br />i think we should consider this point while valuing a Bank.Riteshhttps://www.blogger.com/profile/14954884913968640657noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-39245092176702910912011-04-16T09:54:59.701-04:002011-04-16T09:54:59.701-04:00While EV multiples are almost useless for banks, t...While EV multiples are almost useless for banks, they are used extensively for other companies and I do think that market value of debt is a more reasonable value than book value. I guess that the defense that analysts would offer is that since the market value of debt is generally lower than book value, the use of book value is conservative. I don't buy that... Conservative is not necessarily a plus in assessing value. It is a virtue when making your investment decision, where you compare price to value.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-2345375893285446822011-04-13T01:36:20.293-04:002011-04-13T01:36:20.293-04:00This comment has been removed by the author.Pranav Pratap Singhhttps://www.blogger.com/profile/01893712441478627342noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-58167330010691071012011-04-13T01:35:33.759-04:002011-04-13T01:35:33.759-04:00Dear Sir,
On a slightly different note, we find a...Dear Sir,<br /><br />On a slightly different note, we find alongwith PE ratio EV/Ebitda is used extensively for comarison of valuation of companies (measure of cheapness/expensiveness). However, EV takes in to account book value of debt and not market value. <br /><br />With companies having different leverage and paying different interest rates doesn't it misguide more than guide regarding comparative valuations? PE ratio would mean the dollars one is willing to pay for 1 dollar of earnings. Wouldn't taking Market value of Equity and Book value of debt for calculation of EV confuse the concept of EV. <br /><br />My guess was that Book Value of debt is used in equity research reports because it can be easily calculated from the Balance Sheet while calculation of market value would be cumbersome. Do yo think it would be interesting to find some ratio/metric which is a bit closer to Market value of debt and can be calculated using PL statement and BS of a company only?Pranav Pratap Singhhttps://www.blogger.com/profile/01893712441478627342noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-90089692019095067572011-04-04T08:10:23.287-04:002011-04-04T08:10:23.287-04:00Prof
With Basel III kicking in, and both US & ...Prof<br />With Basel III kicking in, and both US & European banks short of capital, is the banking sector a wise place to be? So banks would be forced to hold more capital, they may do so through preference stock or a subordinated debt. Historically the insurance companies have been buyers of these type of hybrid securities, rules are getting strict for them as well, so who would subscribe to these sort of instruments? <br />Any thoughts? <br />Thanks <br />KrishKrishnanhttps://www.blogger.com/profile/01096917726465877552noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-70269801016277444052011-03-30T12:47:11.638-04:002011-03-30T12:47:11.638-04:00ok... will have a look at the current year case st...ok... will have a look at the current year case studies... ThanksGaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-50653290872965615542011-03-30T12:33:23.882-04:002011-03-30T12:33:23.882-04:00The suspension of mark to market rules is only som...The suspension of mark to market rules is only some securities, not all. From a valuation standpoint, the effect is minor, partly because we are cash flow focused,rather than book value focused.<br />The big danger is that the suspension of the rules may also allow truly troubled banks to stay undetected for a lot longer. It thus increases the onus on investors to make their own risk assessments.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-61071300022394482342011-03-30T10:40:00.380-04:002011-03-30T10:40:00.380-04:00Please address how suspending mark-to-market rules...Please address how suspending mark-to-market rules on bank assets affects this discussion. Also, did the suspension apply to all assets or only MBS? ThanksUnknownhttps://www.blogger.com/profile/05116020208971349295noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-22475320273656483152011-03-29T14:45:39.708-04:002011-03-29T14:45:39.708-04:00Mike,
I think you are making my point. As investor...Mike,<br />I think you are making my point. As investors, we cannot wait to be protected by regulators or the government. We have to assume that regulated firms do some of the same stupid things that unregulated firms do and thus assess them with the same diligence.<br />Gaurav<br />I do have a valuation of Deutsche Bank using the more complicated method...Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-26118867163915135762011-03-29T14:34:05.514-04:002011-03-29T14:34:05.514-04:00It would be great if you could take a valuation of...It would be great if you could take a valuation of a bank such as Wells Fargo, Goldman and a Risky bank like Lloyd TSB and Citi in your Valuation case studies through the 2nd more complicated method rather than the normal DDM method.Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-454845125947773732011-03-29T13:15:06.674-04:002011-03-29T13:15:06.674-04:00Well, what are the chances of such policy changes ...Well, what are the chances of such policy changes when the Wall Street insiders become the policymakers or close pals of policymakers?<br /><br />Remember, there is a revolving door between Wall street and Washington. May be it is not apparent to the academic world, Is it?Mikehttps://www.blogger.com/profile/07355513525615592382noreply@blogger.com