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Valuing a Bank in Going Concern

In: How to Value a Bank

Author

Listed:
  • Alessandro Santoni

    (European Central Bank)

  • Federico Salerno

    (European Central Bank)

Abstract

In common with other financial institutions, banks exhibit some specific features relative to industrial companies. This has led the analyst community to opt for certain valuation methods rather than others, over the years. In this chapter, we investigate the most common methodologies used by analysts in valuing Banks in going concern status. The warranted equity value (WEV) method, an adaptation of the EVA approach, is used to value both the entity as a whole or individual business areas in a sum-of-the-parts. It responds to the need to take a bank’s capital absorption and capital position into account. The DDM is a universal method which suits banks as well as industrials. And so is the free cash flow to equity (FCFE), in a sense an expansion of the DDM in that it adds potential dividends to actual dividends.

Suggested Citation

  • Alessandro Santoni & Federico Salerno, 2023. "Valuing a Bank in Going Concern," Springer Texts in Business and Economics, in: How to Value a Bank, pages 15-44, Springer.
    • Handle: RePEc:spr:sptchp:978-3-031-43872-1_3
    DOI: 10.1007/978-3-031-43872-1_3
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