Bank Analysis and Valuation in the Current Crisis

This course focuses on the topical areas of difference between traditional commercial banking and modern investment banking and on the impact of the credit crisis on banks valuation.

Securitisation

• Shifting credit risk off balance sheet
• Funding benefit, servicing fees and regulatory benefits
• Credit enhancements
• Bringing SPEs back onto the balance sheet when things went wrong
• Impact on valuation
• Structured finance: second layer securitisations
• Types of vehicles: conduits, SIVs, CDOs, CDOs squared
• Banks’ retained exposures and write downs so far
• Impact on valuation

Credit derivatives

• Expansion of CDS
• Benefits and potential increase in systemic risk
• Underlying credit risk and counterparty credit risk

Funding and liquidity

• Understanding the bank’s funding structure
• Measuring liquidity risk
• Increasing reliance on wholesale funding
• Increasing reliance of repos as secured funding
• Reverse repos and prime brokerage

Credit crisis and state intervention

• Deterioration in the credit cycle
• Delinquency rates and provisioning levels
• Leveraged buy-outs exposure
• Pro-cyclicality of capital requirements and provisions
• Increasing bank failures
• Common causes for bank failures
• Subprime and real estate exposure
• Liquidity issues
• Exposure to credit default swaps and counterparty risk
• Excessive leverage
• Shape of state bailout / intervention in the banking sector
• Acquisition of troubled assets
• Easing of monetary policy
• Increased depositors protection
• Direct recapitalisation
• pected regulatory tightening

Impact on valuation

• So: how much are banks worth now?
• Net tangible equity after sub-prime related write-downs
• Sustainable earnings
• Impact of the downturn in the normal credit cycle
• Reverting to long-term profitability from the current crisis