Abstract
We run a simulation of a real case of a bank valuation with the application of the AMM and its derived market multiples, and we compare this with the traditional metrics currently used in banking. Results show that the AMM allows a better understanding of where the value of a bank lies and appoints greater value to the liabilities side than the traditional valuation approach. The asset-side model we present could represent a useful method with which to compare the equity-side approach currently used in bank valuation.
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There can be other solutions for determining the cost of non-deposit debt, such as rating benchmarks. In addition, from the perspective of an internal valuation, the effective amount of non-deposit debt can be easily drawn. In this case, we used the Merton model estimation for internal consistency of the valuation process we adopted.
Reference
Massari, M., Gianfrate, G., & Zanetti, L. (2014). The valuation of financial companies. Chichester: Wiley & Sons.
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Beltrame, F., Previtali, D. (2016). A Comparison between Valuation Metrics in a Real Case. In: Valuing Banks. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-56142-8_7
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DOI: https://doi.org/10.1057/978-1-137-56142-8_7
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Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-137-56141-1
Online ISBN: 978-1-137-56142-8
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