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Bank and Shareholder Value: An Overview of Bank Valuation by Stephanie Gross, Prof. Dr. Andreas Hackethal PDF

By Stephanie Gross, Prof. Dr. Andreas Hackethal

Within the German banking region, administration is consistently expanding its specialise in shareholder pursuits. this is noticeable within the bold profitability objectives set by way of administration during this area. a few municipalities also are placing expanding strain on Landesbanks and saving banks, as participants of the biggest German banking crew, to create larger monetary price.

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41. '^ See Hohmann (1998), p. 12; Merkle (2001), p. 40; Kunowski (2002), p. 21. Krag (1988) gives an overview of these rights for German banks. With regard to international accounting standards, IAS regulation no. 39 and 40 regulate accounting for financial instruments and hedges. Yet banks' freedom to build up hidden reserves is more limited in IAS compared to HGB. See Krumnow (2001), pp. 191-193. For an overview of HGB, IAS, and US-GAAP as well as existing differences in accounting standards for banks, see Buba (2002b).

2 Bank-specific laws and regulations Due to the risks taken on by banks, their specific role in the economic system, and their dependency on economic cycles, banks are subject to various bank-specific rules and regulations,"^"* and the effects of regulatory requirements on value have to be considered. In this context, the bank-specific accounting standards and the capital adequacy requirements of banks are of particular relevance. Due to banks' specific dependency on macroeconomic factors, legislators give them specific rights to build up reserves.

See Vettiger (1996), p. 158; Koch (2002), p. 40. 30 How to measure the shareholder value of banks? ^^ The use of predicted P/E ratios and an estimate of future earnings can solve this problem. ^^ Consequently, the P/E approach tends to overvalue growing banks with a high share of interest income. Furthermore, the explanatory power of P/E ratios depends on the quality of the underlying accounting variables. 3. ^° See Damodaran (2004), p. 32. ^' Another widely used multiple is the price-to-sales (P/S) multiple.

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