1.0 Abstract
This report aims to provide an analysis of a proposed investment in Shenzhen Development Bank (SDB) by Newbridge in 2002 and assess whether the P/B ratio of 1.6 for Newbridge to pay for its 18% stake in SDB is appropriate. The analysis of Newbridge’s acquisition of SDB’s stocks is based on several aspects of SDB’s asset quality, earnings capability and capital adequacy. According to price-to-book ratio of SDB’s industry peers and some acquisition precedents by foreign investors, Newbridge made a correct decision that it paid 1.6 times book value of SDB’s stake on a basis of SDB’s performance. This is because of SDB’s high P/B ratio and low ROE indicating that SDB’s share price was overvalued; therefore, Newbridge’s
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This indicates that SDB’s ability of making profits is stronger than the average level. Meanwhile, SDB’s non-interest income level and operating expense were above the average level in 2002. Nevertheless, SDB’s ROAA was 0.9% in 2000 and was only 0.3% in 2002. This ratio was merely half of the average ROAA of other five joint-stock banks in 2002 indicating that SDB’s profitability of the assets was relatively weak as well as its ROAE at the same time. SDB’s ROAE was only one-third of the average ROAE of five joint-stock banks. Therefore, SDB’s performance was not good compared with its industry peers; the reason of SDB’s bad performance is that an increasing assets generating low net income.
3.3 Capital adequacy
In commercial banking, capital adequacy ratio (CAR) is used to monitor a bank’s situation of capitalization by regulators and managers. CAR is calculated as the sum of tier 1 capital (equity and retained earnings) and tier 2 capital (subordinated debt and reserves) and dividing it by its risk-weighted assets. SDB’s CAR decreased from 10.6% in December 2001 to 9.5% in December in 2002, but still above the Chinese regulatory floor of 8%. It is particularly worth mentioning here that SBD’s CAR was 0.7% higher than the average CAR of other five joint-stock banks in 2002. Not all the time the CAR is good if high; a high CAR means that a bank’s large amount of money is stuck in
We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).
The overall profitability of Chemical Bank has been negatively affected by a decrease in profit contribution from Due Bills. There is an external threat of reduced interest rates and internal threats in the form of misalignment between involved divisions.
The purpose of this report is to analyze the financial operations and financial conditions of BB&T Bank by evaluating financial, economic and market information available for the period from 2000 to 2008. This paper attempts to address key strengths and
The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions
Financial statements for banks have uniquely different analytical problem than statements for manufacturing, service and most companies in general. Therefore this analysis of JPMorgan and Chase 's financial statements requires a different approach in order to recognize the banks worth as an investment.
I am someone that is late for school every day. Occasionally when I wake up in the morning I wonder “why must school starts so early?!” Students around Canada have been complaining that they’re experiencing fatigue as a result of waking up early and going to bed late. Considering the students reasons, the TDSB have set the first period at some high schools for 10:00am.
The primary measure used by regulators and analysts to measure a bank’s capital strength is the Tier 1 capital ratio. Analyzing this ratio indicates the strength and the bank’s ability to
From 2002 to 2007 the bank had an 83% annual growth rate, but those increased profits did not come from productive assets, but simply just a result of increased leverage as seen when comparing Deutsche Bank’s ROA v. ROE. The bank consistently had an exponentially high ROE when the economy was doing well and led to a significant loss when the economy was in a recession in 2008. ROA stayed below .5% and above -.18% during those 10 years even when ROE reached a high of 26.72% and a low of -12.91%. ROA did not rise the way ROE did because increased debt has the potential to lower revenues as more money is spent servicing that enormous debt and if net income falls due to increased expense ROA declines but ROE can still rise as it does not effect shareholder equity. The leverage did allow for large financial gains but did cause
1. Key success factors & company performance…………………………………………………..3 2. Bank perspective regarding the performance…………………………………………………..7 3. Bank financing perspective at the end of 1998……………………………………………….10 4. Management perspective regarding the bank financing………………………………….13 5. Exhibit 1 – Annual Income Statements (1994-1997)………………………………………17 6. Exhibit 2 – Annual Balance Sheets (1994-1997)……………………………………………..18 7. Exhibit 3 – Quarterly Income Statements 1997……………………………………………….19 8. Exhibit 4 – Quarterly Balance Sheets 1997………………………………………………………20 9. Exhibit 5 – Forecasting………………………………………………………………………………………21 10. Exhibit 6 – Annual Ratios………………………………………………………………………………….22 11. Exhibit 7 –
This report compares financial performance of two major banks of UK i.e. HSBC Bank Plc and Barclays Bank Plc on the basis of their Balance sheets and profit and loss accounts for the year 2009. This report also provides SWOT analysis of both banks i.e. HSBC and Barclays Bank Plc and provides an insight into their Banking Strategies.
Recent studies have investigated the impact of the 2007-2009 financial crises on banks’ capital. Berger and Bouwman (2011) emphasised the importance of capital during financial crisis. Their empirical study concludes that banks with solid capital base have some benefits during the crisis than those that are poorly capitalised. Well capitalised banks are more able to withstand the shocks due to liquidity squeeze, and therefore had higher chances of surviving the crisis period. Other benefits accrued to well capitalised banks include increase in their market share and profitability, as customers withdrew their funds from less capitalised to a well-capitalised banks. This conclusion was also reinforced by a recent empirical study conducted Olivier de Bandt et al (2014) on a sample of large French banks over a period of 1993 – 2012. Similarly, Gambacorta and Marques-Ibanez (2011) demonstrate the existence of structural changes during the period of financial crisis. They conclude that banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. Using a multi-country panel of banks, Demirgüç-Kunt, Detragiache and Merrouche (2010) find among others results, that during
The course project involved developing a great depth of knowledge in analyzing capital structure, theories behind it, and its risks and issues. Before I began this assignment, I knew nothing but a few things about capital structure from previous unit weeks; however, it was not until this course’s final project that came along with opening
Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have
The SCDCC bank has been maintaining a capital adequacy ratio above the prescribed level for the first 3 years. The capital adequacy ratio of SCDCC bank has been increased over the year and it was reached 9.99% in the year 2011-2012 but decreased in the year 2012-13. And in the previous year 2013-14 it is more decreased compared to other years because the bank has increase its borrowings from various sources. Increase in the risk assets is the main
1. To what extent is the performance of commercial bank affected by credit risk management?