You are an investment banker who has been assigned the task to evaluate a target bank performance. The target bank needs to be a public listed banks and have an annual report in English, so that your boss can understand what you have done! Once you determine (as a group) the target bank, you will need to find three comparable banks that are necessary for a proper evaluation of the target. You need to become an expert about your target bank. Carefully read its annual report. Since your boss wants to know whether is good or not to invest in the target bank, you need to use the most recent information about it, i.e. use the most recent annual report. In lecture 3, we discuss what to look at in order to do a proper evaluation! Use Lecture 3 as a guide but do not rely completely on it! You do not need to follow step-by-step lecture 3 as the assignment needs to be pleased to read and it has to link all the information you collect in an understandable way (your boss does not want to read something that is completely messy!).
Create tables that make the boss to understand how the performance of the bank is. Create tables like the performance summary, the levers table, the credit risk assessment table or the capital ratio analysis table we have shown during lecture 3. Remember that if you spot something important you can also create different tables; however, you need to explain why a different table has been created. So if there is a very good explanation for the new table, this can improve a lot your job and your mark, otherwise it can penalise you. Look at changing trends among important balance sheet and income statement variables.
Always ask the question: ”Why is this?”, “what can be the reasons behind?”, “Is that happening to the comparable banks as well?” Use macroeconomic as well as consensus estimates information to identify the problems the bank faces and those the bank could probably face in the future. In lecture 3 (final slide), we saw that the majority of the information included in the IMF Financial stability report were actually very useful in explaining changing trends or problems of our target company (HSBC). Remember that you can use also different sources (World Bank, National Central Banks). Q&A: which comparable banks I need to use? You need to use banks that can be compared with you target. You can use different criterion to see whether comparable and target banks share similar characteristics. For instance, you can use bank financial profiles such as size, business model, geography, etc… So, for instance, Morgan Stanley can’t be compared with Wells Fargo has they have different business model. Morgan Stanley is an investment bank while Wells Fargo is a commercial bank.
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