Many investors simply don’t look at the financials sector. Perhaps they are unfamiliar with the jargon that underpins the sector, perhaps they view financial companies too much as a black box, or perhaps they baulk at the regulation the sector faces. All of which is a shame, because the sector is a large one and presents an opportunity.
This course will equip participants with the tools necessary to understand the bank sector deeply.
It will guide investors what to look for when analysing a bank and will address many topical issues through the use of case studies.
Investors will leave with confidence that they can pick up a bank’s financial report or speak to a bank CFO and extract what they need to form an investment opinion.
Module 1: P&L Basics
Module 2: Risk
Module 3: Funding
Module 4: Capital
Module 5: Valuation
Module 6: Current strategic issues facing bank CEOs and CFOs
The basic course is one day, preferably delivered over two half-days. There is a lot to take in and some clients may prefer to add some of the optional modules and cover the subject comprehensively in 3 half day sessions.
The course is aimed primarily at institutional investors and is generally run in-house in the client’s office, for maximum efficiency and to minimise productive downtime – the hidden, but often the most important cost of training.
The course would also be suitable for bank middle management, consultants and others looking to sell into the bank sector at a senior level.
Portfolio managers will feel much more confident about banks after this course.
Marc Rubinstein has 25 years experience as a financials analyst. Like Steve, he has worked both on the buy-side and the sell-side. For ten years up to 2016 he was senior analyst and portfolio manager on the Lansdowne Global Financials Fund, a fundamental long/short fund focused exclusively on the global financials sector. The fund successfully navigated the financial crisis and won the Eurohedge long-term performance award for equity strategies in Jan 2010. Before his move to the buy-side in 2006, Marc had been an Institutional Investor ranked analyst on the sell-side, most recently at Credit Suisse, where he was a managing director overseeing its European banks team. Since winding up the Lansdowne financials fund in 2016, Marc has worked with various funds and financial institutions in a research and consulting capacity. He has also guest lectured at the London Business School on its ‘Banks and Financial Institutions’ class.
Marc Rubinstein
The course is structured in 6 modules, with some optional content (**). We can also run individual modules, for example for those wishing to understand the implications of IFRS 9:
Overview
Basic structure of bank income statement
Differences between retail banking, commercial banking, investment banking
Links between bank balance sheet and bank income statement (ROE introduction)
Banks as transformation providers
Net interest income
Sources of interest income: loan types, securities portfolios
Types of funding: demand deposits, time deposits, wholesale funding, subordinated debt
Net interest margin defined
Determinants of asset pricing (net interest margin versus risk)
Sensitivity of net interest margin to interest rates and yield curve **
Impact of current low rates on net interest margins
Treasury function of a bank **
Non-interest income
Types of fees and commissions: retail bank fees, asset management, bancassurance, investment banking fees, credit card acquiring fees, credit card interchange fees
Trading income: cash equities, equity derivatives, fixed income, currencies and commodities
Bank expenses
Cost/income ratio defined
Drivers of bank efficiency
Cost savings from mergers and acquisitions – historical overview
Branch networks
Tech spending
Investment bank compensation **
Loan accounting (IFRS9) **
Key asset quality ratios: NPL ratio, coverage, loan loss rate, Texas ratio
Credit cycle – historical overview
Normalised loan losses
Lead indicators of credit deterioration
Regulatory perspectives on NPLs **
Market risk **
Operational risk **
Litigation risk **
Funding structure of a bank
Nature of deposit funding
Bank runs
Loan/deposit ratio
Types of wholesale funding
Risks of wholesale funding
Specialty finance company funding
Central bank backstops **
Liquidity risk
Funding and liquidity regulation **
Why banks fail
Types of capital — common equity tier 1, addition tier 1, tier 2
Capital ratios: core tier 1 ratio, tier 1 ratio, total capital ratio, leverage ratio
Minimal capital requirements
Defining risk-weighted assets **
Developing capital regulation (from Basel I to Basel IV)
European SREP process **
US CCAR process **
Why bank valuation is different from non-bank valuation
Constraints a bank CEO/CFO faces
Tangible book value per share defined
Mark to market of asset and liability values
Stress testing book value
Relationship between P/BV and ROE
Bank cost of capital
Different measures of earnings – pre-provision profit, adjusted profit etc.
Adjusting valuation for leverage
Historic assessment of bank valuations in Europe and US
Valuing growth
Free-cashflow based approach to valuation
Changing regulatory landscape
Threat of lower for longer interest rates
Disruption from fintech and Big Tech
Prospects for consolidation
Note: ** represent optional deeper-dive components
If you are interested in the course and would like to discuss your requirements, please email us at info@behindthebalancesheet.com and Marc will be pleased to follow-up.