How are Banks Valued? An Examination of Research Reports in Europe

Abstract

The idiosyncratic attributes of banks call for the use of valuation methods that are adapted specifically for the peculiar characteristics of the banking business with due regards to the special roles played by the industry’s leverage and capital constrains. This study reviews 171 research reports on the valuation of some of the largest European banks in 2011. The results of the research indicate that there is divergence between the financial literature and the real world. Equity analyst, in general, use valuation models that are more closely adapted to the specific characteristics of banks and not always follow what the financial literature proposes as the core methods for bank valuation. This finding suggests that there is ample room for further research to re-evaluate the banking valuation methodologies in the literature.