(Wirtschaftswissenschaft) Svend Reuse - Corporate Evaluation in The German Banking Sector-Dt. Univ.-Verl (2007)

Svend Reuse
Corporate Evaluation in the German Banking Sector

WIRTSCHAFTSWISSENSCHAFT
Svend Reuse
Corporate Evaluation
in the German
Banking Sector
With a foreword by Prof. Dr. Eric Frère

and Prof. Dr. Burghard Hermeier
Deutscher Universitäts-Verlag
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1. Auflage März 2007

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Foreword V
Foreword
Corporate Evaluation in the German Banking sector is becoming more and more important. In
times of hostile takeovers, missing success in the retail market and an unpleasant cost income
ratio, especially small cooperative banks and savings banks are facing a changed situation
they have never expected. The changing speed has increased dramatically in the German
banking sector. While selling of a savings bank was not possible even 5 years ago, this hard
frontier is broken up now. Banks have to manage this changed situation – in order to prevent
to be taken over or to increase the own value and the own independency accordingly. In both
cases, the quantification of the own value is an essential aspect.
The presented Master Dissertation of Svend Reuse solves theoretical and practical problems
according to this topic. It combines actual value oriented management tools with the classical
methods of corporate evaluation and the results of the actual status quo in the German bank-
ing sector. The essentials can be summed up as follows:
First, the theoretical status quo of corporate evaluation in the German banking sector was de-
fined. The result is that only the earnings value method, equity approach and multiplier
method are useful for banks. All entity models must be rejected, as they do not consider the
fact that a bank generates value with the liability side. Discussing several bank-individual
evaluation models led to open questions. The discounting rate, the implementation of value
corrections and the value of treasury are subject to discussion. Further, it was clearly investi-
gated, why maturity transformation does not generate value, why the CAPM can only be used
in some models and in which models the value corrections for lost loans have to be deducted.
The theory-based demands on a new model are simplicity and the usage of secure cash flows
in order to use other discounting rates than the CAPM.
An additional interesting aspect in this work is the connection to actual banking practice.
Svend Reuse presents a representative empirical study. In total, 51 out of 750 banks took part
in the study. The responses nearly always show a high quality. The main results can be sum-
marized as follows: Shareholder value is not implemented in practice by many banks. Peri-
odic variables are favoured to manage a bank. Intangible values as human resources or the
own brand are not considered in the whole sector. The author developed a scoring model
which proved this assumption to be correct. The second part of the survey analyzed the prac-
tical status quo of corporate evaluation. Almost 50% of the banks analyze their own value in
order to do value based management. Nevertheless, the interlink between the bank’s value
and the related controlling numbers/tools is missing. Banks judge their value, but an inte-
grated management process cannot be found. A practice-based impulse for a new model is
VI Foreword
that some existing controlling methods, especially those derived from the risk covering mass
processes should be used.
The model developed by Svend Reuse took all these aspects into consideration. By an inte-
grated usage of the market interest rate method and the usage of secure cash flows, the CAPM
approach could be avoided. The model sets the value of treasury as zero and quantifies a more
realistic bank value accordingly. Even though the single parts of the model are not new, the
integration of them led to new, interpretable aspects. Really new for the German banking sec-
tor is that the model is verified in practice. A number of 19 of the 51 banks of the survey
wanted a detailed corporate evaluation based upon the data of the survey. On average, the
treasury approach leads to lower results than the equity and earnings value method, even
though a risk-free rate is used. The further empirical analysis was able to generate internal
based multiples to evaluate the value of classical banks in a very simple manner.
To the opinion of Svend Reuse it has to be criticized that banks do not interlink the evaluation
of the own value with a value-oriented management process. In the last section of his work,
he offers a solution to this problem. Further he recommends the integration of intangible as-
sets. The value of the brand, customer satisfaction and the employees will be responsible for
the bank’s value in the future.
The presented Master Dissertation combines existing literature in a new way and extends it in
some parts. Considering the aspect that Svend Reuse has written this dissertation beneath his
work in a few months, the results are very impressing. Some aspects can be used directly in
practice to manage a bank in a rather present value oriented way. We hope that this disserta-
tion will become well-known in Germany.
With his work, Svend Reuse has proved that attaining an excellent academic level is not ex-
clusively possible under the conditions of a full-time degree programme. Nevertheless, part-
time-concepts as the FOM’s MBA programme make high demands on the participants. Con-
sistent discipline and the ability to self-motivation are the key skills to cope with the chal-
lenges of graduating alongside a career –attributes characterizing people with long-term suc-
cess.
Prof. Dr. Eric Frère

Head of International Studies
Prof. Dr. Burghard Hermeier

Dean of FOM
University of Applied Sciences
Preface VII
Preface
Very early during the MBA course of studies, I found the topic of the Master Dissertation.
One the one hand, nearly all my scientific work and publications handled with bank control-
ling and similar topics. On the other hand, the methods of corporate evaluation fascinated me.
So I connected both aspects into the presented dissertation in order to develop some real new
aspects. Combining the theoretical aspects with the practical status quo led to interesting re-
sults for the German banking sector.
Such a project can only be successful with the help and support of many persons closely con-
nected with me. They all helped me – with good advice or psychological support in times of
trouble. I want to give special thanks to some persons and organisations.
My first thanks go to my employer, Sparkasse Mülheim an der Ruhr. Sponsoring and support-
ing me during the MBA course of studies in a time of huge work helped me to complete the
MBA and to write this book.
Certainly, my thanks go to the banks that answered the query. Only with investing time and
manpower into answering the questions, the presented status quo became possible.
Further, I want to say thanks to Herbert Peters, Marc Quattelbaum and Jochen Rulhoff for
finding the mistakes in the English formulations. Reading 200 pages of complex English un-
der time pressure is not very easy, I know.
Next, I want to thank Birgit Rieforth. She has always been a good discussion partner, even at
night if necessary. She was often the only one who understood my complex problems and
helped me with good advice. Further, she checked the formalia – sometimes a very boring job
as well.
Surely, my special thanks go to Prof. Dr. Eric Frère. Since the first semester, his courses in-
spired me to choose this Master dissertation topic and to specialize myself on the banking
sector. He guided me to the good results in this dissertation during a time of pressure in the
job and in the MBA. Further, it was him again who gave me the possibility to publish my
work as a book. It is an honour for me that he wrote a foreword together with Prof. Dr. Bur-
gard Hermeier for this book.
Further, the personal contacts have to be mentioned. I want to say thanks to my friends, espe-
cially Andreas Horn, as I had nearly no time for them during the time of writing the Master
dissertation. Thank you for understanding me during this time.
VIII Preface
Certainly, I want to thank my parents, Helke and Rüdiger Reuse. Thank you for supporting
me in everything I did and helping me in times of trouble. Without your aid at the right time,
some of my success would not have been possible.
Finally, my thanks go to my girl friend Anita. We got closer in a time I had a lot of stress.
Thank you for having patience with me, thank you for packing 750 letters into the envelopes
during the whole night and thank you for standing behind me in these hard times.
Even though the presented work is written in English, I hope that some German banks be-
come aware of the results. I would feel pleased, if these banks get some additional value-
added because of the presented content.
Svend Reuse
Table of Contents IX
Table of Contents
Table of Contents ..................................................................................................................... IX

List of Figures ....................................................................................................................... XIII
List of Tables.......................................................................................................................... XV
List of Equations ..................................................................................................................XVII
List of Abbreviations............................................................................................................. XIX
1 Introduction .......................................................................................................................... 1
1.1 Problem Definition ......................................................................................................... 1
1.2 Reasoning and Motivation.............................................................................................. 3
1.3 Research Methods........................................................................................................... 3
2 Theoretical Status Quo of Corporate Evaluation.............................................................. 5

2.1 Motivations for a Corporate Evaluation ......................................................................... 5
2.1.1 Reasons for a Corporate Evaluation..................................................................... 5
2.1.2 The Difference between Price and Value............................................................. 6
2.1.3 Functions of Corporate Evaluation....................................................................... 7
2.2 Methods of General Corporate Evaluation ..................................................................... 9
2.2.1 Separate Evaluation Methods............................................................................. 12
2.2.1.1 Reproduction Value Method ................................................................. 12
2.2.1.2 Liquidation Value Method .................................................................... 12
2.2.2 Global Evaluation Methods................................................................................ 13
2.2.2.1 Earnings Value Method......................................................................... 18
2.2.2.2 Discounted Cash Flow Methods ........................................................... 20
2.2.2.2.1 Equity Approach ................................................................... 22
2.2.2.2.2 Entity Approach – WACC .................................................... 24
2.2.2.2.3 Entity Approach – APV ........................................................ 26
2.2.2.2.4 Real Options Approach ......................................................... 28
2.2.3 Mixture Methods ................................................................................................ 31
2.2.4 Simplified Approaches ....................................................................................... 33
2.2.4.1 Real Prices of the Same Company ........................................................ 34
2.2.4.2 Real Prices of a Comparable Company................................................. 34
2.2.4.3 Fictitious Prices of the Same Company ................................................ 34
2.2.4.4 Fictitious Prices of the Peer Group – Multiplier Approach .................. 35
2.3 Bank Individual Approaches ........................................................................................ 37
2.3.1 Reasons for a Bank Individual Approach........................................................... 37
2.3.1.1 Generating Value with the Liability Side.............................................. 37
X Table of Contents
2.3.1.2 Maturity Transformation ....................................................................... 38

2.3.1.3 Structure of the Balance Sheet .............................................................. 39
2.3.1.4 Risk Transformation.............................................................................. 39
2.3.2 Structuring the Status Quo in Current Literature ............................................... 40
2.3.3 Debatable Problems in Current Literature.......................................................... 45
2.3.3.1 The Value of Treasury........................................................................... 45
2.3.3.2 The Value of Trading ............................................................................ 50
2.3.3.3 Quantifying the Cash Flow for an Equity Approach............................. 50
2.3.3.4 Discounting Factor – Equity Yield........................................................ 51
2.3.4 Theoretical Impulses for a New Evaluation Model............................................ 51
3 Practical Status Quo: An Empirical Study in the German Banking Sector................. 53

3.1 Modeling the Survey..................................................................................................... 53
3.1.1 Central Idea of the Survey.................................................................................. 53
3.1.2 Theoretical Aspects for Modeling a Survey....................................................... 53
3.1.3 Structure of the Questionnaire............................................................................ 55
3.1.4 Defining the Target Group ................................................................................. 56
3.2 Quantification of the Answers ...................................................................................... 57
3.2.1 Return Ratio and Representativeness ................................................................. 57
3.2.2 Date of Return .................................................................................................... 59
3.3 Analyzing the Results ................................................................................................... 60
3.3.1 Section 1: General Data according to the Bank ................................................. 60
3.3.2 Section 2: Bank Controlling and Value Based Management ............................. 64
3.3.3 Section 3: Question according to Corporate Evaluation .................................... 71
3.3.4 Section 4: Individual Corporate Evaluation ....................................................... 79
3.3.5 Section 5: Final Amendments ............................................................................ 80
3.4 Extended Analysis ........................................................................................................ 81
3.4.1 Comparison with Existing Surveys .................................................................... 81
3.4.2 Scoring Model for the Quality of Value Based Management ............................ 83
3.5 Conclusions from the Survey........................................................................................ 85
3.5.1 Summing up the Main Results of the Questionnaire.......................................... 85
3.5.2 Practical Impulses for a New Evaluation Model................................................ 86
4 Development of a New Corporate Evaluation Approach for Banks ............................. 87

4.1 The Main Idea of the Presented Approach ................................................................... 87
4.2 Definition of the Model ................................................................................................ 88
4.2.1 Yield Book ......................................................................................................... 90
4.2.1.1 Definition of Cash Flow........................................................................ 90
4.2.1.2 Definition of Discounting Rate ............................................................. 94
Table of Contents XI
4.2.2 Further Assets..................................................................................................... 96

4.2.3 Further Liabilities ............................................................................................... 97
4.2.4 Expected Losses of Taken Risk.......................................................................... 97
4.2.5 Costs related to Active Transactions .................................................................. 99
4.2.6 Earnings related to Active Transactions........................................................... 101
4.2.7 Tax Effect ......................................................................................................... 102
4.2.8 Performance Aspects........................................................................................ 102
4.3 Theoretical Analysis of the Model ............................................................................. 103
4.3.1 Structuring the Model according to Existing Literature................................... 103
4.3.2 Conclusions and Theory-Based Criticism of the Model .................................. 103
5 Quantifying the Value of German Banks....................................................................... 105

5.1 Central Idea of the Empirical Corporate Evaluation .................................................. 105
5.2 Detailed Evaluation for One Bank.............................................................................. 105
5.2.1 Required Data................................................................................................... 106
5.2.1.1 General Data........................................................................................ 106
5.2.1.2 Specific Data based on the Empirical Study ....................................... 106
5.2.2 Setting up the Approaches................................................................................ 109
5.2.2.1 Net Asset Value Approach / Substance Value .................................... 109
5.2.2.2 Multiplier Approach............................................................................ 109
5.2.2.3 Earnings Value Approach ................................................................... 115
5.2.2.4 Equity Approach ................................................................................. 116
5.2.2.5 Treasury Approach.............................................................................. 119
5.2.3 Summing up the Results................................................................................... 124
5.3 General Evaluation for all Banks................................................................................ 124
5.3.1 Structuring the Banks ....................................................................................... 124
5.3.2 The Corporate Value of the 19 Banks .............................................................. 125
5.3.3 Interpreting the Results .................................................................................... 126
5.4 Empirical Evaluation of Internal Multiples ................................................................ 128
6 Critical Discussion and Outlook ..................................................................................... 131

6.1 Summary of the Main Results .................................................................................... 131
6.2 Recommendation and Outlook ................................................................................... 134
Appendix ............................................................................................................................... 137
Bibliography ......................................................................................................................... 147

List of Figures XIII
List of Figures
Figure 1: Research methods and methodology ................................................................. 4

Figure 2: Main structure of corporate evaluation approaches......................................... 10
Figure 3: Graphical visualization of the CAPM.............................................................. 17
Figure 4: Structure of simplified approaches .................................................................. 33
Figure 5: Contribution margin of a fictitious bank ......................................................... 38
Figure 6: Status quo of existing bank-individual evaluation approaches........................ 40
Figure 7: Additional earnings generated by maturity transformation ............................. 45
Figure 8: Additional earnings generated by maturity transformation, i +1% ................. 46
Figure 9: Ex post performances of several treasury strategies 12/87 – 10/01................. 47
Figure 10: Fictitious balance sheet of a swap including interest rate risk......................... 49
Figure 11: Dependence between cash flow, equity yield and complexity ........................ 52
Figure 12: Target group and sample of the survey............................................................ 57
Figure 13: Distribution of returns of the survey, n = 51 ................................................... 59
Figure 14: Clusters of employees and balance sheet sum, n = 51..................................... 61
Figure 15: Age of the company, n = 51............................................................................. 63
Figure 16: Integrated bank controlling, n = 51.................................................................. 65
Figure 17: Integrated bank controlling vs. priority of optimizing, n = 51 ........................ 66
Figure 18: Usage of controlling variables, n = 51............................................................. 69
Figure 19: Average grade of controlling variables, n = 51 ............................................... 70
Figure 20: Name recognition of evaluation approaches, n = 51 ....................................... 71
Figure 21: Valuation of the approaches, n = 51 ................................................................ 72
Figure 22: Evaluation of the own value, n = 51 ................................................................ 73
Figure 23: Age of corporate evaluation, n = 24 ................................................................ 75
Figure 24: Frequency of corporate evaluation, n = 24 ...................................................... 76
Figure 25: Reasons for corporate evaluation, n = 24 ........................................................ 77
Figure 26: Used approach for corporate evaluation, n = 24.............................................. 78
Figure 27: Knowledge about the results, n = 24 ............................................................... 79
Figure 28: Interest in an individual corporate evaluation, n = 51 ..................................... 80
Figure 29: Scoring point values, n = 51 ............................................................................ 84
Figure 30: Central structure of the treasury approach....................................................... 88
Figure 31: Cash flows of the loan and of the emitted bond .............................................. 91
Figure 32: Gliding 10Y-maturity mixing and the related cash flows 2005.12 ................. 92
Figure 33: Example of evaluating a gliding average ........................................................ 93
Figure 34: Present value of yield book cash flows............................................................ 95
Figure 35: Present value expected losses .......................................................................... 98
Figure 36: Development of the indexed share prices of the peer group ......................... 110
Figure 37: Definition of the multiples for the CCA ........................................................ 114
XIV List of Figures
Figure 38: Cash flow of the yield book – simulated vs. given cash flows...................... 121
Figure 39: Treasury approach at the example of bank 365 ............................................. 123
Figure 40: Value of bank 365 based on all approaches................................................... 124
Figure 41: Indexed value of all banks based on all approaches, n = 19.......................... 127
Figure 42: Integrated shareholder value management process ....................................... 136
List of Tables XV
List of Tables
Table 1: Development of the number of German banks.................................................. 1

Table 2: Motivation for a corporate evaluation ............................................................... 6
Table 3: Functions for corporate evaluations................................................................... 8
Table 4: Parts of the discounting rate ............................................................................ 14
Table 5: Problems of the earnings value method........................................................... 19
Table 6: Differentiation of cash flows ........................................................................... 22
Table 7: FCF vs. TCF approach..................................................................................... 25
Table 8: Structure of real options................................................................................... 29
Table 9: Mixture methods.............................................................................................. 32
Table 10: Aspects for the questionnaire........................................................................... 54
Table 11: Structure of the questionnaire.......................................................................... 55
Table 12: Response rate and representativeness, n = 51.................................................. 58
Table 13: Employees vs. balance sheet, n = 51 ............................................................... 62
Table 14: Average spread of the banks, n = 36................................................................ 64
Table 15: Structure of controlling variables/ratios .......................................................... 68
Table 16: Usage and valuation of controlling variables, n = 51 ...................................... 70
Table 17: Evaluation of the own value according to the bank type................................. 74
Table 18: Definition of the scoring model....................................................................... 83
Table 19: Interest rates and zerobond rates per December 31st, 2005 ............................. 95
Table 20: Periodic view vs. present value view............................................................... 96
Table 21: Categorization of costs ................................................................................. 100
Table 22: The present value of earnings ....................................................................... 101
Table 23: Income statement data at the example of bank 365 ....................................... 107
Table 24: Balance sheet data at the example of bank 365 ............................................. 108
Table 25: Fundamentals of the peer group .................................................................... 112
Table 26: Evaluation of new multiples .......................................................................... 113
Table 27: Multiplier approach at the example of bank 365 ........................................... 115
Table 28: Earnings value approach at the example of bank 365 ................................... 116
Table 29: Equity approach at the example of bank 365................................................. 117
Table 30: Simplified cash flow evaluation of fix customer deals of bank 365.............. 120
Table 31: Present value of fees, costs and taxes of bank 365 ........................................ 122
Table 32: Structure of the banks with an interest in a corporate evaluation.................. 125
Table 33: Results of the corporate evaluation for all banks, n = 19 .............................. 126
Table 34: Multiples resulting from the applied internal approaches ............................. 130
Table 35: Answering the central questions of the dissertation ...................................... 134
List of Equations XVII
List of Equations
Equation 1: The earnings value approach ........................................................................... 18

Equation 2: The equity approach ........................................................................................ 23
Equation 3: The APV approach .......................................................................................... 26
Equation 4: Beta transformation ......................................................................................... 27
Equation 5: Corporate value by real option ....................................................................... 30
Equation 6: Mixture methods.............................................................................................. 31
Equation 7: Multiplier approach ......................................................................................... 35
List of Abbreviations XIX
List of Abbreviations
V = Volatility
€ = Euro
A = Annual surplus
AG = Aktiengesellschaft
APT = Arbitrage pricing theory
APV = Adjusted Present Value
AuM = Assets under Management
av. = Average
b = Parameter > 0
BaFin = Bundesanstalt für Finanzdienstleistungen
BFH = Bundesfinanzhof
BMW = Bayerische Motorenwerke
BS = Balance Sheet
CAPM = Capital Asset Pricing Model
CCA = Comparable Company Analysis
Cf. = Confer
CIR = Cost Income Ratio
CM = Contribution Margin
CV = Corporate Value / Company Value
DAX = Deutscher Aktienindex
DCF = Discounted Cash Flow
DDM = Dividend Discount Model
DiBa = Direktanlagebank (Name of a company)
DSGV = Deutscher Sparkassen- und Giroverband
E = Earnings
EBIT = Earnings Before Interest and Taxes
EBITDA = Earnings Before Interest, Tax, Depreciation and Amortization
EBT = Earnings Before Taxes
ed. = Editors
EQ = Book value of equity
etc. = et cetera
EV = Earnings Value
EVA = Economic Value Added
FCF = Free Cash Flow
FOM = Fachhochschule für Oekonomie und Management
FTE = Flow To Equity
Geno = Genossenschaftsbanken / cooperative bank
XX List of Abbreviations
HGB = Handelsgesetzbuch
HVB = Hypovereinsbank
i = Interest rate
IAS = International Accounting Standard(s)
ID = Identification
IDW = Institut der Wirtschaftsprüfer
ifb = Institut für Bankmanagement
IFRS = International Financial Reporting System(s)
IS = Income Statement
IT = Information Technology
ITM = Integral Total Management
KWG = Kreditwesengesetz
m = Market
MaRisk = Mindestanforderungen an das Risikomanagement
max. = Maximum
MBA = Master of Business Administration
min. = Minimum
Mio. = Million
mult. = Multiplier
n = Number
n.a. = no answer
n.Y. = no year
No. = Number
NOPAT = Net Operating Profit After Taxes
OLG = Oberlandesgericht
p. = page
PDF = Adobe Portable Document Format
PF = Performance Factor
pp. = pages
r2 = Coefficient of determination
RAROC = Risk Adjusted Return On Risk Adjusted Capital
rf = risk free
RI = Residual Income
RIM = Residual Income Method
ROCE = Return On Capital Employed
ROE = Return On Equity
RORAC = Return On Risk Adjusted Capital
RSGV = Rheinischer Sparkassen- und Giroverband
SEV = Separate Evaluation Value
List of Abbreviations XXI
ß = Beta
t = Time period
TCF = Total Cash Flow
tr = Tax ratio
ts = Tax shield of debt
USA = Unites States of America
US-GAAP = Unites States Generally Accepted Accounting Principle
V = Value
VaR = Value at Risk
VBM = Value Based Management
vs. = versus
WACC = Weighted Average Costs of Capital
Y = Year
zdf = zerobond discounting factor
zeb = Zentrum für ertragsorientiertes Bankmanagement
1.1 Problem Definition 1
1 Introduction
1.1 Problem Definition
Corporate Evaluation is often discussed in literature. In theory, the aspects and assumptions of
several methods are clear. Practical application, however, in a certain sector or company type
leads to various technical problems. Further, the quality and availability of data is not opti-
mal1.
With respect to the banking sector, literature offers rather theoretical methods to quantify the
value of a bank2. However, nearly no practical solutions are available. Further, not all aspects
of typical banking operations are integrated into the published models. A current and reliable
model proven by empirical data is not known to exist.
Nowadays a shareholder value3-oriented management with the evaluation and improvement

of the own value is more important for German banks than ever before4. Mergers between
some banks and profitability problems of the whole sector lead to pressure and to the danger
of hostile takeovers5. This is proven by table 1:
Kind of bank type 1990 2005 Percentage

6
Private Bank 338 302 -10.65%
Clearing House 12 12 0.00%
Savings Banks 769 463 -39.79%
Geno / cooperative banks7 3,380 1,293 -61.75%
Sum 4,499 2,070 -53.99%
Table 1: Development of the number of German banks8
1
Cf. Drukarczyk (1996), pp. 218.
2
Cf. Sonntag (2001), p. 5. Discussed in detail in section 2.3. The IDW offers a guideline for the evaluation of
the needed data. Cf. IDW (2003).
3
Shareholder value is defined as a strategy to increase the value of the shareholders. Cf. Stützer (1976), col-
umns 4404. Value based management is nearly the same, but the focus is laid on the management process.
Cf. Csoport/Linner (2002), p. 2. Shareholder value and shareholder wealth are often used synonymicly in
literature. Cf. for example Volkart (n.Y.), p. 18.
As a consequence, all three definitions are used similarly in this dissertation. Further explanations can be
found in section 3.3.2.
4
For a detailed discussion of shareholder value cf. Stewart (1991); Rappaport (1995) and Cope-
land/Koller/Murrin (1994). For the development from shareholder value to stakeholder value cf.
Krämer/Schäfer (2005), p. 19. This differentiation will not be discussed in this dissertation as well.
5
Cf. Die Welt (2003).
6
Excluding 55 Investment Banks, which were added to this group in 2002. Cf. Bankenverband (2006).
7
Abbreviation for Genossenschaftsbank or cooperative bank. In some sources, cooperative bank and savings
bank are used similar. Because of that, the abbreviation Geno will be used further on.
8
Author’s own table referring to Bankenverband (2006). Partly including subsidiaries of foreign banks.
2 1 Introduction
The total number of banks decreased by 54% from 4,499 in 1990 to 2,070 in 20069. Analyz-
ing the three pillars of the German banking sector (Private banks, Genos and savings banks)10
leads to the result that especially the number of the rather small Genos and savings banks
shrink strongly. Mergers and fusions in between these pillars led to this effect. The differen-
tiation into these three banking groups is under discussion now11. While the private banks
want to cancel it12, the Genos and the savings banks13 intend to keep it. Breaking up with that
three-pillared system would lead to a wave of mergers with the central question about the
value of the banks.
Further, the CIR14 of German banks is about 67.7%15. This is too high compared to interna-
tional competition16. The same effect can be stated according to the ROCE17. While German
banks show a rate of 0.20%18, the European average rate is about 0.72%19.
A shareholder value-oriented management must be based on the corporate value of the bank.
This value is the central strategic target. Regarding the German banking sector this disserta-
tion answers the following questions:
x Do the existing approaches of corporate evaluation lead to the right values?
x How far is theory in quantifying the value of banks?
x What is the practical status quo of corporate evaluation in the German banking sector?
x What is the value of a typical German bank?
x Do banks manage their business in a shareholder value-oriented way?
9
Cf. Bankenverband (2006).
10
For further explanation cf. Süchting/Paul (1998), p. 32 and Voigtländer (2004), pp. 3.
11
For the current discussion cf. Jennen (2006). A structured analysis is given in Simmert/Benölken (2006), pp.
238.
12
Cf. WiWo (2006).
13
Cf. for example Hoppenstedt (2005), p. 3.
14
Abbreviation for Cost Income Ratio.
15
Cf. Krabichler/Krauß (2003), p. 18, data of 2002. The actual development is not even better in Germany.
Cf. Franke (2004) and Täubert (2005).
16
The average in Europe is about 64.7% in 2002. Cf. Krabichler/Krauß (2003), p. 21. The number one bank
Citibank has a CIR of 52.5%. Cf. Franke (2004).
17
Abbreviation for Return On Capital Employed. In the banking sector defined as annual surplus divided by
average balance sheet sum.
18
Cf. Krabichler/Krauß (2003), p. 19.
19
Cf. Krabichler/Krauß (2003), p. 21.
1.2 Reasoning and Motivation 3
1.2 Reasoning and Motivation
Current literature offers only some basic ideas to evaluate the corporate value of banks20.
Theoretical or even empirical evaluations with respect to the German banking sector do not
exist21. It is the aim of this dissertation to solve the open questions of theory22 and practice23,
to develop a new evaluation model24 and to apply it on the German banking sector25.
In this dissertation, there are actually six aspects which can be stated as new:
1. A representative survey in the German banking sector according to the status quo of
corporate evaluation was done recently.
2. A scoring model was defined to quantify the shareholder value-orientation of the
bank.
3. The banks had the possibility to be valued by using several existing methods of corpo-
rate evaluation and a model developed by the author. Therefore, the internal data given
in the survey were used. A total of 19 banks agreed to this option.
4. A new evaluation model was developed by integrating existing aspects of bank con-
trolling with existing approaches of corporate evaluation.
5. This model was verified by applying it to the 19 banks.
6. Some reliable multiples were defined which facilitate the evaluation of the value of a
bank in a brief and pragmatic way. They are based on the internal approaches.
Hence, general conclusions are given according to corporate evaluation in the banking sector.
These findings are empirically proven. Finally, the results lead to the motivation of building
up some general statements regarding the relation between bank’s strategy, controlling proc-
ess and corporate value.
1.3 Research Methods
The underlying research methods for this dissertation have to be structured. During the disser-
tation, secondary research data26 was often used. On the one hand, section 2 and a part of sec-
tion 4 consist of the analysis of current literature. On the other hand, in sections 3 and 5, pri-
mary research27 was done. Sections 4 and 5 offer some additional new arguments in the
20
Cf. section 2.3.
21
Cf. section 3.4.1.
22
Cf. section 2.3.
23
Cf. section 3.
24
Cf. section 4.
25
Cf. section 5.
26
Defined as data collected for another purpose. Cf. Kotler/Armstrong (2004), p. 149.
27
Defined as data collected for a specific purpose. Cf. Kotler/Armstrong (2004), p. 149.
4 1 Introduction
evaluation and verification process of the own model. This structure and visualized with the
help of figure 1:
Section of the Dissertation Secondary Research Primary Research

Literature Other Own Own Model Own
Surveys Survey Arguments
Section 1: Introduc-
X
tion
Section 2: Theoretical
X
status quo
Section 3: Practical
X X
status quo – Survey
Section 4: New Model

X X X
Section 5: Valuing
X X X X
German Banks
Section 6: Final Con-

X
clusion
Figure 1: Research methods and methodology28
These methods are transferred into a dissertation structure as follows: After a brief introduc-
tion in section 1, the classical theory and the application to the German banking sector is done
in section 2. In this section, the theoretical status quo of the bank evaluation is presented. Af-
ter that, a representative survey in the German banking sector is described and structured in
section 3. The quality of shareholder value management is analyzed. Further, the status quo
regarding the use and acceptance of corporate evaluation is analyzed. Section 4 develops a
new model of corporate evaluation. Its usage is discussed when valuing German banks in sec-
tion 5 – according to data resulting from the survey in section 3. Section 6 summarizes the
main results, draws conclusions and offers general hints for the German banking sector.
28
Author’s own figure. Certainly, literature as secondary research is used in every section. This figure visual-
izes the mainly used sources.
2.1 Motivations for a Corporate Evaluation 5
2 Theoretical Status Quo of Corporate Evaluation
2.1 Motivations for a Corporate Evaluation
2.1.1 Reasons for a Corporate Evaluation
Corporate Evaluation has its origin in different reasons. Shareholder value management29 has
become more and more popular30 and the number of corporate transactions has increased dur-
ing the last years31. The problem is that most of the transactions have been too expensive32.
Hence, the evaluation of the right corporate value with the right approach for the right pur-
pose33 has become very important recently.
The motivations for a corporate evaluation can be classified in different ways. Life cycle of a
company, obligation to do a corporate evaluation (duty by law, duty by contract or voluntar-
ily) and can be mentioned34.
A first famous way to distinguish the reasons in literature is the change of property. Reasons
for corporate evaluation are divided into those which lead to different property circumstances
in the end and into those that do not lead to different property conditions35.
A second way is to differentiate reasons with respect to the dependency of the decision mak-
ers. This is nearly similar to the obligation criteria mentioned above. Some reasons can be
determined by the valuator, some not – the company has the obligation to quantify its own
value.36.
Combining these two aspects leads to table 2:
29
For corporate management based on the shareholder value concept cf. Lass (2004), pp. 15.
30
Cf. Rappaport (1986); Drukarczyk (1996), p. 1; Copeland/Koller/Murrin (2002), p. 28 and Kuhner/Maltry
(2006), p. 8.
31
Cf. Drukarczyk (1996), p. 1.
32
Cf. Porter (1987), pp. 43 – 89.
33
Cf. Ballwieser (2004), p. 1.
34
Cf. Peemöller (2005), p. 17.
35
Cf. Sieben (1993), column 4320 and Mandl/Rabel (1997), pp. 12.
36
This does not fit to Drukarczyks definition of domination – this is only a sub-category of the main category
changing property. Cf. Drukarczyk (1996), p. 89.
6 2 Theoretical Status Quo of Corporate Evaluation
Change of property No change of property

x Purchase or sale of companies or share of a x A company that has to be sold has to evalu-
company, business units, product groups, ate its own value
trademarks x Shareholder value based management
x Voluntary mergers, divestitures of compa- x Turnarounds
Depending nies x Risk/return controlling
on a deci- x A new partner is joining an existing com-
sion pany
x Going public
x One partner leaves the company
x Compensation payment quantification for
several property changes
x Rehabilitation/redevelopment
x Capital participation of employees
x All evaluations during the insolvency pro- x Goodwill-Impairment-Test according to
ceedings 37 38
IAS /IFRS and US-GAAP
x Retirement of a partner by cancellation x Calculation of the tax basis
x Disqualification of a “annoying” partner x Credit assessments and ratings
Not de- x Calculation of compensatory payments x Balance Sheet aspects
pending on x Expropriation x Turnarounds
a decision x Squeeze out
With restrictions
x Divorce
x Inheritance problem
Table 2: Motivation for a corporate evaluation39
In addition to that, Born mentions some reasons especially for the evaluation of the own com-
pany or a business unit. The evaluation could be used for the comparison of different strategic
concepts with the current one and for the calculation of synergy effects in the own company
when buying another. Further, the intended foundation of a joint venture or the performance
assessment of the management has to be mentioned.40
2.1.2 The Difference between Price and Value
The objective of a corporate evaluation is to find the value of a company. It has always to be
distinguished carefully between price and value of a company41. The value of an object al-
ways depends on the occasion and context of evaluation42, while the price is an amount which
has to be paid for this object43. Usually, the value of an object, which is also called “inner
37
Abbreviation for International Accounting Standard(s).
38
Abbreviation for International Financial Reporting System(s).
39
Author’s own table referring to Bellinger/Vahl (1992), p. 31; Drukarczyk (1996), p. 89; Born (2003), pp. 1
and Kuhner/Maltry (2006), pp. 8.
40
Cf. Born (2003), pp. 2.
41
Cf. Korth (1992), p. 2 and Picot/Jansen (1999), p. K 3.
42
Cf. Richter (1942), p. 106 and Winckelmann (1953), p. 181.
43
Cf. Tichy (1992), p. 334.
2.1 Motivations for a Corporate Evaluation 7
value”44, could be calculated in an analytical way from the object’s potential of performance
or output. In comparison to that a price will always be determined in the market by the law of
supply and demand45. On both sides, there are different expectations influencing the price. On
the one hand, a seller wants to maximise his assets, he will try to get the highest possible price
for the object for example by evaluating the potential of synergies as very high. On the other
hand, the buyer is keen on paying a possibly low price for the object. His arguments will be
that the value of synergies is not that high, and he will additionally ask for a risk discount on
the price.46 In this context a differentiation of objective and subjective company values has to
be made47.
The objective value is the value of the company as defined by analysing the current situation
of the company. This leads to the value the company is worth for the owner. Such a value
depends on the structure of the industry, the strategic and operative abilities of the manage-
ment.48
A subjective value depends on the benefit, which may result from a change in conception of
the company49. Such a benefit may be determined by the buyer’s strategy of acquisition, be-
cause he may have other intentions with the company’s development, or he may have calcu-
lated other synergies. Therefore he attaches another value to the company than the current
owner.50
This contradiction is summed up elegantly in the sentence of Warren Buffet “Price is what
you pay. Value is what you get51”. Price and even value differ from the purpose of evaluation,
as mentioned above.
2.1.3 Functions of Corporate Evaluation
Literature goes one step further. The more practical based approach to structure reasons for
corporate evaluation is renewed by the model of the functions of corporate evaluations52. This
model integrates the subjective and objective value and solves the contradictions53. This de-
44
Cf. Tichy (1992), p. 333.
45
Cf. Korth (1992), p. 4 and Funk (1995), p. 492.
46
Cf. Picot/Jansen (1999), p. K 3.
47
Cf. Viel/Bredt/Renard (1970), pp. 21; Göppl (1980), p. 238 and Gerling (1985), p. 16.
48
Cf. Coenenberg/Sautter (1988), p. 693 and Korth (1992), p. 2.
49
Cf. Korth (1992), p. 2.
50
Cf. Göppl (1980), p. 238.
51
Buffet (n.Y.).
52
Cf. Gerling (1985), p. 16 and Ballwieser (2004), p. 1. A short introduction is shown in Bartke (1978), pp.
238 – 250.
53
Cf. Gerling (1985), p. 16.
pendency between corporate value and function is accepted in literature nowadays54. The
main aspects are discussed in the current section.
Correct company values depend on the purposes and functions. Without fulfilling a function
the company has no value at all55. Literature offers five functions for corporate evaluation56
divided into main and sub functions57:
Function Description
x Development of a decision price.
1. Consulting x For buyer and seller.
function x Internal personal value for both parties.
Main functions58
x At this price, a buyer would buy and a seller would sell.

x Supporting arguments of some stakeholders.
x Not a “fair” or intrinsic” value.
2. Argumentation
x Rather a tactical value that differs from the consulting function
function
value – the buyer has a lower and the seller has a higher argumen-
tation function price.
3. Mediation x Price to solve conflicts.
function x Example: compensation payments.
4. Tax calculation x Evaluation of basic value for tax calculation.
Sub func-
function x Often only for parts of the company.

tions
x Based on balancing rules, book values have to be established.

5. Balance Sheet
x Value of equity is the resulting difference between assets and li-
function
abilities.
Table 3: Functions for corporate evaluations59
These rather classical functions are extended and changed by Coenenberg/Schultze60. They
define 5 functions as well but these functions differ from those in table 3. While an equivalent
for function 1 and 2 exist, the function 3 (balance sheet) is extended to a value-oriented con-
trolling function. Further a capital market evaluation function and a fair value reporting func-
tion are added61. This follows the current trend that a value-oriented controlling or a share-
holder value or wealth oriented management needs the corporate value as a core variable to
manage the company.
54
Cf. Coenenberg/Schultze (2002), p. 599.
55
56
Cf. Gerling (1985), pp. 17 and Ballwieser (2004), pp. 3.
57
Cf. Sieben (1977), pp. 28 – 30; Moxter (1983), pp. 9 – 22 and Mandl/Rabel (1997), pp. 15 – 17 and IDW
(2002), pp. 10.
58
Cf. Kuhner/Maltry (2006), p. 57.
59
Author’s own table referring to Gerling (1985), pp. 17; Künnemann (1985), pp. 32 and Ballwieser (2004), p.
1.
60
Cf. Coenenberg/Schultze (2002), p. 599 and Schultze (2003a), p. 10.
61
2.2 Methods of General Corporate Evaluation 9
By defining several functions of corporate evaluation, the argumentation according to a

unique corporate value differs. As every function has several motivations, the company value
must differ in order to fulfil the right function. A company can have more than one “right”
value. It depends on the function vice-versa.
2.2 Methods of General Corporate Evaluation
Several approaches to define the value of a company can be found in literature. They differ
regarding the time they were evaluated as well as regarding the assumptions they make. The
higher the number of the approaches is, the higher is the number of special cases and the pos-
sibilities to structure the methods of corporate evaluation.
Drukarczyk offers one chapter of corporate evaluation62 in which he differs the earnings
value method from discounted cash flow methods and structures those into entity, equity and
APV63 approach64. Reproduction or liquidation methods, multiplier methods or real option
approach are not presented65.
Ballwieser offers a holistic structure of corporate evaluation methods. Separate evaluation

methods, global evaluation methods, mixtures of both and multiplier approaches are men-
tioned66. The DCF67 are structured into APV, FCF68, TCF69 and FTE70 in the table of content.
Chapter 5 on the other side offers a more structured overview according to the DCF meth-
ods71.
Kuhner/Maltry do not structure all approaches consequently in the content table72, but they
give a main structure in section 2 similar to Ballwieser73. Nevertheless, they differ in some
aspects. Their structure of the DCF approaches leads to a difference compared with Dru-
karczyk and Ballwieser – the APV is a sub-section of the entity approach74. Further, TCF and
FCF approaches exist beneath the APV approach. All three build the entity approaches that
exist beneath the equity approach.
62
Cf. Drukarczyk (1996), chapter 5, pp. 87 – 267.
63
Abbreviation for Adjusted Present Value.
64
65
Cf. Drukarczyk (1996), chapter 5, pp. 87 – 267.
66
Definition follows. Cf. section 2.2.3 and 2.2.4.
67
Abbreviation for Discounted Cash Flow.
68
Abbreviation for Free Cash Flow.
69
Abbreviation for Total Cash Flow.
70
Abbreviation for Flow To Equity.
71
72
They structure the topic into 2 sections. Cf. Kuhner/Maltry (2006), p. VIII – X.
73
74
Classical Approaches
Separate eva-
luation Reproduc-
methods tion value
Liquidation
value
Earnings
value
Discounted Equity
cash flow Approach
Global evalua- APV

tion methods
Entity
Approach Free Cash
Flow
WACC
Modern Approaches
Real Total Cash
Options Flow
Average Residual
Income method
method
Mixtures
Additional Stuttgarter
profit approach
Real prices Fictitve prices

same company same company
Simplified
approaches Real price Fictive price
Comparable Comparable
companies companies
Figure 2: Main structure of corporate evaluation approaches75
As the main structure of Ballwieser is common content in literature76, figure 2 is based on his
main assumptions and implements aspects of Drukarczyk and Kuhner/Maltry. However, some
extensions are done. Due to the fact that some authors do not discuss classical and modern
approaches together in one chapter77, this is chosen to be an additional criterion to distinguish
the approaches. Further, the market value based on the share price analysis and the real option
75
Author’s own figure referring to the sources mentioned above, but especially referring to Ballwieser (2004),
p. 8, p. 111, p. 184, p. 190 and Schierenbeck (1998), p. 388.
76
Cf. Mandl/Rabel (1997), p. 30; Drukarczyk (2003), p. 131 and Ballwieser (2004), p. 11.
77
Schierenbeck for example chooses this procedure. Cf. Schierenbeck (1998), p. 388.
approach are inserted into the figure. In contrast to Schierenbeck, the mixture methods are
treated as modern approaches78. As they combine modern and classical aspects with focus on
the modern aspects, they are rather modern than classical.
Separate evaluation methods quantify the value of the company by adding the value of the
company’s parts79 while global evaluation methods seek to evaluate the company as a whole80
by considering future’s income81 and efforts82. Mixtures combine these two basic criteria.
Simplified approaches seek to get a price for the company by comparing it to the market or to
other companies83.
Figure 2 is more detailed than the illustrations in existing literature. As a consequence, the
real option approach is inserted into the DCF-sector, the simplified approaches are distin-
guished into four aspects and the DCF entity/equity structuring approach combines Ballwie-
ser84 and Kuhner/Maltry85.
Even though this structure represents the status quo of modern literature, some aspects are
still under discussion. Personal taxes are not always considered in literature86 and the substan-
tial value87 is often set similar to the liquidation value88. This is wrong as the main assumption
of the liquidation approach is the winding up of the company89. A typical example for another
structure is given by Schultze. He defines several other global evaluation models. He offers a
structure with the main sectors DDM90, DCF, earnings value and RIM91. Differing between
dividends to discount and earnings to discount92 shows no real difference – defining the divi-
dends as earnings solves this classification problem93. The RIM is based on the book value of
the equity and compares expected earnings with the equity yield.94 It can be defined as a mix-
ture approach, a specialisation of an additional profit approach95. It is not an origin global
evaluation model96.
78
Cf. Schierenbeck (1998), p. 388.
79
80
Cf. Moxter (1977), p. 254.
81
Cash flows or earnings.
82
83
Cf. Ballwieser (2004), p. 8 and Kuhner/Maltry (2006), p. 52.
84
85
Cf. Kuhner/Maltry (2006), p. XI.
86
87
Another definition for reproduction value.
88
Cf. OLG Düsseldorf (2003), p. 691 and OLG Düsseldorf (2004), p. 327.
89
90
Abbreviation for Dividend Discount Model.
91
Abbreviation for Residual Income Method.
92
Cf. Schultze (2003a), pp. 75.
93
94
Cf. Schultze (2003a), pp. 111.
95
Argued in Ewert/Wagenhofer (2000), pp. 10.
96
In the following sections, all presented approaches as outlined and structured in figure 2 will
be dealt with in more depth. The structure of section 2.2 follows the structure of the figure
accordingly.
2.2.1 Separate Evaluation Methods
The separate evaluation principle is regulated by German law97. By summarizing each part of
a company’s net assets stated in the balance sheet and by deducting all debts, the substance
value or net asset value of a company could be calculated98. In general, reproduction and liq-
uidation approach can be distinguished.99 These two approaches differ from each other.
2.2.1.1 Reproduction Value Method
The reproduction value method assumes the asset-identical reproduction of the company100.
Therefore the expenditure at replacement asset values should determine the value of a com-
pany’s substance. Thus it is a synthetic value as only a fictitious selling and new building up
is assumed101. Depending on the assumptions especially according to immaterial assets sev-
eral different sub approaches can be defined102. They are not discussed here in detail. The
reproduction approach has the advantage that the asset’s value does not depend on intranspar-
ent assumptions103. Therefore it is often used for the purpose of tax evaluation, credit security
and donations104. The tax function and the balance sheet function can be fulfilled by this ap-
proach. For decisions, however, it does not offer the right information for the management.
2.2.1.2 Liquidation Value Method
Contrariwise to this, the liquidation value method does not assume the principle of going con-
cern, but a sale of company’s assets105 in case of liquidation106. According to this method, the
asset value in the case of selling each single part will be evaluated. This gross value will be
reduced by the debts of the company and maybe reduced by the costs for liquidation107. Prob-
97
Cf. § 252 (1) No. 3 HGB (“Einzelbewertungsverfahren”). HGB stands for Handelsgesetzbuch.
98
99
100
101
102
Cf. Sieben/Maltry (2002), p. 379.
103
Cf. IDW (2002), A 401.
104
Cf. Sieben (1992) and Kuhner/Maltry (2006), p. 43.
105
Cf. Mandl/Rabel (2002), pp. 80.
106
107
Cf. Jung (1983), p. 209 and Moxter (1983), p. 41.
lems will occur, if parts of the company cannot be sold, because a market does not exist. An
optimal liquidation period and the liquidation intensity, defined as the granularity of objects to
sell, is very important108. This approach will only become interesting, if other approaches lead
to a lower value than the liquidation approach. Normally, it is a kind of value floor for all
other approaches, as the owner can decide to not to discontinue the company109.
Nevertheless, the value calculated by liquidation or reproduction method does not correspond
to the “real” value of the company110. The intangible assets111 like human capital, customer
relationships or organizational excellence could not be found in the balance sheet and, there-
fore, are not considered in the calculation. Further, all future expected earnings and growth
possibilities are not considered as well. Especially in the case of a strong growing and knowl-
edge intensive company these methods would lead to an undervaluation of the company.112
However, a seller could understand the calculated values as minimum price for his company,
if instead of a sale only a liquidation is possible, while the buyer could see it as risk limit, if
an acquisition did not seem to be successful.
2.2.2 Global Evaluation Methods
As mentioned before a company could be more or less worth than the sum of its parts or its
assets113. Therefore the value of the company should not be measured by the single assets.
The whole company’s potential in future is more important114. The central idea is to consider
a company as an investment115, so that present value approaches can be used. Before present-
ing the approaches some basic definitions are needed.
In all kinds of present value approaches, the discounting rate is crucial. A differentiation into
equity yield and debt yield is useful116, as the risk differs between a shareholder and a bank117.
Risk can be implemented in two ways: decreasing the returns118 or increasing the discounting
factor119. In this section, only the adjustments of the risk premium but not the evaluation of
108
Cf. Bellinger/Vahl (1992), p. 25; Moxter (1976), pp. 50 and Kuhner/Maltry (2006), p. 42.
109
Cf. Sieben/Maltry (2002), p. 397.
110
Assuming that at least one real value exists.
111
For a short introduction into this topic cf. Hopfenbeck (1989), pp. 207.
112
113
114
115
116
Cf. Copeland/Koller/Murrin (2002), p. 17.
117
118
Cf. Gerling (1985), pp. 248; Drukarczyk (1996), pp. 96; Ballwieser (2004), p. 66, p. 89 and IDW (2005), p.
1312.
119
Cf. IDW (2005), p. 1320 and Kuhner/Maltry (2006), p. 49.
risk adjusted cash flows is analyzed. For the banking sector, special models that reduce the
earnings will be used, so that the methods to adjust earnings will be discussed later on120.
Taking this into consideration, the discounting yield has to follow several equivalency princi-
ples121 and can be distinguished into several parts122. These criteria are combined in the fol-
lowing table. Further, hints are given how these parts can be filled.
Equity yield Debt yield
Currency Normally € Normally €, depending on the debt struc-

ture.
10 years or even longer, as equity has no Depending on the individual liability
Maturity maturity at all. structure of the bank loans and emis-
sions.
Equity risk can be defined by the Inherent in the offered rate. It covers
Risk CAPM123 or other approaches124, as the bank’s credit risk in form of expected
spread125 or individual models126, which and (partly) unexpected losses127.
partly extend the CAPM.
Table 4: Parts of the discounting rate128
The currency should be the same as the opportunity the investor has129. A German investor
would prefer a German yield curve. Problems will only occur, if complex situations exist. For
example, if an American subsidiary of a German company buys a Mexican company. A cal-
culation in Peso, Euro or Dollar is possible130.
The maturity aspect is more difficult to handle. Discussing the debt yield leads to easy results:
the offered rate by the bank has to be used131. Only if these rates are not available, for exam-
ple when discounting pension reserves, a maturity conform market yield has to be used132. But
analyzing the equity yield leads to other results. As the earnings or returns of the company are
estimated for eternity, an eternal yield has to be chosen133. However, an eternal yield does not
120
Cf. section 2.3 and section 4.
121
Cf. Moxter (1983), pp. 155 – 202.
122
123
Abbreviation for Capital Asset Pricing Model.
124
The model itself will be explained later on.
125
For a distinguishing of the spread to other risks cf. Wiedemann/Hager (2002), pp. 3. A short definition can
be found in Harter/Franke/Hogrefe/Seger (2002), p. 143.
126
A stochastic analysis is done in Schwetzler (2000), pp. 478.
127
For these definitions cf. Rolfes (1999), pp. 332.
128
Author’s own table referring to Ballwieser (2004), p. 82 and Kuhner/Maltry (2006), pp. 84.
129
Cf. Ballwieser (2004), pp. 82.
130
Cf. Kengelbach (2000), pp. 175 – 179.
131
Cf. Copeland/Koller/Murrin (2002), pp. 259 and IDW (2005), p. 1316.
132
Cf. IDW (2005), p. 1316.
133
exist. So the longest available yield, normally a 10-15 year yield, is used134. This is common
usage in literature.
But the question, if the yield of the evaluation date135, a sustainable average136 or a future ex-
pected yield137 has to be chosen is not finally solved138. The author follows the suggestion of
Drukarczyk and the IDW139 to choose a maturity equivalent140. But in contrast to the IDW,
just following Drukarczyk, spot rates transformed into zero bond yields141 shall be used. This
might be argued as follows: if a corporate evaluation takes place, the value at a certain mo-
ment shall be evaluated. Therefore the spot rates have to be used. Analyzing the argumenta-
tion of the IDW leads to the following results. On the one hand, the IDW agrees that a corpo-
rate evaluation is a fixture of a moment, as the returns are moment-dependant142. On the other
hand it states that the long-lasting average shall be used143. This is a contradiction in itself, so
that Drukarczyk’s argumentation is the more consistent one.
Despite these argumentations, the sustainable average of a yield was preferred in practice144.
Nevertheless, legal acceptation demands other results again145. Sometimes a fix yield is used,
nearly without connection to the capital market. Further some authors want to implement an
inflation discount in order to define real instead of nominal discount rates. But in this case
even the returns have to be calculated on a real instead of a nominal basis146. As a conse-
quence, both approaches lead to the same result147. Summing up these facts leads to the fol-
lowing result: Even though the best way is to use actual spot rates, other methods are used in
practice and the approaches accepted by law often differ from both. The author follows Dru-
karczyk’s argumentation.
As the last factor to discuss, the risk premium offers various possibilities. With respect to the
debt yield, the answer is clear. The conditions offered by banks or the yields of the emissions
134
135
Cf. Matschke (1979), pp. 215.
136
Cf. Widmann/Schieszl/Jeromin (2003), p. 800, p. 803 and IDW (2005), p. 1315.
137
Cf. Hetzel (1988), pp. 725 and Piltz (1994), p. 173.
138
139
Abbreviation for Institut der Wirtschaftsprüfer.
140
With respect to the maturity cf. IDW (2005), p. 1315.
141
142
Cf. IDW (2005), p. 1306.
143
Cf. IDW (2005), p. 1315.
144
For the history of jurisdiction cf. Moxter (1983), p. 146; Hackmann (1987), pp. 105 and IDW (1992), p. 94.
Actual jurisdiction can be found in Ballwieser (2004), p. 87, pp. 105 – 107.
145
Cf. Drukarczyk (1996), pp. 244 and Ballwieser (2004), pp. 104.
146
147
Cf. Schildbach (1977); Moxter (1983), p. 192; Ballwieser (1988), pp. 800 – 802 and Ballwieser (2004), p.
88.
have an inherent risk-equivalent spread. The better the solvency of a creditor is, the lower the
expected default rate is148. The spread, defined as the risk premium, becomes lower as well.149
Discussing the equity yield leads to more differences in the evaluation of the discounting rate.
The most common and accepted approach is the CAPM150 or Tax-CAPM151. This model was
developed by Sharpe152, Lintner153, Mossin154 and Traynor155, based on Markowitz156’ portfo-
lio theory157. Only a short introduction into this model is given in this dissertation158. The
CAPM states on the one hand that every investor has the same expectations of risk and return.
On the other hand, it assumes the existence of a risk free rate of return.159 In an efficient mar-
ket, the expected risk premium varies proportionally to the accepted risk, because an unsys-
tematic risk could be avoided by diversification160, and a systematic risk usually is connected
with movements of the whole market portfolio. Consequently, the following figure can be set
up:
148
Cf. Standard & Poor’s (2006).
149
Empirically proven in Reuse (2003.12), p. 17.
150
Cf.Brealey/Myers (1996), pp. 180;Copeland/Koller/Murrin (2002), pp. 264 and IDW (2005), pp. 1320.
151
Cf. Jonas/Löffler/Wiese (2004), pp. 898.
152
Cf. Sharpe (1964), pp. 425 – 442.
153
Cf. Lintner (1965), pp. 13 – 37.
154
Cf. Mossin (1996), pp. 768 – 783.
155
Traynor’s article has not been published. Cf. Brealey/Myers (1996), pp. 180.
156
Cf. Markowitz (1952).
157
Cf. Brealey/Myers (1996), pp. 180.
158
Following the structure of several other approaches. Cf. Drukarczyk (1996), p. 179; Copeland/Koller/Murrin
(2002), p. 265 and IDW (2005), p. 1320.
159
Cf. Wöhe (1996), p. 911.
160
Cf. Copeland/Koller/Murrin (2002), pp. 265.
yield
i share E share u (im irf ) irf Capital market line
with: i = yield of a certain investment

irf = risk free rate
m = market
ß = beta factor Share A
market portfolio
ym
Share A
rf
0 1 1,5 2 Beta (ȕ)

Vmarket Vshare volatility (V)
Figure 3: Graphical visualization of the CAPM161
Regarding this figure and the equation, the expected risk premium on a stock corresponds to
the expected risk premium of the market162 multiplied with the beta factor163. This factor
measures the sensitivity between the movement of a share and the movement of the whole
market164. The beta factor for the whole market is 1, as the risk premium is the same on both
sides165. If the beta factor is higher than 1, the expected risk premium for the share is higher
than the market average166. This corresponds to a higher volatility as well167. The beta factor
can be evaluated by historical correlation analysis of the volatility168 of a certain industrial
sector compared with the index volatility of land169 or by serious estimations170.
161
Author’s own figure referring to Brealey/Myers (1996), p. 180; Copeland/Koller/Murrin (2002), p. 265 and
IDW (2005), p. 1321. Assumption: linear efficiency line.
162
Defined as (im – irf).
163
Cf. Schierenbeck (1998), p. 382 and Copeland/Koller/Murrin (2002), pp. 265.
164
Cf. Brealey/Myers (1996), pp. 180.
165
166
167
For the definitions of volatility and standard deviation cf. Brealey/Myers (1996), pp. 650; Perriod/Steiner
(1997), pp. 326 and Harter/Franke/Hogrefe/Seger (2002), p. 155.
168
If a diagram is setup that shows the volatilities of the market on the x-axis and the volatility of the market on
the y-axis, the beta is the ascent factor of the regression line of market risk and individual portfolio risk. Cf.
Sharpe (1970), p. 91 and Schmidt/Terberger (1997), p. 357.
169
Cf. Kuhner/Maltry (2006), p. 167. This index represents the market yield. Cf. Brealey/Myers (1996), pp.
181.
170
In the example explained above, the share is an inefficient market position, as other positions
exist that offer a better return at the same risk. All these efficient portfolios lay one the capital
market line. So the expectations of the investor will be that the share reduces its risk or in-
creases its expected return. In a corporate evaluation scenario, the risk is given, so the expec-
tations according to the yield will increase. This has a direct influence on the resulting risk
premium.
Despite its availability, the CAPM is not necessarily the best model171, as it is eyed criti-
cally.172 Even though the model is quite simple173, empirical analysis has shown that betas can
be instable174 and that the model leads to contradictory results175. Nevertheless, the usage of
this model is the only option a valuator has. The author will use this model as well – but it has
to be emphasized that some extensions and the new bank-individual evaluation model will
prevent the usage of CAPM in several situations176.
Adding the risk premium to the risk free ratio leads to the equity yield to discount the returns
with. The exact definition of the return and the related usage of the discounting factor led to
the global evaluation methods structured above177. The following sections discuss these ap-
proaches.
2.2.2.1 Earnings Value Method
The earnings value method178 calculates the company’s value by capitalizing selected earn-
ings and expenditures179 with the formula of an eternal annuity180.
n
net return n
CV ¦ 1 1 i
n
with:
i = interest rate
CV = Corporate value
n = number of periods
Equation 1: The earnings value approach181
171
172
Cf. for example Ossadnik (1984), pp. 217 and Kruschwitz/Löffler (1997).
173
174
175
Cf. Black/Jensen/Scholes (1972); Fama/MacBeth (1973); Banz (1981); Lakonishok/Shapiro (1986); Bhan-
dari (1988); Fama/French (1992) and Black (1993).
176
Cf. sections 4 and 5.
177
Cf. figure 2.
178
Popular in Germany, but not in the USA, cf. Drukarczyk (1996), p. 209.
179
Cf. Mellerowicz (1952), p. 17.
180
Cf. Jung (1983), p. 207 and Korth (1992), p. 4.
181
The capitalization is necessary, as earnings will be worth less, if they are generated in the far
future182. Usually, these earnings could be either determined by extrapolating the past183 and
current earnings and by correcting them for extraordinary effects184, or by taking them for
example from a ten years budget.185 The returns that have to be discounted are net returns186
as personal taxes of the owner and capital inserts have to be deducted187.
The calculation of the earnings value leads to some difficulties188. Kuhner/Maltry state three
problems189 as shown in the following table:
Problem Description
Company’s earnings expectations are influenced by general economical risks, the
Prognosis dependence on business cycles, the competition in the market, but also by specific
problem company risks. Usually, such risks could only be determined in a subjective
way190. However, by discounting them they will be partly equalized.191
Strategy Strategy determines the returns of the future. A simple interpolation of past returns
problem192 does not lead to the right results. Transforming strategy into returns is difficult.
The main problem is the quantification of risk and transferring it into a suitable
risk premium for the discounting rate193. For the discounting a cost of capital rate
is used, which corresponds to the individual yield expectation of the investor. Such
a rate will be determined by the yield expectations of alternative investments like
Capitalization
long term bonds. Consequently a comparison of the expected earnings of the com-
problem pany with those from alternative investments has to be done. Additionally com-
pany’s risk has to be considered, as it is not included in the basic capital rate.
Therefore it has to be settled by a risk premium as well as probably an inflation
premium194.
Table 5: Problems of the earnings value method195
The resulting present value should be higher than the liquidation or reproduction value196. It is
closer to the corporate value expectations of a seller or buyer. Hence, the consulting func-
tion197 is fulfilled. Further, mediation and argumentation function fit to the earnings value
182
183
184
Cf. Bellinger/Vahl (1992), pp. 145.
185
Cf. Fischer (1989), p. 93 and Beisel/Klumpp (1991), p. 33.
186
Cf. Mandl/Rabel (1997), p. 113.
187
Cf. Ballwieser (2004), p. 13 and IDW (2005), p. 1306.
188
189
190
For a detailed analysis of this problem cf. Bretzke (1975).
191
Cf. Göppl (1980), p. 238; Jung (1983), p. 495 and Korth (1992), p. 14.
192
Ballwieser combines the first two aspects. Cf. Ballwieser (2004), p. 14.
193
Cf. Coenenberg/Sautter (1988), p. 703.
194
Cf. Jung (1983), p. 207; Moxter (1983), p. 193 and Korth (1992), p. 11. The inflation problem has been
discussed above.
195
Author’s own table referring to Kuhner/Maltry (2006), p. 49.
196
197
Cf. section 2.1.3.
method as well198. The earnings value and the DCF approach are the only global evaluation
methods the IDW accepts as an official approach in Germany199.
The equity yield evaluated by CAPM can be used to discount the earnings200, but the explicit
usage of the CAPM is not mentioned at all201. CAPM normally belongs to DCF ap-
proaches202. So how shall the risk premium for the earnings value method be evaluated? Lit-
erature does not offer a consistent solution. As mentioned in the table above, security dis-
counts203 derived from the personal usage function204 are often used205. They generate the
present value by adjusting the risk free rate in relation to this usage function. Reducing the
returns respectively the expected values206 must lead to the same result207. This is why these
returns can be transferred into a risk premium and vice-versa. Further several ex-ante ap-
proaches to calculate the equity yield exist 208. Their usage has to be eyed critically209.
The earnings value approach has several inherent problems. First, the quantification of the
earnings that can be paid out to the owner is very difficult to justify210. Further the discount-
ing yield is not discussed consistently in literature. This leads to problems concerning the as-
sumptions and the resulting corporate value.
2.2.2.2 Discounted Cash Flow Methods
The discounted cash flow methods were developed in order to solve the conception problems
of the earnings value method. One of the major weaknesses of the earnings value approach is
the question which earnings can be paid out to the shareholders. Even though the exact
evaluation of payable returns in an earnings value method is possible, it is very difficult in
practice211.
198
199
Cf. Ballwieser (2004), p. 110; IDW (2005), p. 1313 and Eisenmann/Höfele (n.Y.), p. 4.
200
Cf. IDW (2005), p. 1315.
201
Cf. Ballwieser (2004), p. 111. Further, Ballwieser explains the CAPM under the structure of earnings value
approaches. Cf. Ballwieser (2004), p. 92.
202
Cf. Drukarczyk (1996), p. 179; Schierenbeck (1998), p. 390; Ballwieser (2004), p. 111 and Kuhner/Maltry
(2006), pp. 127 – 176, p. 197;
203
204
Cf. Neumann/Morgenstern (1944).
205
206
207
208
Cf. Claus/Thomas (2001); Gebhardt/Lee/Swaminathan (2001); Gode/Mohanram (2002) and Daske/ Geb-
hardt/Klein (2004).
209
210
Cf. Drukarczyk (1996), pp. 103 – 123.
211
This is solved elegantly by using the cash flow approach212. The corporate value is also calcu-
lated as a present value. The calculation however is not based on the future profits, but on the
cash flows213 generated in future214. These cash flows are discounted by a risk adjusted inter-
est rate.215 The bounds between DCF and earnings value method may be fluent, as both are
based on discounted returns216. Therefore the DCF method could be seen as a special and
more future oriented version of the earnings value method217.
As earnings value approach, entity and equity approaches show different assumptions related
to the discounting rate, the cash flow differs, too. A cash flow is defined as the internal fi-
nancing power of a company218. It contains all earnings and expenditures that leads to a cash
transfer as well. The classical way to develop this is as follows: adjust the annual surplus219
with earnings that are no cash inflow and expenditures that are no cash outflow220. Its evalua-
tion for the purpose of balance sheet analysis leads to three different cash flow definitions221.
For the purpose of corporate evaluation, however, a different method has to be chosen. The
cash flow that has to be derived has to be adjusted by several aspects222. It has to be kept in
mind that every DCF approach requires its own cash flow223. The following table visualizes
which cash flow has to be used for which approach. Further a differentiation into the opera-
tive and non operative return is given224.
212
213
Defined as free cash flows.
214
215
216
Cf. Funk (1995), p. 495.
217
Cf. Börsig (1993), p. 84 and Steinöcker (1993), p. 87.
218
219
220
Structured in Buchner (1981), pp. 78 and Richard/Mühlmeyer/Bergmann (1996), p. 382.
221
222
223
224
Useful for the earnings value approach, cf. section 2.2.2.1.
Component Used for

Annual surplus + Cash inflow of normal
– Earnings from shares operating
– Extraordinary income
– Cash outflow of normal
+ Non earning-relevant taxes
operating incl. taxes
= Operative/sustainable earning after taxes Earnings value approach
+ Depreciation225
+ Interest payments
+ Earning relevant taxes
= EBITDA226
– Taxes at fictitious self financing
+ Changing of accruals
= gross cash flow / operating cash flow
– Extension investments
+ Disinvestments
–/+ Changing of working capital
= Free cash flow (FCF) WACC FCF & APV
+ Tax shield
= Total cash flow (TCF) WACC TCF
– Interest payments227
– Redemption payments
+ New loans
– Other claims
= Flow to equity (FTE) Equity Approach
228
Table 6: Differentiation of cash flows
These cash flows are used in several models. As the cash flow differs, the discounting rate
differs as well229. But in total, however, the results of the usage of all three approaches have to
be the same230 – if consistent assumptions are used231. The exact definition of the cash flow
and the discounting rate are based on several assumptions. They will be presented in the fol-
lowing section.
2.2.2.2.1 Equity Approach
As mentioned above, the DCF methods could be divided into an equity approach and entity
approaches232. The equity approach calculates the corporate value by using the expected cash
225
Not including value corrections for financial assets. Cf. Copeland/Koller/Murrin (2002), p. 18.
226
Abbreviation for Earnings Before Interest, Taxes, Depreciation and Amortization.
227
Defined as flow to debt. Cf. Casey (2003), p. 14.
228
Author’s own table referring to Fischer (1999), p. 29; Copeland/Koller/Murrin (2002), p. 18; Casey (2003),
p. 14; Ballwieser (2004), p. 112; IDW (2005), p. 1316 and Kuhner/Maltry (2006), p. 196.
229
230
Cf. Breuer (2001), pp. 1511. He compares equity, entity and APV approaches.
231
Cf. Drukarczyk (1996), p. 142 and Eisenmann/Höfele (n.Y.), p. 6.
232
Given in Schierenbeck (1998), p. 390 and Ballwieser (2004), p. 111.
flows as given by the FTE and discounting them by the cost of equity capital, as defined
above233. The formula can be set up as follows:
n
FTE n
CV ¦ 1 i
1
n
with:
i = interest rate, equity yield per CAPM
FTE = Cash flows as per flow to equity
n = number of periods
CV = corporate value
Equation 2: The equity approach234
The value of debt must not be discounted – this is inherently done by implementing interest
payments235.
On the one hand several authors state that earnings value approach and equity approach will
lead to the same results, if the same assumptions and related yields are used236. On the other
hand the usage of the CAPM is only demanded in a clear way when discussing the equity ap-
proach237. Even Drukarczyk offers inconsistent argumentations: At first he states that earnings
value approach and equity approach differ according to the risk equivalent rate238, secondly he
states the identity of both approaches239. The result is that these approaches are identical in
theory only – in practice, they will differ.
All DCF methods have the same disadvantages as the earnings value approach. The definition
of the terminal value is the most sensible value driver240. Not all the problems concerning
constant growing earnings241 or full payout situations242 can be solved in theory or practice.
Even though the equity approach seems to be simple, it is only rarely used in practice243. On
the one hand compared with the other DCF approaches, no advantages can be stated by Dru-
233
Cf. Drukarczyk (1996), p. 176 and Ballwieser (1998), p. 82.
234
235
236
For the equivalence of DCF and earnings value approaches cf. Schmidt (1995), pp. 1087; Sieben (1995), pp.
714; Drukarczyk (1996), p. 263; Jakubowicz (2000), pp. 191; Ballwieser (2004), p. 111, p. 169 and Ballwie-
ser (2005), pp. 365.
237
Cf. Drukarczyk (1996), p. 17; Schierenbeck (1998), p. 390; Ballwieser (2004), p. 111 and Kuhner/Maltry
(2006), pp. 127 – 176, p. 197.
238
239
240
Cf. Copeland/Koller/Murrin (2002), p. 325 and Ballwieser (2004), p. 65.
241
Cf. Aders/Schröder (2004).
242
Cf. Laitenberger/Tschöpel (2003).
243
karczyk244. The reason is the fictitious complete self-financing of the company. Only one re-
financing situation can be analyzed, the influence of the leverage effect is not discussable245.
On the other hand, according to Ballwieser, the equity approach is more suitable, as it does
not touch the question of financing, so that in a diversified company group, the cash flows
could be forecasted independently from the assumptions regarding a financing with debt or
equity capital.246
In the context of bank evaluation approaches the equity method will become more impor-
tant247. Even though authors of classical corporate evaluation consider this approach as not
optimal, it will be the only DCF approach that can be used for evaluating the value of a
bank248.
2.2.2.2.2 Entity Approach – WACC
The corporate evaluation following the entity approaches consist of two stages249. At first the
present value of the cash flows available for the shareholders and debt financiers is calcu-
lated250. In a second step the value of the debt capital will be deducted from the value of the
whole capital251. The difference should be the value of equity capital respectively the share-
holder value252. Because of this procedure the entity method is also called gross method in
German literature253. The idea is to separate the operating section from the (re)financing sec-
tion254.
From this it can be concluded that the forecasted earnings should serve the equity and debt
financiers. Only FCF and TCF fulfil these conditions255. Therefore the cost of capital should
also consider this mixture256. According to theory a weighted average cost of capital, the so-
called WACC, should be used for discounting257. Usually, a constant rate of debt financing
based on market conditions is assumed, which is determined by a defined target capital struc-
ture258. The yield expectation of debt financiers is usually known, as the effective costs have
244
245
Cf. Kuhner/Maltry (2006), pp. 197 – 198.
246
247
Cf. Sonntag (2001), p. 6.
248
249
250
251
Cf. Kuhner/Maltry (2006), pp. 198.
252
Cf. Drukarczyk (1996), p. 143; Ballwieser (1998), p. 84 and Steiner/Bruns (2000), p. 226.
253
Cf. for example Schierenbeck (1998), p. 390.
254
255
256
Cf. IDW (2005), p. 1313.
257
258
been negotiated. So only costs of equity capital have to be determined, which usually are es-
timated by using the CAPM259.
According to the cash flow to use, two classical WACC approaches260 exist261: The FCF and
the TCF approach262. The FCF is based on the wrong tax payments, as the possibility of de-
ducting interest payments in form of a so-called tax shield is not considered263. The cash
flows base on the assumption of a 100% self-financed company264. This “mistake” in the as-
sumptions is corrected by implementing the tax rate into the denominator265. The TCF elimi-
nates this mistake by using the right and adjusted taxes in the numerator266. The WACC does
not have to be adjusted; only interest payments before taxes are implemented267. These two
approaches are explained in the following table:
FCF approach TCF approach

Definition FCF, cash flow before interest payments TCF cash flow before interest payments
of cash flow and not including tax shield. but including tax shield.
Tax shield Denominator Numerator
FCF TCF
CV V debt CV V debt
Vequity V Vequity V
Definition i equity i debt (1 tr ) debt i equity i debt debt
of discount- V gross V gross V gross V gross
ing rate and with: CV = Corporate Value
formula268 i = interest rate
tr = tax rate
V = value
x Constant capital structure is not given x Inconsistent argumentation: a ficti-
in reality269. tious 100% self-financed company is
Critical combined with a tax shield270.
valuation x Constant capital structure is not given
in reality as well271.
x Not established in practice272.
Table 7: FCF vs273. TCF approach274
259
Cf. IDW (2005), p. 1316.
260
Without the APV approach. It is an entity approach, but not a WACC approach. Cf. Ballwieser (2004), p.
111.
261
262
Drukarczyk does not make this differentiation. Cf. Drukarczyk (1996), p. 143.
263
264
265
Cf. Drukarczyk (1996), p. 145. Implicitly, he uses the FCF approach.
266
267
268
Cf. Ballwieser (2004), p. 140, p. 166 and Kuhner/Maltry (2006), p. 203. Assumption: eternal cash flows.
269
Cf. Drukarczyk (1996), p. 155; Steiner/Bruns (2000), p. 226 and Ballwieser (2004), pp. 145 – 146.
270
Cf. Ballwieser (2004), pp. 168 – 169 and Kuhner/Maltry (2006), p. 198 – 200.
271
272
Cf. Ballwieser (2004), p. 169 and Kuhner/Maltry (2006), p. 199.
273
Abbreviation for versus.
274
Author’s own table referring to Copeland/Koller/Murrin (2002), p. 18; Ballwieser (2004), p. 140, p. 166 and
Kuhner/Maltry (2006), pp. 198 – 203.
The WACC is discussed critically in literature275. On the one hand the structure of debt is
considered in the model276. On the other hand this capital structure is fixed for eternity277. The
APV approach presented in the following section is often considered as the best entity ap-
proach, as it solves the problem of a constant capital structure278.
2.2.2.2.3 Entity Approach – APV
In the APV approach, the components of the corporate value are quantified separately279. The
FCF is used as well280. This is shown in the following equation.
CV CVno debts ts Vdebt

FCF
CV (1 tr ) Vdebt
iequity
with:
CV = corporate value
i = interest rate
ts = tax shield of debt
tr = tax rate
V = value
Equation 3: The APV approach281
At first, the market value of the whole capital is calculated, based on the assumption of a
complete internal financing282. Hence, the forecasted free cash flows will be discounted with
the cost of equity capital283. In addition, the net present value effect of debt financing would
be considered. It is caused by the tax-deductible interests for debt capital, the so-called tax
shield284. By deducting the net debts, the market value of equity capital could be deter-
mined285.
275
Cf. Drukarczyk (1996), pp. 144; Ballwieser (2004), pp. 145 – 146, pp. 175 – 176 and Kuhner/Maltry (2006),
pp. 198 – 200.
276
277
Cf. Steiner/Bruns (2000), p. 226.
278
279
280
281
Cf. Ballwieser (2004), p. 114 and Kuhner/Maltry (2006), p. 201. Assuming an eternal value.
282
283
284
Cf. Drukarczyk (1996), pp. 156 and Ballwieser (1998), p. 82.
285
The separation of the components that determine the corporate value is the advantage of the
APV 286. Varying capital structure can be modelled very easily287 and the tax shield is more
transparent288. If significant changes in the capital structure are probable, the APV method
shall be used289. Changes in capital structure have only an effect on the tax shield but not on
the discount rate. The complex calculation of a WACC does not have to be done any longer.
Even in those cases, the classical WACC approaches fail, the APV will work290. Further, mis-
takes cannot be made as easy as in the WACC approach291.
However, the APV model has some difficulties, in particular in the determination of the costs
for equity capital as well as in the adjustment of the interest rates for equity capital292. Equity
yields for a 100% self-financed company are not available293. They have to be reconstructed
manually294. In literature, an adjustment of the beta factors is mentioned295. This is shown in
the following equation:
ª debt º
E indebted E self financed «1 (1 tr) »
«¬ equityindebted company »¼
with:
tr = tax ratio
Equation 4: Beta transformation296
The beta of the indebted company can be evaluated by the market data, but therefore, the
value of the indebted company is required. This is an inconsistency so that in practice the ap-
proach can be difficult297.
Considering the main arguments, the APV is often viewed as the best entity approach298, as it
separates the components of corporate value and allows volatile capital structures299.
286
Cf. Drukarczyk (1996), pp. 156 and Kuhner/Maltry (2006), p. 201.
287
288
289
290
Cf. Luehrman (1997), p. 145. The advantages are attackable, as APV and WACC assume different financing
assumptions.
291
292
293
Cf. Miles/Ezzel (1980), p. 720.
294
Cf. Drukarczyk/Honold (1999), p. 343.
295
296
Cf. Copeland/Koller/Murrin (2002), p. 372 and Ballwieser (2004), pp. 129.
297
298
Cf. Drukarczyk (1996,) pp. 265.
299
All approaches of discounting returns must lead to the same result in the end, consuming con-
sistent assumptions.300 At first, following Copeland/Koller/Murrin, the equity approach and
entity approaches in general must lead to a similar value, as long as the cash flows are dis-
counted with the related risk-adjusted yield301. Further the earnings value method and DCF
approaches in general must lead to the same results, if the assumptions are set similarly302.
Finally, the WACC and the APV approaches303 must lead to the same results as well, if the
dependency between debt ratio and equity yield is set as constant304. All approaches show
equal results in theory accordingly305. But in reality this consistence is not given. Different
assumptions lead to different corporate values306.
2.2.2.2.4 Real Options Approach
The real option approach can be defined as an extension of existing DCF approaches307. The
disadvantage of the DCF approaches is that they assume a rigid continuation of the current
situation308. The implicit value of existing alternatives to act is not quantified at all. The pre-
sented approach is an alternative investment calculation method based on the shareholder
value concept. With its help, real economic projects or even companies could be valuated309.
Modelling the options leads to the solution that a real option is comparable to a stock op-
tion310. It is the right but not the duty to buy or sell a share within a determined time period at
a certain price.311
Real options can be distinguished as follows312:
300
Cf. IDW (2005), p. 1313.
301
302
Cf. IDW (2005), p. 1313.
303
Defined below in section 2.2.2.2.3.
304
Cf. Modigliani/Miller (1958) and Modigliani/Miller (1963).
305
Cf. Hachmeister (2000), pp. 101.
306
307
Cf. Kuhner/Maltry (2006), p. 289. Therefore, the real option approach is structured into this section.
308
309
Cf. Ernst/Thümmel (2000), pp. 667.
310
Cf. Rams (1998), pp. 676; Crasselt/Tomaszewski (1999), p. 517 and Ernst/Thümmel (2000), p. 667. For the
theory of real options cf. Trigeorgis (2000).
311
Cf. Grill/Perczynski (1998), p. 293.
312
A more detailed but not really consistent structure can be found in Copeland/Koller/Murrin (2002), pp. 472
– 474.
Invest Flexibility Production Divest

Option Option Option Option
The company has The company has The company has
The company has
the possibility to the option to wait the chance of get-
the chance to vary
Definition
do a prolongation and learn before ting out of a certain

output and produc-
investment. Other doing something. market or of selling
tion methods.
companies do not certain parts of its
have this option. own.
Expansion. Increasing effi- Optimizing exist- Restrict the loss of
ciency by learning ing core compe- a certain project,
Direc-
and doing. tences. insurance.

tion
Planning of an in- Rearrange a market Restructuring the Insolvency in case

vestment. entry. production process. of a limited liabil-
Exam-
ple313
ity.
Table 8: Structure of real options314
The stock option model is transferable to entrepreneurial decision making315. Real options
represent possibilities or opportunities, which can be used in future by doing an investment –
but there is no obligation to exercise them316. Normally, the value of an option is calculated
by using the perfect equilibrium model of Black and Scholes317.
The character of a real option can be made clear by giving an example. The investment into a
production plant could enable the investor to produce some other products in future, maybe
by expanding the original plant only. If the planned production turns out to be successful, the
opportunity to expand the production will be very valuable. The initial investment is the
foundation for following investments. Just by doing this investment, all further investments
and therefore, additional cash flows become possible. According to financial options, the
owner of an option will execute his right, when the present value of the cash flows will be
higher than the expenses for the investment. In addition to that, he has the opportunity of
waiting for risky or uncertain developments. An economical value arises from this flexibility,
as flexible projects are worthier than fixed projects.318
313
For the status of the real option and detailed practical examples cf. Copeland/Koller/Murrin (2002), pp. 488
and Hommel/Scholich/Baecker (2003).
314
Author’s own table referring to Rams (1998). Extended by information referring to Brealey/Myers (1996), p.
589.
315
316
Cf. Herter (1992), p. 321.
317
Cf. Black/Scholes (1973), pp. 637 and Herter (1992), p. 332. The formula and the derivation are not de-
scribed in this dissertation.
318
Cf. Crasselt/Tomaszewski (1999), p. 518 and Ernst/Thümmel (2000), p. 668.
The real options method is not a new independent evaluation method in principle. The present
value of an investment must be calculated by using a DCF method319. This method will not be
replaced, but enlarged by adding the view on options. The value of a flexible investment de-
pends on the net present value, calculated by the DCF method, plus the value of the real op-
tion:
CVtotal VDCF Voptions

with:
CV = Corporate value
V = Value
DCF = Discounted cash flow
Value drivers:
For a high call value For a high put value

Volatility High High
Strike Low High
Maturity High High
Present value of investment High Low
Risk free rate High Low
Dividends Low High
Equation 5: Corporate value by real option 320
The latter value in this equation increases with a higher volatility and is always positive, be-
cause the chance for realisation will rise, if it is not executed321. However, several influencing
aspects have to be taken into consideration. The real option may be exclusive, so that only one
company could take the opportunity, maybe because of market entry barriers322.
By taking into consideration flexibility and uncertainty, the scope of entrepreneurial decisions
becomes quantifiable, so that the value of investments could be determined more exactly323.
However, the calculation of options is difficult. The opportunities of the company have to be
estimated or derived in a comprehensive manner324. On the one hand, Copeland/Koller/Mur-
rin suppose that the real option approach will even replace the DCF methods325. In their opin-
319
320
Cf. Brealey/Myers (1996), p. 589; Kuhner/Maltry (2006), p. 282 and Copeland/Koller/Murrin (2002), p.
471, p. 487. The latter consider dividends as well, but they define them as correction cash flows for the case
of not exercising the option. For general value drivers of options cf. Rolfes (1999), p. 89.
321
Assuming that the company has bought the option. If it has been sold, a negative value might occur as well.
322
One further typical example is the abandon option. Cf. Kuhner/Maltry (2006), p. 288.
323
324
Cf. Amely/Suciu-Sibianu (2001), p. 92.
325
ion the value of the company will be too low, if real options are not implemented326. On the
other hand, this has to be seen critical. Kuhner/Maltry stated that only in case of exclusiveness
the option has an inherent value327. Quantifying the value of this option would overestimate
the company’s value328. Further, the assumptions lying behind the model have to bee seen
critically.329 Getting reliable results requires data of high quantity and quality. The main as-
sumption of tradability is not given in reality330. This is why the practical usage is not very
high.331
At current, the real options method is used less often332. This model is only in use in indus-
tries with intensively growing projects and companies with high uncertainty, for example
IT333 or biotechnology.334. With the decreasing importance of the new markets, it has become
less important. The results may only be treated as a qualitative hint, but not as a quantitative
company value compared to classical DFC or earnings value approaches 335.
2.2.3 Mixture Methods
Mixture methods combine aspects of separate evaluation methods with parts of the global
evaluation methods336. The general equation can be set up as follows:
CV SEV b ( EV SEV )
with:
CV = Company value
SEV = Separate evaluation value
EV = Earnings value337
b = parameter > 0
Equation 6: Mixture methods338
326
327
328
Cf. Witt (2003), pp. 134 – 140.
329
Cf. Brealey/Myers (1996), p. 609.
330
Cf. Brealey/Myers (1996), p. 609.
331
332
333
Abbreviation for Information Technology.
334
335
336
337
Including DCF approaches.
338
Cf. Jacob (1960), p. 134 and Moxter (1983), p. 58.
The higher b is, the more influence the earnings value or DCF approach has. The difference
between EV and SEV is also defined as goodwill. Four approaches can be defined in practice.
They are structured in the following table:
Simple average Simple additional Stuttgarter Ap- Residual Income

approach profit proach Method
CV SEV b ( EV SEV ) CV SEV b ( EV SEV ) CV SEV i n ( EV CV ) T
Et
b 0.5 b irf n
EV ¦ (1 i)
t 1
t
( SEV EV ) SEV n add . profit n 5

T
CV RI t
CV
2 i 9% ¦
t 1 (1 i )
t
EQ
T A i EQ
( t 1)
n= periods of addi- CV SEV 0.45 ( EV CV ) ¦

t 1 (1 i) t
EQ
tional profit CV 0.69 SEV 0.31 EV

irf = risk free ratio E= Earnings
t= time period
i= interest rate
Formula
A= annual surplus
EQ = Book value of
equity
RI = Residual income
No additional informa- As only a modification Modified additional Used for quantifying the
tion according to the two of the SEV occurs, no profit approach that is depreciation for the
Critical discussion
separate approaches339. additional information is often used for settlement goodwill in a consolida-
generated340. procedures341. Even tion344. It is defined as a
though they are accepted mixture approach be-
by law342, the usage is cause the annual surplus
not recommended343. is the basis345. Even
though this approach is
the best of the presented
four models, it has the
same disadvantages346.
Table 9: Mixture methods347
In practice, these models have nearly no relevance as they combine the disadvantages of the
two basic approaches. However, they legally accepted in 1986348. For the banking approach
evaluated by the author, these models will become more important – without the disadvan-
tages mentioned in this section. But this is discussed below349.
339
Cf. Helbing (1998), pp. 131 and Mandl/Rabel (2005), p. 82.
340
Explicitly proven in literature. Cf. Moxter (1983), pp. 41 – 55.
341
Cf. Kuhner/Maltry (2005), p. 46. Critically discussed in Göllert/Ringling (1999).
342
Cf. BFH (1991). BFH stands for Bundesfinanzhof.
343
344
345
346
347
Author’s own table referring to Ballwieser (2004), pp. 184 – 187.
348
Cf. Piltz (2005), p. 784.
349
Cf. section 4.3.1.
2.2.4 Simplified Approaches
Simplified approaches are all defined as market-oriented approaches that assume fictitious or
real prices350. These prices can be used for the company to evaluate or for fictitious compa-
nies. This is shown in the following figure:
Simplified approaches
Real prices Fictitious prices
For comparable companies For the company to

evaluate
Figure 4: Structure of simplified approaches 351
A central assumption of these methods is that the stock value quoted at the stock exchange,
resulting from supply and demand of the market participants and depending on their informa-
tion, corresponds to the value of the share as well as to the value of the company behind the
share352. Comparable companies should have comparable values353. The approach is objecti-
fied, if enough transactions on the market are done – in form of share deals or complete com-
pany deals. In this case subjective or individual aspects cannot lead to wrong results354. How-
ever, the user has to keep in mind that only prices but not values are quantified355. As a result
the methods are usable to validate the value coming out of a DCF or earnings value ap-
proach356.
In principle, four kinds of calculation are possible. They are explained in the following sec-
tions.
350
For further details cf. Benninga/Sarig (1997), pp. 305 – 311; Mandl/Rabel (1997), pp. 258 – 274; Böck-
ing/Nowak (1999); Achleitner/Dresig (2002); Ballwieser (2003), pp. 17 – 26; Moser/Auge-Dickhut (2003a);
Moser/Auge-Dickhut (2003b); Nowak (2003), pp. 159 – 185; Seppelfricke (2003), pp. 133 – 166 and
Freiburg/Timmreck (2004).
351
Author’s own figure referring to Olbrich (2000), p. 457 and Ballwieser (2004), p. 190. Discussed contrary in
Kuhner/Maltry (2006), p. 267.
352
Cf. Olbrich (2000), p. 454.
353
354
355
356
Cf. IDW (2002), p. 134.
2.2.4.1 Real Prices of the Same Company
The easiest way for a stock-listed or merged company is to use historical market prices357.
The disadvantage consists of the time lag between the old price and the current situation. Fur-
ther, the number of shares held determines the price, too. 25% have a different value than
1/3rd of 75%358, as the value of voting rights may differ in practice.
2.2.4.2 Real Prices of a Comparable Company
The next step is to compare realized or published prices of similar companies with the com-
pany to value. The problem of section 2.2.4.1 can be transferred to this model as well. When
can two companies be considered as equal or similar? The underlying assumptions lead to
critical results. BMW359 and Fiat work in the same sector – but using the price of the first for
the price of the latter would lead to wrong results360. Solving this problem would also require
the complete information that is necessary for a detailed DCF or earnings value approach.
Therefore the only advantage of simplicity361 would not exist any longer362.
2.2.4.3 Fictitious Prices of the Same Company
If the company is listed current market prices can be used. The company’s value would corre-
spond to the value at the stock exchange, which is the market capitalization at the market or
the shareholder value363. The calculation is done by multiplying the stock quotations by the
number of shares. Usually a control premium364 has to be taken into consideration. Both the
claim for dividends and the possibility of getting influence on company’s management deci-
sions are connected with the purchase of all shares or at least of a large number of shares365.
This add on, historically given with 40%366 in the USA367, has to be paid on top of the market
capitalization. However, these 40% have to be eyed critically – their historical volatility is
very high and values are not available for the German sector368.
357
358
359
Abbreviation for Bayerische Motorenwerke.
360
361
Cf. Nestler/Kraus (2003), p. 1.
362
Cf. Ballwieser (1997), pp. 186 and Ballwieser (2001), p. 26.
363
Cf. Bausch (2000), p. 450.
364
365
Cf. Olbrich (2000), p. 455.
366
Cf. Gaughan (2002), p. 621.
367
Abbreviation for United States of America.
368
Cf. Ballwieser (2004), pp. 192 – 193.
2.2.4.4 Fictitious Prices of the Peer Group – Multiplier Approach
If the company is not listed at the stock exchange, the original multiplication method, the so-
called CCA369, has to be used. It is based on the assumption that comparable companies could
be sold or purchased at a comparable price370. Therefore, the data of the company to be evalu-
ated and the available data for other comparable reference companies in the same sector371 are
taken and put into relation. Therefore, the market capitalization of the comparables372 is used.
The resulting relations are used to define the value of the company as shown in the following
set of equations:
CV mult PF PFcompany
with:
CV = Company value
PF = Performance factor like EBIT373, balance sheet sum or equity
mult = multiplier for a certain performance factor
Equation 7: Multiplier approach374
The PF depend on the value to be quantified. Equity value, enterprise value or goodwill re-
quire different PF375. EBIT, sales and EBITDA are normally used for evaluating the enter-
prise value376, because these basic variables are independent of the debt ratio377. EBT378 and
net profit are used to determine the value of the equity379. The multiple is evaluated by gener-
ating an average or a median380. However, in addition, the standard deviation of the multiple
is considered as well381. Otherwise, the resulting value would lead to a false conclusion.
The empirical evaluation of the quality of possible multiples can be summarized as

Liu/Nissim/Thomas did: “Second, we confirm that forward earnings contain considerably
more value-relevant information than historical data, and they should be used as long as fore-
369
Abbreviation for Comparable Company Analysis.
370
Cf. Weston/Chung/Siu (1998), p. 176.
371
372
373
Abbreviation for Earnings Before Interest and Taxes.
374
Cf. Nestler/Kraus (2003), p. 1 and Kuhner/Maltry (2006), p. 267.
375
Visualized in Ballwieser (2004), p. 194.
376
Cf. Liu/Nissim/Thomas (2002), p. 137.
377
378
Abbreviation for Earnings Before Taxes.
379
Cf. Löhnert/Böckmann (2002), pp. 410 – 411 and Nestler/Kraus (2003), p. 3. The usual multiples are dis-
cussed here.
380
381
casted earnings are available. Third, contrary to general perception, different industries are not
associated with different best multiples.382”
Advantages of the multiplier methods can be stated as follows: First, they are quite simple in
their usage383. Soffer/Soffer stated concretely: “The main reason analysts use the multiples
approach for evaluation is it is much quicker than discounted cash flow techniques384”. The
prognosis problem is solved elegantly – a prognosis of several data is not necessary at all385, if
the multiples are evaluated onto a historical basis. Further, it is stable according to the as-
sumptions386 and it is easy to communicate387. It can be even used for “faceless” companies388
and it is a first, extendable quantification method. The results are a kind of self-fulfilling
prophecy389. As all market partners know the method and rely on it, the offered (and very of-
ten paid) prices are similar to those in the model390.
However, the quality of the evaluation method depends on the comparison with the reference
companies391. They have to be carefully chosen by market share, market position, capitaliza-
tion, company’s structure, and much more392. Another critical factor is the data availability,
which can be considered as given for listed companies. Nevertheless, for German companies,
the data basis is much smaller than for companies in the USA due to the number of stock quo-
tations393. However, the multiplier methods require an information efficiency of the capital
market394. Additional problems will arise from the assumption that the price for a share de-
pends on supply and demand. This is influenced by the usual anticipation of future develop-
ments and maybe less by the actual profit situation395 and the effect that prognoses of analysts
have a direct impact on forecasted earnings396. Additionally, it may be influenced by short
term or speculative intentions. To keep comparability, it is usually necessary to make correc-
tions like a control premium or a fungibility premium, which has to be discussed as well397.
Last, multiples are often past-oriented. Actual aspects are not always considered accord-
ingly398.
382
Liu/Nissim/Thomas (2002), p. 138.
383
384
Soffer/Soffer (2003), p. 389.
385
Cf. Kuhner/Maltry (2006), p. 269 and Ballwieser (2004), p. 197.
386
387
Cf. Liu/Nissim/Thomas (2002), p. 136.
388
389
390
Cf. Kaplan/Ruback (1995), p. 1067 for the empirical verification.
391
Cf. Nestler/Kraus (2003), p. 2. For further argumentations according to the similarity discussion cf. Achleit-
ner/Dresig (2002), column 2422.
392
393
Cf. Bamberger (1999), p. 667.
394
395
Cf. Olbrich (2000), pp. 458.
396
397
Cf. Nestler/Kraus (2003), p. 4
398
2.3 Bank Individual Approaches 37
The multiplication method is very helpful for the purpose of additional checks of a company’s
value, but its sole relevance for decisions has to be rejected.399 A combination with a DCF
approach, however, might be useful400. Its usage to get first orientation results is accepted in
literature401.
2.3 Bank Individual Approaches
2.3.1 Reasons for a Bank Individual Approach
All presented approaches of corporate evaluation show useful aspects. But all those theories
imply that the value of a classical industrial company instead of a bank has to be defined402.
The banking sector shows several special aspects. Whenever the value of a bank has to be
determined, these special features have to be considered. Banks differ from classical industrial
companies403. This is discussed in the following section.
2.3.1.1 Generating Value with the Liability Side
In contrast to other companies that take credits in order to receive money to invest, banks gen-
erate earnings with the liability side404. The market yield method is the basic idea for this405.
On the asset side customers pay more than they would pay on the capital market406. On the
contrary they receive less interest payments for savings or deposits, than they would receive
at the market407. This is pointed out by the following figure. A bank’s balance sheet may just
consist of two transfers: a 10 year loan and a 10 year refinancing customer bond408.
399
Cf. Kinast (1991), pp. 37; Bamberger (1999), p. 667 and Bausch (2000), p. 459
400
Cf. Schmidtbauer (2004), p. 151.
401
Cf. Hafner (1993), pp. 88; Hayn (2003), p. 112; Löhnert/Böckmann (2002), pp. 406 – 408 and Nestler/Kraus
(2003), p. 5.
402
403
Cf. Koch (2004), p. 119.
404
Cf. Sonntag (2001), p. 2 and Adamus/Koch (2006), p. 153.
405
For a short overview cf. Reuse (2002.12), pp. 24. For further details cf. Rolfes (1999), pp. 12 – 18, pp. 270
and Schierenbeck (2001a), pp. 43, pp. 70. An example with realistic data is given in Reuse (2003.02), pp. 30
– 31.
406
Cf. Reuse (2002.12), pp. 24.
407
Cf. Rolfes (1999), p. 13.
408
Maturity transformation is not discussed in this example.
Assets Liabilities
amount in interest market interest amount in interest market interest

EUR rate rate margin EUR rate rate margin
Loan, 10Y 100,000 4.30% 3.31% 0.99% Bond, 10Y 100,000 3.20% 3.31% 0.11%
100,000 4.30% 3.31% 0.99% 100,000 3.20% 3.31% 0.11%
net interest revenue 1.10%

interest /contribution margin 1.10%
Figure 5: Contribution margin of a fictitious bank409
As figure 5 shows, a bank generates its earnings by receiving the so-called interest margin410.
This is defined as follows: If a bank grants a credit and issues a risk free bond as liability, the
above mentioned earnings of 0.99% per year will be realized411. Emitting a customer bond
leads to cheaper costs vice-versa412. If the bank invests this money in a risk free 10Y413 inter-
bank deposit by using this money, 0.11% of additional earnings would occur. In total, the net
interest revenue consists of 1.10%.
Only due to the effect that the liability side shows lower interest rates than market rates, banks
are able to generate value. This effect is not concerned correctly in the classical approaches
described above. All entity methods require the market value for the liabilities414. However,
this value is difficult to quantify as savings and deposits cannot be traded415. Using the nomi-
nal value would be the wrong way as well416. Therefore, the approaches that deal with a ficti-
tious equity finance situation as WACC and APV would not lead to the “right” corporate
evaluation417. Even small mistakes in the assumptions concerning the debt side would lead to
a high variance of the corporate value418.
2.3.1.2 Maturity Transformation
Further, in contrast to industrial companies, banks do maturity transformation419. This means

that the assets have another maturity than the liabilities420. Short term liabilities are normally
409
Author’s own figure based on Rolfes (1999), p. 13. For market data cf. Bundesbank (2006a).
410
Cf. Rolfes (1999), p. 271.
411
Cf. Rolfes (1999), p. 271 and Schierenbeck (2001a), p. 73, p. 75.
412
Cf. Reuse (2002.12), p. 25.
413
Abbreviation for Year.
414
Cf. Section 2.2.2.2.
415
Cf. Koch 2000, p. 45 and Adamus/Koch (2006), p. 153.
416
For further arguments cf. Strutz (1993), p. 87; Behm (1994), p. 59; Vettiger (1996), pp. 125 – 126 and Cope-
land/Koller/Murrin (1998), p. 488.
417
For example discussed in Adamus/Koch (2006), p. 153.
418
419
Cf. Sonntag (2001), p. 1 and Koch (2004), p. 119.
420
Cf. Schierenbeck (2001a), p. 72.
transformed into long term assets421. In case of a normal yield structure422, this leads to addi-
tional earnings, which depend on the current market interest rates423. Maturity transformation
is a part of the market interest rate method. This method is able to divide the interest earnings
of a bank into those generated by customer deals and those generated by maturity transforma-
tion424. The central question remaining is, whether and how this has to be implemented into
the corporate value of a bank425. This will be discussed critically later on.426
2.3.1.3 Structure of the Balance Sheet
Further, the measurable assets of a bank are typically low, as the balance sheet nearly consists
of credits and savings only427. As a consequence, the expenditures of the profit and loss ac-
count show a very high part of interest payments and depend on the current interest rates428.
Market values do not exist for customer deals429 and the nominal values would lead to wrong
results430.
2.3.1.4 Risk Transformation
Last, banks do risk transformation431. Liabilities in form of customer savings are transformed
into loans. While the liability side does not have an inherent risk, the assets side does. This
leads to the most important value and risk driver for banks: the provisions for lost loans which
have been the largest problem in the recent past432. Traditional approaches of corporate
evaluation do not consider the fact that the credits a bank grants may be lost because of cus-
tomers’ bankruptcy433. The expected losses of the credit portfolio have to be considered ac-
cordingly434.
421
Cf. Reuse (2003.03), p. 26.
422
Short term interest rates are lower than long term interest rates. Cf. Schierenbeck (1998), p. 352 and Schier-
enbeck (2001a), p. 71. For a detailed analysis of yield curves cf. Beer/Goj (2002), pp. 156.
423
Cf. Rolfes (1999), p. 271 and Schierenbeck (2001a), p. 73, p. 75. A simple example is given in Reuse
(2003.03), p. 27.
424
Cf. Rolfes (1999), pp. 12. For a detailed overview onto the calculation methods cf. Reuse (2002.12) and
Reuse (2003.02). Done with real banks in 2006, cf. Adamus/Koch (2006), p. 148.
425
426
Cf. section 2.3.3.1.
427
Cf. Kirsten (2000), p. 134 and Zessin (1982), p. 28.
428
429
Exception: Lost loans can be corrected in the balance sheet with §340f HGB reserves. Cf. Koch (2004), p.
120. Further, traded shares and bonds have to be balanced with the market value.
430
Cf. Adamus/Koch (2006), p. 153.
431
Cf. Koch (2004), p. 119.
432
433
Cf. Sonntag (2001), p. 2 and Koch (2004), p. 119.
434
Done in Sonntag (2001), p. 202.
2.3.2 Structuring the Status Quo in Current Literature
Copeland/Koller/
Börner/Lowis442
Adolf/Cramer/
mus/Koch447
Höhmann444
Ollmann 436
Kümmel 439
Koch, Ada-
Sonntag446
Vettiger441
Murrin443
Hörter 445
Strutz 437
Behm 438
Zessin435
Miller440
Year 1982 1989 1993 1994 1995 1995 1996 1997 1998 1998 1998 2001 2004
Kind of return448
to shareholders X X X X X X X X X X X X X
also to investors
Used interest rates
Equity interest rate449 X X X X X X X X X X X X X
WACC
Valuation granularity
Direct evaluation of the
whole value.
X X X X X X X X X X X X
Indirect evaluation:
x Sum of strategic X X X
business units.
x Private customers
x corporate customers
X X
x Treasury
x Asset side
x Liability side
X X X
x Treasury
Using multiples to re-
ceive the bank value.
X
Figure 6: Status quo of existing bank-individual evaluation approaches450
435
Cf. Zessin (1982), p. 57, p. 61, pp. 161 – 165.
436
Cf. Adolf/Cramer/Ollmann (1989a), pp. 485 – 492 and Adolf/Cramer/Ollmann (1989b), pp. 546 – 554.
437
Cf. Strutz (1993), pp. 87 – 97.
438
Cf. Behm (1994), p. 59, pp. 83 – 85.
439
Cf. Kümmel (1995), p. 104, p. 107. First edition was placed in 1994.
440
Cf. Miller (1995), pp. 196 – 199.
441
Cf. Vettiger (1996), pp. 126 – 135.
442
Cf. Börner/Lowis (1997), pp. 87 – 133.
443
Cf. Copeland/Koller/Murrin (1998), p. 489, p. 493, pp. 514 – 524, Copeland/Koller/Murrin (2002), pp. 501
– 524.
444
Cf. Höhmann (1998), pp. 37 – 39, pp. 168 – 171.
445
Cf. Hörter (1998), pp. 56.
446
Cf. Sonntag (2001).
447
Cf. Koch (2004), pp. 119 – 136 and Adamus/Koch (2006), pp. 131 – 162. Even though Koch presented his
first work in 2000, this year was chosen.
448
No difference is made between cash flow and earning, as the definitions of the authors are not always con-
sistent.
449
A differentiation between the equity approach yield and earnings value approach yield is not done here.
450
Author’s own figure, following the basic idea of Sonntag (2001), p. 6, extended by the data of the other
authors.
All these aspects led to the requirement for bank-individual approaches in the past. Literature
offers several bank evaluation approaches451. This is shown in figure 6.
Zessin was the first one who discussed the evaluation of banks in his work. He worked out
that banks do not produce real products, but deal with monetary assets452. He prefers an equity
approach combined with an equity yield to discount the cash flows with. The result is the en-
terprise value. But a more detailed analysis, from which part of the bank the value results, was
not done.453
Adolf/Cramer/Ollmann argue by using the earnings value approach. They add the value of
strategic business units to the bank value454. They are the first ones who demand a differenti-
ated quantification of return and risk, depending on the strategic business unit455. A direct
prognosis of the bank’s expected returns is not useful, as the value drivers (nominal value and
net interest margin of the customer deals) can only be estimated in the subunits456.
Adolf/Cramer/Ollmann discuss the CAPM approach as well457. The final conclusion accord-
ing to its practicability is very critical. The equity yield defined by CAPM does not represent
the threshold value an investor would pay for a bank458. Adolf/Cramer/Ollmann demand an
external and an internal yield evaluation. The yield of an opportunity investment the investor
has should be quantified in an external evaluation. This yield is based on the risk free ratio
and a risk premium459. In an internal evaluation, Adolf/Cramer/Ollmann demand the yield of
banking obligations that are traded at the stock exchange460.
Strutz, on the other hand keeps the classical CAPM approach461. But he follows Adolf/
Cramer/Ollmann in the differentiated quantification of the single values of the strategic busi-
ness units462.
Behm defines so called value centers463 asset side, liability side and treasury for the purpose
of a value based management or shareholder value management464. Adding the market value
of these centers leads to the bank value. He is the first one who structures a bank like this465.
451
A first structure was given in Sonntag (2001), p. 6.
452
Cf. Zessin (1982), p. 28.
453
Cf. Zessin (1982), p. 57, p. 61, pp. 161 – 165.
454
Cf. Adolf/Cramer/Ollmann (1989b), p. 546.
455
Cf. Adolf/Cramer/Ollmann (1989a), p. 486.
456
Cf. Adolf/Cramer/Ollmann (1989a), p. 486.
457
Cf. Adolf/Cramer/Ollmann (1989b), pp. 550.
458
Cf. Adolf/Cramer/Ollmann (1989b), pp. 550.
459
460
461
Cf. Strutz (1993), pp. 90.
462
Cf. Strutz (1993), pp. 87 – 97.
463
Cf. Behm (1994), p. 73, p. 83.
464
Cf. Behm (1994), p. 74.
465
Cf. figure 6.
The free cash flows of all three value centers are discounted at the end466. The main advantage
of this procedure is that the above explained market yield method can be used by Behm467.
With respect to the equity yield, Behm did an empirical analysis. He estimated the equity
yields in July 1993 for the following years468. He uses three approaches including the CAPM
to define the equity yield and compares them to each other469. The CAPM is used, but it is
only one of several solutions.
Kümmel evaluates the bank’s value by using an equity approach and discounting the cash
flows with an equity yield470. He criticises the CAPM as well. To his opinion, beta factors are
instable and their historical values are not representative471. Further, the main assumption of
the CAPM is the tradability. If a CAPM should be used, the equity should be differentiated
according to a fictitious or real maturity472.
Miller offers no new results. He uses the equity approach combined with an equity yield as
well473.
Vettiger follows Behm in the definition of the value centers and the usage of the market yield
method474. He is the second one who uses the market yield method. Value based management
or shareholder value is the main purpose for corporate evaluations. 475
Börner/Lowis follow the main arguments of the equity approach476 and the resulting equity
discounting yield477. Further, they offer a detailed cash flow evaluation approach478 and im-
plement a three-phase model for the evaluation of the cash flows479. The cash flows are struc-
tured into those coming out of operating activities, investments and business structure – for
example maturity transformation480. The usage of the market yield method was mentioned,
466
Cf. Sonntag (2001), p. 11.
467
468
Cf. Behm (1994), p. 118.
469
Cf. Behm (1994), chapter 4. German banks show a ratio between 8.32% and 9.86%. Visualized in Kirsten
(2000), p. 159.
470
Cf. Kümmel (1995), p. 104, p. 107.
471
Cf. Kümmel (1993), p. 34.
472
Cf. Kümmel (1993), p. 35.
473
Cf. Miller (1995), pp. 196 – 199.
474
Cf. Vettiger (1996), pp. 133.
475
Cf. Vettiger (1996), pp. 125.
476
Cf. Börner/Lowis (1997), p. 112, p. 116.
477
Cf. Börner/Lowis (1997), pp. 116.
478
Cf. Börner/Lowis (1997), p. 106.
479
Cf. Börner/Lowis (1997), pp. 100, extending the approach of Adolf/Cramer/Ollmann (1989a), p. 488.
480
too481. They discuss the CAPM critically482 and offer the more general APT483 model as an
alternative approach484.
Copeland/Koller/Murrin follow Behm when doing a corporate evaluation485. In contrast to

Behm they define private and corporate customers as the parts to evaluate486. As well as in
Behm’s work, the value of treasury is isolated in the end. Its value varies in the case of market
yield change. The strategic business units, private and corporate clients, remain constant in
this case487. Copeland/Koller/Murrin demand transfer prices for the cash flows between the
three units. The disadvantage is that they do not use the market yield method. An exact inter-
est rate risk free situation does not exist488, even though they offer a consistent example, in
which both approaches lead to the same result489. Copeland/Koller/Murrin follow the main-
stream to use the equity approach for a bank evaluation, even though they recommend an en-
tity approach for all other corporate evaluations490.
Höhmann and Hörter offer no new ideas491. Höhmann’s model of external evaluation492 and
Hörter’s argumentations493 come to the same conclusion as the authors before: equity ap-
proach with equity costs as a discounting factor.
Sonntag defines the three value centers as well and adds them to the value of the bank494. He
uses the market yield method495 and distinguishes the customer deals into existing deals and
possible new deals496. This differentiation and the analysis of the treasury value497 are the
main new add ons, Sonntag presents. According to his argumentation the value of treasury is
zero498. Sonntag’s work is the most detailed and structured one up to this moment.
481
482
483
Abbreviation for Arbitrage Pricing Theory.
484
Fur more detailed information cf. Brealey/Myers (1996), pp. 190. The APT is a more general approach than
the CAPM. Cf. Börner/Lowis (1997), pp. 118.
485
486
487
Cf. Copeland/Koller/Murrin (1998), pp. 514 – 524.
488
Argued in Sonntag (2001), p. 9.
489
490
491
492
Cf. Höhmann (1998), pp. 37 – 39, pp. 168 – 171.
493
Cf. Hörter (1998), pp. 56.
494
Cf. Sonntag (2001), p. 241.
495
Cf. Sonntag (2001), pp. 91.
496
Cf. Sonntag (2001), pp. 113 – 135, pp. 136 – 163.
497
Cf. Sonntag (2001), pp. 15 – 90.
498
Cf. Sonntag (2001), pp. 82. Argued in detail in section 2.3.3.1.
Last, Koch and Adamus/Koch offered some new ideas. They use the equity approach with
equity costs as well499. Further, the market interest rate method is discussed but not used500.
The reason is that external investors do not know the part of the net interest revenues that be-
long to maturity transformation501. Further, they offer a detailed approach to evaluate the cash
flow statement of a bank502. Even though a detailed cash flows analysis would be better503, an
evaluation by using the income statement is the most practical way504 because the investor
does not have the necessary detailed information505. According to the equity yield, some fur-
ther arguments are added. They accept the CAPM as a possible approach and prove that the
equity yield is independent from the leverage506. Choosing the right comparables for evaluat-
ing the beta is more important. Adamus/Koch offer a last new point. They are the first who
recommend a multiplier approach, at least as a plausibility check507. The preferred multiples
are Market/Book, Price/Earnings and Price/AuM508. A balance sheet sum and a net interest
revenue multiple are missing509.
Even though all presented approaches differ in evaluating the cash flows, the central assump-
tion of the equity approach is the same: all of them discount the net cash flows with the equity
interest rate510. No one uses an entity approach. In combination with the argumentation above,
the entity approaches seem to be not useful in the banking sector.
499
Cf. Koch (2000), p. 44 and Koch (2004), p. 123, p. 126.
500
Cf. Koch (2004), p. 122.
501
502
Cf. Koch (2004), p. 129 and Adamus/Koch (2006), p. 155.
503
Cf. Koch (2004), p. 130.
504
Cf. Becker/Seeger (2003), p. 23. As they do not offer a complete approach of bank evaluation, they are not
presented in figure 6.
505
Cf. Koch (2004), p. 130.
506
Cf. Adamus/Koch (2006), p. 156. Contrary discussed in Kirsten (2000), pp. 163.
507
508
Abbreviation for Assets under Management.
509
Done in section 5.
510
Even argued in Sonntag (2001), p. 5.
2.3.3 Debatable Problems in Current Literature
2.3.3.1 The Value of Treasury
As mentioned above Sonntag pointed out that the value of treasury is zero. This can be proven
as follows. Extending the above mentioned example511 by implementing maturity transforma-
tion leads to figure 7. The bank decides not to refinance the loan with a 10Y bond, but with a
3M512 deposit. As an assumption, the contribution margin of the liability side stays constant,
but the maturity of the refinancing side changes. The whole contribution margin of 1.10% can
be found again in this example accordingly:
Assets Liabilities
amount customer market interest amount customer market interest

yield yield margin yield yield margin
Loan, 10Y 100,000 4.30% 3.31% 0.99% Deposits 3M 100,000 2.38% 2.49% 0.11%
100,000 4.30% 3.31% 0.99% 100,000 2.38% 2.49% 0.11%

transformation margin 0.82%
Figure 7: Additional earnings generated by maturity transformation 513
Compared to a situation without maturity transformation, the net interest earnings are much
higher. According to the argumentation above, the net interest revenue of a bank can be di-
vided into the contribution and the transformation margin514. The fictitious bank does matur-
ity transformation and gets earnings coming out of the asset and the liability side. While the
contribution margin is fixed, the transformation margin varies according to the yield struc-
ture515. In this case, the secure net interest rate margins could be summed up to 1.10% of the
balance sheet sum. The additional transformation margin is about 0.82%. The longer the asset
maturity is and the shorter the liability side is, the higher the earnings coming out of the ma-
511
Cf. section 2.3.3.1, figure 5.
512
Abbreviation for Month.
513
Author’s own figure referring to Rolfes (1999), p. 13. For market data cf. Bundesbank (2006a) and Bundes-
bank (2006b). Building up a fictitious balance sheet for a whole bank can be found in Reuse (2003.02), pp.
30 – 31.
514
515
Cf. Schierenbeck (2001a), pp. 194.
turity transformation will be516. However, it has to be kept in mind that a risk exists517. If the
market interest rates increase, the liabilities will become more expensive:
Assets Liabilities
amount customer market interest amount customer market interest

yield yield margin yield yield margin
Loan, 10Y 100,000 4.30% 3.31% 0.99% Deposits 3M 100,000 3.38% 3.49% 0.11%
100,000 4.30% 3.31% 0.99% 100,000 3.38% 3.49% 0.11%

transformation margin -0.18%
Figure 8: Additional earnings generated by maturity transformation, i +1%518
The fixed interest margins stay constant, but the transformation margin decreases by about
1% because of the more expensive deposit – the transformation margin becomes negative.
Hence, the question, whether such a theory leads to additional earnings in the long run has to
be answered. A backtesting of several maturity strategies answers this question519. This is
presented in figure 9.
516
For a detailed evaluation of yield curves cf. Beer/Goj (2002), pp. 156.
517
Cf. Sonntag (2001), p. 43 for the status quo of the definitions of interest rate risk.
518
Author’s own figure. For data cf. Bundesbank (2006a) and Bundesbank (2006b).
519
Discussed for example in Wimmer (2006), pp. 320. Empirical evidence is proven in Sievi (2000), chapter 8,
9; Sievi (2001), pp. 48 – 63 and Hillmer (2002), pp. 495 – 500. A short discussion of benchmarks can be
found in Goebel/Schumacher/Sievi (1998b), pp. 340.
300
cash-flow performance in % 2 x 10Y – 1Y
av. max. min.
2 x gl. 10Y - 1Y 8.5 30.0 -11.0
10Y
250 gl. 10 Y 7.1 17.6 -4.0
gl. 1Y 5.8 9.0 3.4
2 x gl. 1Y - 1 x gl. 10Y 4.5 17.6 -6.0

1Y
200
2 x 1Y – 10Y
150
100
<- increasing yields (+) -> <- decreasing yields (-) -> <-(+)-> <-(-)->
50
Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Figure 9: Ex post performances of several treasury strategies 12/87 – 10/01520
Four strategies are presented here. The first one is the gliding 1 year strategy521. The cash
flows are distributed like the gliding 1 year. One cash flow becomes due after one month, the
next after two months and the last after 12 months. The second presented approach is the glid-
ing 10 year approach. The cash flows are distributed over 120 months. Every due cash flow is
again invested in a ten year bond, so that this strategy consists of 120 bonds, which are in-
vested in a 10 year maturity522. They are due between 1 and 120 months. The last two strate-
gies use the leverage effect. The 2 x 10Y – 1Y strategy does not only invest the existing cash
flow: the bank goes short in the 1 year maturity and invests this sum again in the gliding 10Y-
strategy. The chances, but also the risks are duplicated by this. The last strategy 2 x 1Y – 10Y
is the opposite: going short with a long maturity and going long with a short maturity. It is
empirically proven that a 1Y liability side and a 10Y asset side lead to an optimal return. This
strategy was the most efficient one in the past. Often, it is used as a benchmark in the German
banking sector523. So the first conclusion is that such a strategy leads to additional earnings
for a bank.
520
Figure based on data of ifb AG. [av. = average, min. = minimum, max. = maximum].
521
For the definition of gliding averages cf. Sievi (1999), pp. 31 – 39; Böttrich/Drosdzol/Hager/
Schleicher (2004), pp. 28 – 31 and Reuse (2006), p. 407. It is discussed in more detail in section 4.2.1.1.
522
Explained in Parchert/Markus (2002), p. 26 and Schierenbeck (2001a), pp. 106.
523
Cf. for example Goebel/Schumacher/Sievi (1998b), pp. 340; Sievi (2000), chapter 8, 9; Sievi (2001), pp. 48 –
63; Hillmer (2002), pp. 495 – 500 and Wimmer (2006), pp. 324.
But will an investor have to pay additional sums for the generation of maturity transforma-
tion, if he buys a bank? All authors before 2001 did not consider this aspect. But after 2001
this question was discussed in literature very often. On the one hand, Sonntag proved in 2001
that the value of treasury is zero, as everyone can duplicate a maturity transformation portfo-
lio524. On the other hand, Bartetzky/Oesterhelweg argued in 2002 that a high maturity trans-
formation leads to a higher corporate value525. Entrop/Scholz/Wilkens contradicted a few
months later526. According to their argumentation treasury has a value of zero as well. The
investor has two possibilities: Treating treasury as zero and discounting the value with a small
yield or implementing the additional earnings, but discounting them with a higher yield, be-
cause transformation results are earnings under risk527.
As to the author’s opinion, Sonntag and Entrop/Scholz/Wilkens are right. No additional sums
have to be paid for these strategies, as they could be duplicated with several derivatives as
swaps528 or caps529. The following example might clarify this. It is assumed that a private cus-
tomer wants to speculate on the interest market. With a market partner, he draws a swap deal.
He will receive a fix 10Y- interest rate payment and he has to transfer a variable 3M-interest
payment to the contracting party. The reason why he makes such a deal is that he expects con-
stant or decreasing interest rates. In this case, he will receive more funds than he has to pay.
The contracting party expects the opposite: increasing interest rates. In this case, the contract-
ing party would receive more variable interest payments than it has to pay fixed interest pay-
ments530.
This can be transformed into a fictitious balance sheet as well, as figure 10 shows. It has to be
kept in mind that a swap is only mentioned beneath the balance sheet.
524
Cf. Sonntag (2001), p. 79.
525
Cf. Bartetzky/Oesterhelweg (2002), pp. 508.
526
Cf. Entrop/Scholz/Wilkens (2002), pp. 360.
527
Cf. Entrop/Scholz/Wilkens (2002), p. 364.
528
For the general structure of a swap cf. Eller (1996), pp. 401 and Rolfes (1999), pp. 74.
529
Cf. Bartetzky/Oesterhelweg (2002), pp. 508.
530
A practical implementation is discussed in Bertsch (2002), pp. 449 – 473 and Heinzel (2002), pp. 404 – 448.
Balance Sheet of a receiver SWAP
Assets Liabilities
amount market amount market

yield yield
receiver swaplet 100,000 3.31% payer swaplet 100,000 2.49%
10 years 3 months
100,000 3.31% 100,000 2.49%
transformation margin 0.82%
Balance Sheet of a receiver SWAP, constant market interest rate + 1%
Assets Liabilities
amount interest amount interest

rate rate
receiver swaplet 100,000 3.31% payer swaplet 100,000 3.49%
10 years 3 months
100,000 3.31% 100,000 3.49%
transformation margin -0.18%
Figure 10: Fictitious balance sheet of a swap including interest rate risk531
Compared with the above mentioned balance sheet of a bank, it becomes clear that the margin
generated by the maturity difference (0.82% or -0.18%) and the risk is the same. As a conclu-
sion, nearly everyone can duplicate a bank’s strategy, when he has access to the capital mar-
ket. Sonntag calls this a “homemade interest rate risk532”. The only margin a normal customer
cannot generate is the above described contribution margin. This is why treasury and maturity
differences have no influence on a bank’s value.
The only component that might lead to an additional value for the bank is the knowledge of
the treasurers. As they might have an information advantage and more experience, they would
probably build up more efficient structures than anybody else533. However, this has to be eyed
very critically. In the long run, nearly no one can beat the market534, so the strategies as men-
531
Author’s own figure. For market data cf. Bundesbank (2006a) and Bundesbank (2006b).
532
Sonntag (2001), p. 41.
533
Cf. Sonntag (2001), p. 83.
534
Cf. Stulz (1996), p. 15.
tioned above (10Y refinanced by 1Y etc535.) are the most efficient ones and are treated as
benchmarks for the treasury department536.
It is correct that the share prices of a bank include the value of an inherent interest rate risk.
But an investor can hedge it, if he has an access to the capital market537. Hence, it is proven
that in the case of a perfect market, the value of the treasury center is zero538. In case of an
intransparent market, only the small bid/ask spread generates value for the bank539 – but this
value is almost zero as well.
Last, it has to be stated that realized profits of treasury will increase the value of a bank, if the
treasury does not close a loan position and the yield curve is declining. The present value of
this credit is higher than in the beginning accordingly540. So in sum, the realized present value
of maturity transformation can be stated541. But no future expected returns have to be dis-
counted.
2.3.3.2 The Value of Trading
This idea can be extended to the trading of banks. Can a bank beat the market in a sustainable
way? The answer is no, according to Sonntag542. Further, the performance of the trading book
normally is relatively low compared with the yield book, so that this aspect can be neglected.
2.3.3.3 Quantifying the Cash Flow for an Equity Approach
Even though existing literature is consistent according to the equity approach, the exact cash
flow definition is not clear. While Copeland/Koller/Murrin543, Koch544, Kirsten545 and
Becker/Seeger546 demand a complete full cash flow statement, the practical approaches are
only based on the balance sheet data, as detailed information often is not available547. Another
problem is the approach to use: equity or earnings value method. The cash flows will differ
depending on the used approach.
535
Abbreviation for et cetera.
536
Cf. Heinrich (2002), pp. 575.
537
Cf. Sonntag (2001), p. 41.
538
Cf. Sonntag (2001), p. 82.
539
Cf. Sonntag (2001), p. 90.
540
Cf. Reuse (2003.03), p. 28.
541
Cf. Rolfes (1999), p. 283.
542
Cf. Sonntag (2001), p. 83.
543
544
Cf. Koch (2004), p. 129.
545
Cf. Kirsten (2000), p. 140.
546
Cf. Becker/Seeger (2003), p. 23.
547
Cf. Becker/Seeger (2003), p. 23.
For a good banking evaluation, an exact and consistent definition of the cash flow and the
related discounting rate has to be done.
2.3.3.4 Discounting Factor – Equity Yield
The same problem can be stated when analyzing the equity yield. The more insecure cash
flows are discounted, the higher the discounting yield has to be548. While Adolf/
Cramer/Ollmann partly recommend the yield of the bank obligation549, the CAPM is preferred
by most of the authors550. Nevertheless, the CAPM has to be eyed very critically. Several as-
pects are discussed in literature. While Koch found out that the leverage effect does not influ-
ence the equity yield551, Zimmermann discusses a complex, transformation risk adjusted beta
factor for the equity costs552. Further, Adamus/Koch state that the risk of the asset side is ab-
sorbed by the debt financiers, only 14% have to be carried by the shareholders553. This would
mean that the equity ratio would consist of 86% bank obligation yield.
The complexity of the equity yield will increase dramatically, if these adjustments are made.
The danger of mistakes occurs, too. According to the author, a simple definition of the equity
costs, based on stable assumptions would lead to more reliable results than the high sophisti-
cated ones.
2.3.4 Theoretical Impulses for a New Evaluation Model
A new, all embracing model should consider all aspects mentioned in section 2.3.3. A clear
and consistent definition of cash flows and equity yield is the central quality driver. The more
cash flows are inserted into the model, the more complex the equity yield will have to be de-
fined. The following figure visualises, which combinations between complexity, scope of
cash flow and yield exist:
548
Cf. Entrop/Scholz/Wilkens (2002), p. 364.
549
550
Cf. section 2.3.2.
551
552
Cf. Örtmann/Zimmermann (1997), pp. 39 – 43 and Zimmermann (1995), pp. 4, cited and discussed in
Kirsten (2000), pp. 163.
553
complexity of approach
12
high
Recommended
Solution high
scope of cash flow
low
0
low high
0 equity yield 12
Figure 11: Dependence between cash flow, equity yield and complexity554
A new model should be kept as simple as possible. If earnings or cash flows that have an in-
herent risk are not considered, the equity yield can be reduced on a bond yield, perhaps with a
spread add on. Expanding this main idea, expected returns form maturity transformation must
not be implemented either.
554
Author’s own figure.
3.1 Modeling the Survey 53
3 Practical Status Quo: An Empirical Study in the German Banking Sector
3.1 Modeling the Survey
3.1.1 Central Idea of the Survey
The theoretical requirements for a bank evaluation approach have been pointed out555. The
next step is to verify this in practice. This is done by a survey in the German banking sector.
As theory and practice might differ, the following central questions have to be answered:
x Do German banks know about the theoretical status quo?

x Do German banks evaluate their own value?
x Do German banks have a shareholder value-oriented management?
x Does the survey offer further impulses for a new evaluation approach?
The main aim is to come to further conclusions for a bank individual approach and to define
the status quo with its strengths and weaknesses.
3.1.2 Theoretical Aspects for Modeling a Survey
As current data according to corporate evaluation in the German banking sector are not avail-
able, primary research has to be done556. For this dissertation, a survey is used to gather pri-
mary data. A survey can be defined as a method that stimulates the answerer in order to get
the right results557. These stimulations can be verbal communication, pictures or presenta-
tions558. Surveys should be structured in order to receive high-quality information559. After a
definition of the problem, the data have to be collected, interpreted and added with arguments
of the researcher560. Surveys can be clustered according to different views: communication
form, survey tactic, frequency, target group and scope561. For this dissertation, the following
sample is used:
555
Cf. section 2.
556
For the definition and explanation of primary research cf. Sudman (1998), p. 87 and Kotler/Armstrong
(2004), p. 154.
557
Cf. Lötters (2000), p. 61.
558
Cf. Lötters (2000), p. 61.
559
Cf. Schnell/Hill/Esser (1999), p. 301.
560
Cf. Sudman (1998), p. 84.
561
Cf. Kotler/Armstrong (2004), pp. 151.
54 3 Practical Status Quo: An Empirical Study in the German Banking Sector
Aspect Possibilities Structuring the survey

x Written form A written survey is used. The reason is that banks would
x Telephonic fom probably react more often than in an email survey. The
x Oral form probability that it reaches the right person is higher than
Communication x Computer assisted by using an email. Further, the optic of a questionnaire
form can influence the reader, if it is printed out. Last, the
reader recognizes that the sender has paid a lot of money
to send the postal questionnaire. This is normally only
done in case of a professional work.
x Direct questions Direct and indirect forms of questions will be used –
Survey tactic x Indirect questions related to the problem. In some cases, it is useful to re-
ceive a “yes” or a “no” – but only in those situations, the
author wants to have these two-dimensional answers.
x Standardized inter- In order to receive standardized answers, a standardized
views questionnaire is used in order to cluster the answers
562
Survey strategy x Structured inter- before . Only in some special cases, a free sentence can
views be inserted.
x Free interviews
Frequency of x One time The query is done only once for the master dissertation.
survey x Repeated
x Organizations The target group consists of organizations – German
x Consumers banks. It has to be kept in mind that the survey’s lan-
Target Group guage must be target group conform – otherwise, no con-
x Experts
x Several others sistent results will be gathered563.
x One issue The scope consists of one direct issue. The status quo of
corporate evaluation combined with several aspects ac-
Scope of survey x More issues
cording to a shareholder wealth management will be ana-
lyzed.
Table 10: Aspects for the questionnaire564
The advantages of surveys are that a structured questionnaire enables the researcher to control
the interview without being present. It allows all participants to be asked the same questions
in the same order. This makes the analysis of data easier. Furthermore, a structured question-
naire offers the possibility of interviewing the target group by mail or telephone. This is less
expensive than interviews by researchers. Finally, using mail and telephone gives the possibil-
ity of doing many interviews with a broader cross section of the market.565
However, survey research involves also some disadvantages. Occasionally, participants are
not able to answer the questions because they have never thought about what they do and why
or because they cannot remember. Perhaps, participants try to answer even not understood
562
Cf. Schnell/Hill/Esser (1999), p. 301.
563
Cf. Berekoven/Eckert/Ellenrieder (2004), pp. 100.
564
Author’s own table based referring to Kotler/Armstrong (2004), pp. 151.
565
Cf. Sudman (1998), pp. 84.
3.1 Modeling the Survey 55
questions because they pretend to be smart. Participants may not reply because of believing
survey themes are private.566
3.1.3 Structure of the Questionnaire
The questionnaire has to be answered within a short time in order to receive many responses.
Only if answering does not take too much time, the answers will be complete and of a high
quality567. Tests have shown that responding the survey should only take about ten minutes in
order to be accepted by the user568. Further, the questionnaire should be structured and clear.
Using all theoretical aspects mentioned above the developed questionnaire shows five sec-
tions.
Section Description Questions

1. General data of It is important to know what type of bank answered the
the answering questionnaire. Legal form, age, size in form of balance sheet
banks sum or number of employees, trading book character and 6
stock listing help to verify the representativeness of the sur-
vey.
2. Questions related Shareholder value management and evaluation of the
to the used bank bank’s value belong together. Perhaps, some relations be-
3
controlling tween the evaluation method and the level of bank control-
ling can be stated.
3. Questions accord- This central part of the survey contains the most important
ing to the methods questions according to the presented models and their usage
or recognition in practice. Further, this section quantifies the 8
of corporate
evaluation number and form of used models.
4. Data for an indi- The survey consists of 2.5 pages asking for the individual
vidual corporate bank data as balance sheet, income statement and internal
5
evaluation569 controlling data. Based on this information, the banks’ value
570
will be quantified later on .
5. Final questions The answerers had the possibility to give final comments.
Further, the aspect of anonymity was asked. The question,
3
whether the bank likes to be informed about the results con-
stitutes the end of the questionnaire.
25
Table 11: Structure of the questionnaire571
566
Cf. Kotler/Armstrong (2004), p. 154.
567
Cf. Perseus (2004), p. 14.
568
Cf. Perseus (2004), p. 14.
569
Analyzed in detail in section 4.
570
Cf. section 5.
571
Author’s own table, cf. appendix 3.
The questionnaire consists of 8 pages572 – answering all questions within 10 minutes is not
possible as the evaluation of the needed data in part 4 leads to research work for the answerer.
But sections 1-3 and 5 can be answered within 11 minutes573. The questionnaire was accom-
panied by an introduction letter574 and a confirmation letter of the FOM575 in which the uni-
versity asks the banks to answer the survey576. In total, 10 pages, printed on 5 pieces of paper
were sent via post. The questionnaire contained several definitions and explanations of special
aspects. Accordingly, it could be assured that the interviewees understand the questions simi-
larly.577
3.1.4 Defining the Target Group
In the next step the target group has to be modelled. In general, all banks in Germany could be
examined. The Bundesbank publishes a paper every year578 in which all those banks are struc-
tured that do banking as per definition of § 1 KWG579. These banks belong to several
groups580. In order to receive reliable results for classical all purpose banks, only those banks
that are independent and have a classical customer liability side were addressed581. Hence, the
addressable number of the target group decreases to 1,951 banks582. This number forms the
whole target group. Not the whole target group was considered for the survey. 750 banks
(38.44%) were set up manually in a database and addressed by mail.
572
Cf. appendix 3.
573
Betatests with banking colleagues.
574
Cf. appendix 1.
575
Abbreviation for Fachhochschule für Oekonomie und Management.
576
Cf. appendix 2.
577
Cf. appendix 3.
578
Cf. Bundesbank (2005).
579
Abbreviation for Kreditwesengesetz. Cf. § 1 KWG. This paragraph defines all possible activities that are
defined as “banking”.
580
Cf. Bundesbank (2005), pp. 1.
581
Cf. Bundesbank (2005), chapter II, section 1 without §53 KWG banks and subsections 1.4, 1.5, 1.6 and 1.8.
582
Cf. Bundesbank (2005), own counting.
3.2 Quantification of the Answers 57
Savings Bank, n = 458 215 243 Sum of target group: 1,951
Mortgage Bank, n = 24 24
Geno special., n = 15 15
Geno, n = 1277 954 323
Clearing House, n = 14 14
Bank, n = 158 32 126
Big Bank, n = 5 5
0 200 400 600 800 1.000 1.200 1.400
Clearing Geno, n = Geno special., Mortgage Savings Bank,

Big Bank, n = 5 Bank, n = 158
House, n = 14 1277 n = 15 Bank, n = 24 n = 458
Number adressed 5 126 14 323 15 24 243

Number not adressed 0 32 0 954 0 0 215
Figure 12: Target group and sample of the survey583
Deducting the number of addressed banks had to be done proportionally in order to address a
representative sample584. This was done accordingly, the whole target group and the sample is
represented in figure 12. The small subgroups were addressed completely as the response
probability decreases the bigger a company is. About half of the savings banks, 25% of the
Genos and 80% of the private banks were addressed. The survey was sent out on Monday,
May 15th, 2006 in order to be received by the banks at a Tuesday or Wednesday, as this is an
optimal receiving day585.
3.2 Quantification of the Answers
3.2.1 Return Ratio and Representativeness
Before discussing the results, the return rate and the representativeness of the survey have to
be analyzed. Exactly 750 letters were sent out, 15 negative responses came in. In 17 cases586,
a 2nd attempt was done. This led to 3 more responses, including one big bank. All in all, 51
583
Author’s own figure referring to Bundesbank (2005), pp. 3. Changes: Deutsche Postbank AG was defined as
big bank, DekaBank, clearing houses of the savings bank sector, DZ Bank and WGZ Bank were subsumed
under the category clearing house. n = number in the whole target group.
584
Cf. Höpflinger (2002).
585
Cf. Dillman (1978), pp. 180.
586
Including some personal contacts. Not all negative responses were contacted twice. But some banks that
gave no answer were asked again.
banks answered the questionnaire587. This leads to a response rate of 6.80%, as the following
table shows:
All banks Adressed banks Answering banks

Kind of Bank Number in Number Percentage Number Percentage Percentage
Germany adressed contacted answered answered of all banks
Big Bank 5 5 100.00% 2 40.00% 40.00%
Bank 158 126 79.75% 7 5.56% 4.43%
Clearing House 14 14 100.00% 0 0.00% 0.00%
Geno 1,277 323 25.29% 21 6.50% 1.64%
Geno special. 15 15 100.00% 3 20.00% 20.00%
Mortgage Bank 24 24 100.00% 2 8.33% 8.33%
Savings Bank 458 243 53.06% 16 6.58% 3.49%
Sum 1,951 750 38.44% 51 6.80% 2.61%
Table 12: Response rate and representativeness, n = 51588
Even though this rate seems to be low at a first glance, the quality of the return ratio has to be
verified. Several arguments have to be mentioned: First, some German savings banks have the
order of the local RSGV589 not to answer any queries without the consent of the RSGV. Even
good personal contacts of the author did not always lead to a result. Further, the survey asked
for secret data a bank often does not want to publish. Last, the topics of the survey and even
some questions are relatively complex. Even though all models were defined and explained in
the questionnaire, the understanding of the presented models just based on a short introduc-
tion in the questionnaire is difficult, if the interviewee has never heard about these topics be-
fore. This is perhaps a first hint that German banks do not focus on corporate evaluation at the
moment.
In addition, it has to be mentioned that similar professional surveys590 that usually generate
higher ratios show similar results, whenever banks are not obliged to answer591. For example,
Ernst & Young did a survey according to shareholder value in the German banking sector in
1996. About 80% refused to answer the questionnaire592. Baetge/Heumann received 11.5%593
and only Grimmer can offer a rate of 25%594.595
587
Cf. the answers of the survey.
588
Author’s own table referring to the survey.
589
Abbreviation for Rheinischer Sparkassen- und Giroverband.
590
Discussed in detail in section 3.4.1.
591
An obligation often occurs in surveys of the BaFin, Bundesbank or even DSGV (Deutscher Sparkassen- und
Giroverband).
592
Cf. Ernst & Young (1997), p. 2.
593
Cf. Baetge/Heumann (2006), p. 348.
594
Cf. Grimmer (2003), p. 200.
595
These surveys are discussed later on. Cf. section 3.4.1.
3.2 Quantification of the Answers 59
The consideration of those aspects leads to the conclusion that 6.80% can be treated as a rela-
tive good ratio – as 750 banks were addressed, the total number of 51 surveys leads to reliable
results. Furthermore, it has to be mentioned that only a few answers were not filled in. The
quality of the answers is very high.
With respect to the question as to whether the results were representative, it can be said that
the results are positive. 2 of 5 big banks answered, 7 private banks, many Genos and many
savings banks596. This represents almost the whole target group. As the return ratio is 6.80%,
the ratio related to the target group is 2.61%. All banking groups show similar results – only
big banks and specialized Genos show a higher rate, as they have a small basis number. There
is only one exception that needs to be mentioned. No clearing house answered the question-
naire. However, for all other banks, the survey can be treated as representative. Only in cases
very few banks answered, the results might be treated carefully when doing general conclu-
sions according to the target group.
3.2.2 Date of Return
The addressed banks were asked to answer the questionnaire as soon as possible. Neverthe-
less, it took about 6 weeks, up to July 1st, until all questionnaires were returned to the author.
This period is visualized in the following figure:
7
100%
6 90%
80%
cumulated percentage of returns

5
70%
number of returns
4 60%
50%
3
40%
2 30%
20%
1
10%
0 0%
15/05/2006
22/05/2006
29/05/2006
05/06/2006
12/06/2006
19/06/2006
26/06/2006
number of returns per day Cumulated percentage of returns
Figure 13: Distribution of returns of the survey, n = 51597

596
Cf. table 12.
597
Author’s own figure. The date of return was defined as the date of postal income at the author’s home.
The reason was often that internal data had to be evaluated. The banks that only answered the
sections 1, 3 and 5 responded earlier, on average on June 1st, 2006. Banks with the interest in
a corporate evaluation answered on average 5 days later598. Within a month, 44 banks of the
51 answered the questionnaire. It was surprising that many banks took such a long time. This
is again a hint for the fact that German banks are not familiar with corporate evaluation. Gath-
ering the data is a difficult process. For this reason, 51 responses have to be treated as a good
result.
3.3 Analyzing the Results
Analyzing surveys belongs to the deductive statistics, as the main objective of deductive sta-
tistics is to describe the data selected and to analyze them599. Several approaches will be used
here. They can be clustered according to the number of variables used600. If only one variable
is used, frequency allocation is the main analysis tool601. If two variables are combined, cross
tables602, correlation analysis603 or regression analysis604 can be done. Approaches using three
or more variables have different methods to generate dependence or independence analysis605.
Discriminates analysis, multiple analysis of variance, tree analysis, cluster analysis and factor
analysis can be mentioned606.
During this analysis, the frequency analysis will be the most important tool, but some of the
approaches using two or more variables will be used as well. The questionnaire will be ana-
lyzed according to its five sections.
3.3.1 Section 1: General Data according to the Bank
The first section wanted to find out some general criteria of the answering banks. The first
question asked for the number of employees. This was one of the questions the interviewee
had to fill in a number. The clustering of the employees was done afterwards as the exact
number has to be used later on607. The reason is that the same question should not be asked
twice in a survey. The same was done with question 2, in which the balance sheet sum was
598
Author’s own calculations based on the return date.
599
Cf. Bleymüller/Gehlert/Gülicher (1996), p. 1.
600
Cf. Berekoven/Eckert/Ellenrieder (2004), p. 197, p. 211.
601
Cf. Bleymüller/Gehlert/Gülicher (1996), p. 8 and Berekoven/Eckert/Ellenrieder (2004), p. 198.
602
Cf. Berekoven/Eckert/Ellenrieder (2004), pp. 203.
603
Using the correlation coefficient, cf. Poddig/Dichtl/Petersmeier (2000), pp. 144.
604
Cf. SPSS (2003), p. 2 and Berekoven/Eckert/Ellenrieder (2004), p. 206.
605
Cf. Berekoven/Eckert/Ellenrieder (2004), pp. 197, p. 211.
606
Cf. Berekoven/Eckert/Ellenrieder (2004), pp. 197, p. 211.
607
Cf. Section 5.
3.3 Analyzing the Results 61
evaluated. The bank had to fill in the actual balance sheet sum. Visualizing both results leads
to the following figure608:
1.1
15
Employees: Number of answers
10
15
14
6 6
5
2 2 1
0
more than
between 0
between 100
between 250
between 500
between 1000
between 2000
not answered
and 100
and 1000
and 250
and 500
and 2000
and 3000
3000
Employee cluster
1.2
20
Balance sheet sum: Number of answers
15
10
18
5 9
7 6
5
4
2
0
10000 and
more than
between 0
between 500
between 1000
between 2500
between 5000
between
and 500
and 1000
and 10000
25000
25000
and 2500
and 5000
Balance sheet sum cluster
Figure 14: Clusters of employees and balance sheet sum, n = 51609
608
All figures show the number of the related question in the upper left corner.
609
Author’s own figure based on the results of the survey. Balance sheet sum in Mio. €.
The first conclusion coming out of this figure is that the answering banks are widespread in
their size. The majority however comes from small banks with a low balance sheet sum and a
small number of employees. Most German banks are small, so this confirms the statement that
the study is representative.
Both results can be combined in order to find out what kind of banks answered the question-
naire. Classical all purpose banks must have a certain relation between employees and balance
sheet sum. If the balance sheet of the bank consists of customer deals, many employees will
be needed to serve the customers. So questions 1.1 and 1.2 are combined in the following ta-
ble:
1.1 & 1.2 Balance Sheet sum in Mio. €

0 - 500 500 - 1000 1000 - 2500 2500 - 5000 5000 - 10000 10000 - 25000 > 25000 Sum
between 0 and 100 13 1 0 0 0 0 1 15
between 100 and 250 4 6 3 0 0 1 0 14
between 250 and 500 0 0 5 1 0 0 0 6

Employees
between 500 and 1000 0 0 1 4 1 0 0 6
between 1000 and 2000 0 0 0 0 4 0 1 5
between 2000 and 3000 0 0 0 0 1 1 0 2
more than 3000 0 0 0 0 0 0 2 2
not answered 1 0 0 0 0 0 0 1
Sum 18 7 9 5 6 2 4
Table 13: Employees vs. balance sheet, n = 51610
The table makes clear that most of the banks must be classical all purpose banks, as there is a
dependency between the number of employees and the balance sheet sum. Only two banks do
not fit into this scheme: both can be found in the upper right corner. The balance sheet sum is
high while a relatively low number of clerks is employed. The analysis leads to the result that
the two banks are exactly the two mortgage banks that answered the questionnaire611. But in
general, the dependency between employees and balance sheet sum is significant. This is im-
portant for the analysis afterwards. First, the answers during the following sections are typical
for general banks but not for specialized banks. Further, the corporate evaluation612 can be
based on similar assumptions, as the structure of the banks seems to be the same.
The age of the company was quantified in question 1.3. The reason for that is rather simple.
The probability that young companies were created by a merger is relatively high. A corporate
evaluation had to take place for this. Further, this question should prove the survey to be rep-
resentative. The following figure visualizes the results:
610
Author’s own table referring to the analyzed data of the survey.
611
Banks 173 and 185.
612
Cf. section 5.
1.3 1.96% 1.96%

11.76%
7.84%
76.47%
less than 10 years more than 10 years more than 25 years

more than 50 years not answ ered
Figure 15: Age of the company, n = 51613
In total, 39 banks have existed for more than 50 years. The German banking sector is rela-
tively old. Even though many mergers took place614, the banks that bought other companies
continue to exist under the old name. Another interpretation can be that only a few banks did
a merger in the past. A consolidation will perhaps take place, as many small banks exist.
Questions 1.1 – 1.3 lead to the result that the survey is at least representative in a qualitative
way. The target group is represented in an adequate way. The first result coming out of these
questions is that the German banking sector is again under pressure to merge or to buy other
companies. A very old structure with a high number of small-sized banks forms attractive
targets for institutional investors, for example big banks or even foreign banks.
Questions 1.4 and 1.5 deal with the trading book character615 and the stock listing. From the
51 answering institutes, 16 are defined as a trading book bank and two are stock listed616. So
all possible bank types answered the questionnaire; the representativeness is given.
613
Author’s own figure based on the results of the survey.
614
Cf. section 1.1.
615
For the definition of a trading book cf. BaFin (1999), discussed in detail in Reuse (2006), p. 380.
616
Cf. questions 1.4 and 1.5 of the survey.
The last question of section 1 deals with the spread a bank has to pay for unsecured debt fi-
nance at the capital market. Not all banks answered this question, as the following table
shows:
Type of Bank Number of Number of Spread in %

surveys responses
answered
Big Bank 2 1 0.115%
Bank 7 3 0.193%
Geno special. 3 2 0.325%
Geno 21 16 0.159%
Mortgage Bank 2 2 0.093%
Savings Bank 16 12 0.158%
Sum 51 36 0.166%
Table 14: Average spread of the banks, n = 36617
The question aims at two purposes. First, the average risk premium a bank has to pay for its
own risk shall be quantified, as it will be used later on618. Further, banks that have a high
spread have a high risk as well – they and their answers have to be treated differently, as they
could perhaps almost be bankrupt. The result is interesting, as the spread of all banking
groups is almost the same. All spreads are below 0.35%, the average is about 0.17%. This is
relatively low compared with other companies619. Therefore, the German banking sector has a
good image at the capital market; banks have the market power to set low spreads620. Further,
the analyzed banks are homogenous enough to be treated similarly when analyzing the corpo-
rate value621.
3.3.2 Section 2: Bank Controlling and Value Based Management
Value based management or shareholder value and corporate evaluation determine each
other622. The main target of shareholder value is to increase the value for the shareholders623 –
quantified by the (market) value of the company. Integrating these aspects into the manage-
ment became famous in the eighties624. Hence, the form of bank controlling, the used ratios
617
Author’s own table based on the survey.
618
619
Cf. for example Reuse (2003.12).
620
Exceptions surely exist, as some interviewees offered a higher rate in the questionnaire.
621
Cf. section 5.
622
623
For the economic definition of value cf. Bretzke (1976), p. 153 and Stützer (1976), columns 4404.
624
Cf. Günther (1995), p. 13.
and values to control a bank determine the importance of corporate evaluation in the German
banking sector. If value-oriented numbers are not quantified, evaluating the company’s value
will not be useful for a bank. So section 2 of the survey wants to show, how good the condi-
tions for corporate evaluation in the German banking sector are. Only if these conditions are
good, a German bank will evaluate its own value voluntarily – and not only in case of a take-
over.
Question 2.1 deals with the integrated bank controlling. This can be defined as an optimal
risk/return allocation of economic equity625. Management has to set strategic goals, in which
market or asset the economic equity has to be invested in. This is a typical behaviour of a
value based management, so fulfilling this criterion would lead to the conclusion that a bank
does shareholder value management. The banks answered the question as shown in figure 16.
2.1 3.92%
Yes
47.06% only partly
no
49.02%
Figure 16: Integrated bank controlling, n = 51626
At first glance, the result seems to be positive. About 49% or 25 banks offer an integrated
bank controlling, 24 banks at least partly and only 2 banks answered “no” to this question.
Having an integrated bank controlling would mean that the bank is able to define the present
value of its own in order to define, which parts of this present value can be set “under fire” as
625
Cf. Rolfes (1999), p. 3; Rolfes (1999.04); Schierenbeck (2001a), pp. 22 and Propach/Reuse (2003), pp. 324.
626
Author’s own figure based on the survey.
economic equity627. A present value-oriented risk capacity is the first step for an integrated
bank controlling628.
Question 2.2 asked for the priority of the banks in their controlling process. Optimizing the
income statement was opposed to optimizing the value of the bank. It was the intention not to
offer a solution in between, as most would have chosen this one, even if they do not manage
the bank based on shareholder value. The result was interesting: 40 banks (78%) answered
that optimizing the income statement has priority while 11 banks629 prefer value based opti-
mization630. This result seems to be more typical for German banks – the income statement
and the balance sheet still remain the most important value drivers in practice.
In order to verify the quality of these responses, the result was combined with question 2.1.
An integrated controlling should normally lead to an optimization of the present value. Oth-
erwise, it is not installed correctly. The integration of the two questions is visualized in figure
17:
2.1 vs. 2.2

30
25
2
Number of Answers
20 9
15
23
10
15
5
0 2
Yes only partly no
Having an integrated Bank Controlling?
Optimizing Income statement Optimizing Present Value
Figure 17: Integrated bank controlling vs. priority of optimizing, n = 51631
627
Cf. Reuse (2006), pp. 427 and Rolfes (1999), p. 5.
628
Cf. Rolfes (1999), p. 4.
629
Two banks marked both solutions, even though only one answer was requested. But they offered an addi-
tional text that proved that value-orientation seems to have a higher priority. So “optimizing the value” was
chosen. Banks 657, 750.
630
Cf. question 2.2.
631
This result qualifies the results of question 2.1. Only in 9 of 24 cases (38%), the optimization
of the present value fits with the usage of an integrated bank controlling. 15 banks answering
that they have an integrated bank controlling do not optimize the bank’s value. These answers
are inconsistent, so that 17.7%632 are the only banks that do real value based management in
Germany. The distribution is interesting: 3 savings banks, 3 Genos, one big bank, one private
bank and one mortgage bank have chosen this combination633.
Question 2.3 deals with several controlling ratios. Their usage634 and their valuation635 were
tested in order to find out, whether value based controlling numbers are accepted or even used
in practice. But therefore, a short introduction of these numbers shall be given636. This is done
in the following table, in which all ratios are clustered. Ratios that consider more than one
period and have a focus on the value of the bank are rather defined as shareholder value-
oriented, one-periodic variables and income statement based methods belong to the periodic
variables. These ratios almost do not have anything to do with optimizing the shareholder
value or the corporate value.
Value / ratio Short explanation Rather periodic

view or SV637
a) Present Defined as the value of all assets, especially the yield book638. This SV639
value of is the central controlling number for a shareholder value based
the bank management.
b) EBT Classical part of the income statement640. In the query, a value Periodic
before or after value corrections was used.
c) Value at The Value at Risk defines the maximal loss that may occur in a SV
Risk certain time with a certain probability641. Normally used for a
shareholder value management.
d) RORAC642 Defined as net return of an asset divided through the corresponding SV
Value at Risk643. Used to optimize the expected return on a present
value basis.
e) RAROC644 Defined as RORAC (Benchmark) minus RORAC (own Asset)645 in SV
order to measure if the own assets are better than the benchmark646.
632
9 of 51 banks.
633
Cf. questions 2.1 and 2.2 of the survey.
634
Yes or no.
635
In a range of 1 (best) – 4 (worst).
636
The questionnaire contained a short German explanation of all variables, cf. appendix 3.
637
A similar structure can be found in Weber (2004), pp. 246.
638
Cf. Reuse (2006), pp. 409, 428.
639
Abbreviation for Shareholder Value.
640
A typical structure can be found in Schierenbeck (2001a), p. 417.
641
Cf. Rolfes (1999), p. 104; Gramlich/Peylo (2000), pp. 508; Reuse (2003.10), pp. 25 and Reuse (2006.07-08),
pp. 366.
642
Abbreviation for Return On Risk Adjusted Capital.
643
Cf. Rolfes (1999), pp. 32 and Schierenbeck (2001b), p. 42, p. 544.
644
Abbreviation for Risk Adjusted Return On Risk Adjusted Capital.
645
Cf. Rolfes (1999), p. 32 and Schierenbeck (2001b), p. 46.
646
Cf. Rolfes (1999.04), p. 18.
Value / ratio Short explanation Rather periodic

view or SV637
648 . 649
f) EVA647 Defined as NOPAT - (capital yield invested capital) . De- SV
scribes the value that is generated after having paid out yield to
shareholders and debt holders. The EVA is the central value based
ratio650, as the correlation between EVA and share price is very
high651.
g) CIR652 The cost income ratio divides the costs through the earnings653 and Periodic
defines, how much one € of earnings cost on average. It is rather a
periodic variable as only income statement aspects are considered.
h) ROE654 Return in relation to the equity655. As the return from the income Periodic
statement is used, this ratio is rather periodically oriented656.
i) Growth of Some banks define growth as a strategic goal. As this has only Periodic
BS influence onto the balance sheet and not directly onto the share-
growth657 holder value, it is rather a periodic variable.
j) Market Market share cannot be found in the income statement, but it has an SV
share influence on expected earnings and is thus defined as rather share-
holder value-oriented.
k) Value of The value of a brand as an intangible asset leads to expected add SV
brand ons in the earnings as well. As the direct value cannot be seen in
the income statement, it is rather a shareholder value-oriented num-
ber.
l) Contribu- Defined as customer yield compared to market yield minus variable Periodic
tion mar- costs658. As only one period is considered, it can be treated as a
659
gin periodic variable .
m) Present Discounting the contribution margin considers all periods. The SV
value of present value of all contribution margins has a direct impact onto
CM660 the company’s value. It is a shareholder value-oriented number.
n) Balanced The balanced scorecard661 is a multidimensional, all-embracing set SV
Scorecard of controlling numbers. Its target is to control the transformation of
662
strategic goals into operative actions . In case of a divergence,
hints shall be given663. It consists of four perspectives664 that are
long-term oriented. Therefore, it is rather shareholder value-
oriented.
Table 15: Structure of controlling variables/ratios665
647
Abbreviation for Economic Value Added.
648
Abbreviation for Net Operating Profit After Taxes.
649
Cf. Stewart (1991) and Weber (2004), p. 250.
650
651
Cf. Schultze (2003b), p. 462 and Ballwieser (2004), p. 187.
652
Abbreviation for Cost Income Ratio.
653
Cf. Schierenbeck (2001a), p. 422, p. 437.
654
Abbreviation for Return On Equity.
655
Cf. Schierenbeck (1998), pp. 64 and Schierenbeck (2001a), p. 431.
656
Cf. Weber (2004), p. 246.
657
Abbreviation for Balance Sheet.
658
659
A full cost approach is done in Frère/Reuse (2006), p. 488.
660
Abbreviation for Contribution Margin.
661
Cf. Kaplan/Norton (1992), pp. 71 and Kaplan/Norton (1997), pp. 23.
662
Cf. Kaninke/Wiedemann (n.Y.), p. 3.
663
Cf. Propach/Reuse (2005), p. 440.
664
Cf. Kaplan/Norton (1997), pp. 23.
665
Author’s own table based on the survey.
The banks were asked to describe the usage and importance of these ratios. But the above
mentioned categorization was not given in order not to influence the answers of the banks. At
first, the usage of the ratios is analyzed, independently from the valuation:
2.3a
100% 1 1
4 3
7 9
90%
16
80%
percentage of usage/no usage
23 22
70% 29
38
60% 41
46 46
50% 50 50
47 48
44 42
40%
35
30% 29
28
20% 22
13
10% 10
5 5
0%
h) ROE
d) RORAC
e) RAROC
g) CIR
n) BSC
c) VaR
f) EVA
l) CM
b) Annual Return
i) BS growth
a) Bank`s PV
m) PV of CM
k) Value of brand
j) Market share
Usage: Kind of controlling variable Yes No
666
Figure 18: Usage of controlling variables, n = 51
The result is disappointing. The CIR, ROE, annual return and the growth of balance sheet are
the top four used variables – all of them are rather periodically oriented and have not much to
do with shareholder value. The only positive aspect is that the VaR is the 5th value mentioned.
However, the combination of risk and return often is not done in the German banking sector,
as EVA, RORAC and RAROC are not used very often. The impulse for the corporate evalua-
tion aspect is that real shareholder value management is not done – and thus the necessity of
an evaluation is not given.
This is supported by the average grade the banks gave to the variables:
666
Author’s own figure referring to the above mentioned sources and the survey.
2.3b
1.00 1.16
1.34
1.77
1.83
1.96
2.07
2.00
Average valuation
2.20
2.32
2.38 2.41
2.50
2.83
3.00 2.95
3.00
4.00
d) RORAC, n =34
h) ROE, n =47
e) RAROC, n =26
g) CIR, n =50
n) BSC, n =24
c) VaR, n =45
f) EVA, n =22
l) CM, n =42
b) Annual Return,
i) BS growth, n
a) Bank`s PV, n
m) PV of CM, n
k) Value of brand,
j) Market share, n
=49
=32
=40
n =50
n =18
=37
Kind of controlling variable
Figure 19: Average grade of controlling variables, n = 51667
Annual return, CIR and ROE get the best marks. RAROC as the best approach in theory gets
the worst mark with a 3.00. Further, the intangible aspects as for example the value of a brand
get a very low importance. This shows that banks have not recognized that their brand may
lead to real shareholder value.
Combining usage of the variables and the valuation is interesting again. The average usage of
periodic and value-oriented numbers are aggregated. This leads to table 16:
Kind of Variable Cumulated average usage Average

Yes No valuation
Periodic variables (5) 92.94% 7.06% 1.65
Shareholder Value (9) 41.61% 58.39% 2.44
Table 16: Usage and valuation of controlling variables, n = 51668
On the one hand, German banks use the given periodic variables on average in 93% and give
them an average degree of 1.65. On the other hand, only 42% of the shareholder value-
667
Author’s own figure based on the survey. The ratio n differs in relation to the valued variable as not all
banks valued every ratio.
668
Author’s own table based on the survey. PV is an abbreviation for Present Value.
oriented numbers are in use in practice. The grade given is 2.44. This visualizes the inherently
and not directly mentioned mentality. Many banks say that they do shareholder value man-
agement. Taking a closer look leads to the result that the real management does not consist of
shareholder value management. This significant difference would not come up, if shareholder
value was practiced in German banks. This can be complemented with a last cross check.
Combining question 2.2 and 2.3a leads to the result that 25 of 40 banks that optimize their
income statement use the present value of the bank669. So, both controlling mentalities are
represented in the German banking sector – but none is transferred into practice consequently.
Summarizing the main results of section 2 of the questionnaire leads to the following aspects:
Shareholder value is in fact not famous in German banks, even though the first view might
have led to other results. Therefore, the circumstances for corporate evaluation in the German
banking sector are not good. The necessity has not been seen yet by German banks.
3.3.3 Section 3: Question according to Corporate Evaluation
Section 3 as the “heart” of the questionnaire analyzes the usage and the name recognition of
the corporate evaluation methods explained above670. Question 3.1 asked whether the compa-
nies know the approaches. This is shown in the following figure:
3.1a 100%
2 1 1 1 1 1 2
5
percentage of those who know the approach
90% 10
80% 19
23
70%
37 35
60%
40
50%
45
40% 40
30% 31
26
20%
13 15
10% 9
0%
Real Option
Equity Approach
Entity Approach
Reproduction
Liquidation Value
Earnings Value
Comparable
Approach
Multiplier /
Company
Analysis
method
Value
Yes No n.a. Kind of evaluation approach
Figure 20: Name recognition of evaluation approaches, n = 51671
669
Cf. questions 2.2, 2.3 and figure 17.
670
Cf. section 2.2.
671
Author’s own figure based on the survey. n.a. = no answer.
The earnings value method is known in more than 80% of the banks. The second famous ap-
proach is the liquidation approach. On the one hand, this surprises, as theory has shown that
this method is not optimal to value a company672. But on the other hand it has to be stated that
evaluating the bank’s value by a liquidation method is quite simple. It is disappointing that the
multiplier approach is only known in 15 banks. Further, the equity approach is only at number
three, even though theory has shown that it is the best approach for valuing banks. The low
presence of the real option approach is not surprising. In a traditional sector like banking, this
approach is not used very often.
The majority mentions the earnings value approach. But how do the answerers value it? This
was quantified in the second part of question 3.1673. The banks were asked to give marks from
1 (best) to 4 (worst). It was intention that no middle category could be chosen in order to get
clearer results. Figure 21 visualizes the results:
3.1b
1.00
2.00
Average valuation
1.93
2.00
2.14
3.00
2.25
2.70
2.78
3.22
4.00
Real Option
Equity Approach
Entity Approach
Reproduction
Liquidation Value
Earnings Value
Company Analysis
Approach
Comparable
method
Value
Multiplier /
Kind of valuation approach
Figure 21: Valuation of the approaches, n = 51674
The marks given show quite a different result. The equity approach is valued more favourably
than the earnings value approach, even though the number of those who know the earnings
672
Cf. section 2.2.1.
673
Only those who know the approach were asked to value it. Sometimes, no valuation was given; sometimes a
valuation was given without knowing the approach. As it seems that the answerers missed up “usage” with
“knowledge”, all answers in this part were counted, independent from the first part of question 3.1.
674
Author’s own figure based on the survey. n differs in relation to the valued variable as not all banks valued
every approach.
value approach is higher. It is interesting that the entity approaches get such a good mark, as it
is not useful for banks675. This might have two reasons: On the one hand, the question was not
specialized on the banking sector. In other sectors, the entity approach might be useful. On the
other hand, only one bank676 recognized and mentioned that this approach is not optimal for
banks. The author expected more of those comments. This is another hint that most of the
German banks do not concentrate on corporate evaluation.
Real option approach, reproduction and liquidation approach got relatively bad marks. So the
best approaches in theory get the best marks in practice – with the exception of the entity ap-
proach. This general result has to be treated as positive.
Question 3.2 deals with the central aspect of the survey: does the bank evaluate its own value?
The result can be summarized as follows:
3.2
No, but we plan

12%
No
Yes No, and we do not plan
53% 29%
47%
No, and n.a.

12%
Figure 22: Evaluation of the own value, n = 51677
About half of the banks evaluate their own value. This has to be considered positive. Even if a
shareholder value-oriented management often is not implemented in the core processes678, the
prerequisites were created. Adding the 12% of those that plan to evaluate their own value
leads to a contingent of 59%. Corporate evaluation is more important in the German banking
sector than the first questions might have indicated – but the development is at its beginning.
Analyzing the 47% positive answers according to the bank type leads to the following result:
675
676
Bank No. 3, a big bank.
677
678
Cf. section 3.3.2.
Kind of Bank Number Number with Percentage

answered evaluation
Big Bank 2 2 100.00%
Bank 7 3 42.86%
Geno 21 12 57.14%
Sum 51 24 47.06%
Table 17: Evaluation of the own value according to the bank type679
The two big banks evaluate their own value. This is quite logical, as they are stock-listed and
thus have to fulfill other criteria. Private banks show a ratio of about 50%. The rate of the
Genos is a bit higher, 12 of 21 evaluate their own value. The savings bank sector shows a
lower result as only 6 of 16 banks evaluate the corporate value.
The result of 47% is fairly good, but further improvement is still possible. As an integrated
bank controlling requires the value of a bank680, those banks which say “no” now will proba-
bly evaluate their value in the future. Another aspect has to be mentioned. Several methods of
evaluating the risk covering mass exist in practice. Since the implementation of the
MaRisk681, this has to be done by German banks682. If the models of risk covering mass
evaluation are based on a present value approach683, parts of them can be used for a corporate
evaluation as well. Perhaps, banks do not know that they can recycle these aspects – and that
they do a kind of corporate evaluation in practice.
As from now, sector 3 had to be answered only by those 24 banks that evaluate their value.
Question 3.3 asked, for how many years the own value was quantified.
679
Author’s own table based on the survey. Without clearing houses as no clearing house answered the ques-
tionnaire.
680
Cf. Thaller (2005), p. 144.
681
Abbreviation for Mindestanforderungen an das Risikomanagement.
682
Cf. BaFin (2005a), AT 4.1.
683
As done in Reuse (2006), pp. 427.
3.3 8.33%
33.33%
58.33%
betw een 0 and 3 years betw een 3 and 6 years more than 6 years
Figure 23: Age of corporate evaluation, n = 24684
The majority of 58% mentioned a time frame of 0 – 3 years. This again leads to the conclu-
sion that methodology and theory have just established and that extensions will occur in the
future. Only 2 companies have evaluated their own value for more than 6 years685. These
companies have an integrated bank controlling and the most important controlling method is
the present value686. A qualitative but not quantitative significant thesis is that quantifying the
own value will lead to an implicit shareholder value management during time.
The next question deals with the frequency of corporate evaluation. This is shown in figure
24:
684
Author’s own figure referring to the survey.
685
Including one big bank and one Geno.
686
Cf. questions 2.1 and 2.2, concerning bank 3 and 611.
3.4
13
12
11
10 12
Number of answers
9
8
7
6
5
4
3 4 4
2
1 3
0
1
0
daily
monthly
yearly
sporadic
quarterly
weekly
rhythm of corporate evaluation
Figure 24: Frequency of corporate evaluation, n = 24687
The result is interesting. About 12 of the 24 banks that evaluate their value (50%) do this
monthly. This leads to two conclusions. First: those banks that evaluate their own value do it
very thoroughly. Second, the method of corporate evaluation seems to be integrated into a
monthly process. This may be the risk cover mass evaluation process. So implicitly banks do
corporate evaluation – perhaps without knowing it.
This is verified by question 3.5 which asked for the reason for the corporate evaluation. The
result is unequivocal:
687
3.5
25
20
Number of answers
22
15
10
5
1 1 1
going public
fusion
(partly) selling
value oriented
of company
controlling
bank
reason for corporate evaluation
Figure 25: Reasons for corporate evaluation, n = 24688
In total, 22 banks use the value for the value-oriented bank controlling. This does not fit the
questions in sector 2, in which the priority of management was rather defined as optimizing
the income statement. The answers, however, lead to the conclusion that a shareholder value
management is under construction. At least in a second controlling workflow, the present
value-oriented ideas become famous. Further, the approaches for a bank evaluation seem to be
used implicitly.
Question 3.6 deals with the used approach. All theoretical approaches689 that were asked in
question 3.1 are available. The result can be shown as follows:
688
Author’s own figure based on the survey. 24 banks gave 25 answers as double answers were possible.
689
Cf. section 2.2.
3.6 15
Number of answers
10
12
5
6 5
1 1 3 1 3
Real Options
Reproduction
Multiplier
Equity
Earnings
Others
Entity / APV
Liquidation
Value
Value
m ethod of corporate evaluation
Figure 26: Used approach for corporate evaluation, n = 24690
The most often used approaches are the earnings value method and the equity approach. This
is consistent with the theoretical conclusion that these approaches fit best to a bank. The entity
approach was only used once – so the aspect that it is normally not useful for banks is has
been proven in practice as well. It is wondering at a first glance that the liquidation approach
is used in 5 banks. This has to be differentiated. It appears that not every bank was able to
structure its approach into the right category. Even the three “other” approaches show aspects
of the equity approach. Two of them mention the present value691. Inherently, the usage of an
equity approach is much higher than expected.
Question 3.7 asked for the implementation of intangible assets692. The result was very disap-
pointing. Only one bank implements this factor into its evaluation, the others do not. This
shows that the methods of corporate evaluation in the German banking sector just focus on
monetary aspects. Immaterial hidden reserves are not considered, so the real value of the
banks is not quantified. This leads to a marketing problem of German banks. Their brand
name is very high, even in the savings bank pillar693, but the banks are not able to communi-
cate this in the right way. In the author’s opinion, this lack of information led to the high
merger rates in the past.
690
Author’s own figure based on the survey. 24 banks gave 32 answers, as double answers were possible.
691
Banks 410 and 611.
692
A structure of intangible assets can be found in Aschoff (1978), p. 40 and Scholz (2004), p. 24.
693
For the value of ”Sparkasse“ cf. Schulz/Weissenberger (2003), p. 5; Feldmann (2004) and Drost/Telgheder
(2006).
Question 3.8 as the last point of this sector deals with the process of the gathered information.
Does management base any decisions on the results or not? This is shown in figure 27:
3.8
Yes, but no resulting

actions
Yes 46%
not answered
4% 92%
No
4% Yes, with resulting
actions
46%
Figure 27: Knowledge about the results, n = 24694
The result is positive. 92% of the banks state that the management knows about the results –
and even 46% base their decisions on these results. Shareholder value based management
seems to be under construction and in the testing phase. It will increase fast in the future.
Accordingly, the main information coming out of sector 3 is that corporate evaluation in the
German banking sector is making progress. Many banks seem to use the right tools implicitly
and the very young evaluation process will extend in the future.
3.3.4 Section 4: Individual Corporate Evaluation
The main gimmick of the questionnaire was that banks can get an individual corporate evalua-
tion. The data required for this is difficult to evaluate and often top secret. So, it would be
interesting to see, how many of the interviewees want to have an individual evaluation:
694
4.1
Yes
37%
No
63%
Figure 28: Interest in an individual corporate evaluation, n = 51695
In total, 19 banks (37%) wanted to have such an evaluation. Only 5 of them do this already on
their own. Hence, the demand for a corporate evaluation tool is very high in the market. The
detailed analysis of the data is not done here, as section 5 of this dissertation quantifies the
values of the banks according to the given data696.
3.3.5 Section 5: Final Amendments
The last three questions deal with general aspects. First, the additional comments have to be
mentioned697. Free amendments are done very seldom; just 7 comments could be stated698.
One interviewee was enthusiastic about the questions because of the economic knowledge699.
Another bank mentioned that more questions according to intangible assets should be done700.
Other constructive comments were not made.
The last two questions deal with the possibility of mentioning the name of the bank701 and the
wish to get the results702. Only 4 banks agreed to mention the names. One of these 4 banks
695
696
Cf. section 5.
697
Cf. question 5.3.
698
Cf. question 4.2.
699
Bank 381.
700
Bank 750.
701
Cf. question 5.2.
702
Cf. question 5.3.
3.4 Extended Analysis 81
wanted to have an individual corporate evaluation. This supports the argumentation that banks
offered sensible data – getting so much responses has to be treated as a success. Further, 40 of
51 banks (78%) want to have the results of the survey. This is a high ratio. The conclusion is
that those banks that answered the survey are very interested in this topic.
3.4 Extended Analysis
3.4.1 Comparison with Existing Surveys
The survey of the author was surely not the first one done in the German banking sector. Sev-
eral others have been done, but they were often created for another purpose.
The most important survey was created by the BaFin703 in September 2005704. This survey
was done in the German banking sector in order to quantify the interest rate risk of the yield
book. The advantage is that the BaFin asked detailed questions according to the yield book.
As a wish of the BaFin has a nearly obligatory character, 1,202 of the 2,052 addressed
banks705, that is 58.6%, answered the questionnaire706. The empirical quantification of the
cash flows was done in this survey707. Gliding averages for the variable liability side are
evaluated empirically708. As the main purpose was to measure the risk of maturity transforma-
tion, only the parameters for the value of the yield book and the sensitivity according to inter-
est rate shocks were discussed, but not the value of the yield book itself. Nevertheless, the
parameters for the gliding averages will be used in section 5.
The DSGV goes one step further. Twice a year, a so called present value-oriented comparison
in the savings bank sector is done. Every savings bank has to report its yield book cash flow
and present value. The DSGV compares them and evaluates the risk of the maturity transfor-
mation. Gliding averages are set by using the parameters of each individual savings bank. The
advantage is that the present value of a yield book is reported by using a standardized yield
book definition. The disadvantage is that no statements according to other parameters are
done and that the comparison is restricted to the yield book. 709
Baetge/Heumann did a current survey in 2006 that discusses the reporting duties according
to shareholder value-oriented numbers710. The main result is that investors demand a value-
703
Abbreviation for Bundesanstalt für Finanzdienstleistungen.
704
Cf. BaFin (2006).
705
Nearly the same target group as used in the author’s survey.
706
Cf. BaFin (2006), p. 2, p. 4.
707
For the detailed structure of the evaluation cf. BaFin (2005b) and BaFin (2005c).
708
Cf. BaFin (2006), p. 8.
709
Own argumentation, as only internal sources could be mentioned.
710
Cf. Baetge/Heumann (2006), pp. 345 – 350.
oriented controlling in order to quantify the value of the company. These aspects are dis-
cussed in a very orderly and structured manner. But this survey was not restricted to banks.
The return ratio of 11.5% shows711 that even professional surveys do not receive very high
return ratios.
Höhmann did a study in 1998 which was rather an examination than a survey712. He exam-
ined the annual reports of 17 stock-listed German banks and did a linear extrapolation of the
historical annual reports in order to prognosticate the annual surplus of the future. The results
seemed to be reliable, the coefficient of determination r2 was nearly always higher than
0.70713.
Ernst & Young asked German banks in 1996 according to the implementation of shareholder
value714. As mentioned above, 80% of the banks refused to answer the survey. The concept
was considered as very critical in German banks in 1996715.
In 2003, Grimmer did an analysis of the status quo of controlling in the banking sector716, in
which the dualism of optimizing the income statement and present value was analyzed. In
2003, the shareholder value was worth less then profitability or earnings717. This result fits to
the actual survey. Even the importance of earnings, balance sheet growth and CIR was the
same as in the author’s survey718. This proves again that the author’s study is representative.
Grimmer’s work was very structured and exact according to the value-oriented num-
bers/ratios, but questions according to the corporate evaluation were not given, as the main
purpose was another one.
The author’s survey thus shows several new aspects that have not been raised in the past in
this combination:
x Connecting value-oriented numbers with the real evaluation of the bank’s value.
x Asking for the name recognition of several corporate evaluation approaches.
x Quantifying the usage in the German banking sector.
x Offering an individual corporate evaluation719.
Accordingly, this survey leads to additional information compared to the existing surveys or
investigations.
711
Cf. Baetge/Heumann (2006), pp. 348.
712
Cf. Höhmann (1998), p. 129, p. 140.
713
Cf. Höhmann (1998), pp. 180.
714
Cf. Ernst & Young (1997).
715
Discussed in Kirsten (2000), pp. 49.
716
Not restricted to the German banking sector, cf. Grimmer (2003), pp. 199.
717
Cf. Grimmer (2003), p. 202.
718
Cf. Grimmer (2003), p. 205.
719
Done in section 5.
3.4 Extended Analysis 83
3.4.2 Scoring Model for the Quality of Value Based Management
Last, a qualitative scoring model should be set up that values the quality of corporate evalua-
tion respectively the value-oriented bank controlling. Therefore, several questions of the sur-
vey are scored with different numbers. This is shown in the following table:
Question Valuation Explanation

2.1 Integrated bank Yes 4 An integrated bank controlling is an important factor for a share-
controlling Partly 2 holder value-oriented controlling. The more importance an inte-
No 0 grated bank controlling has, the better a shareholder value-oriented
management is implemented. Indirectly, a necessity for corporate
evaluation is given.
2.2 Income state- Present value 8 Shareholder value management wants sustainable growth of the
ment vs. present IS720 0 company’s value, not only a high annual surplus. In order to pre-
value vent short term oriented management, the values 0 and 8 are given.
2.3 Usage of control- Yes 2 The more value-oriented controlling numbers are in use, the better
ling numbers No 0 it is for a corporate evaluation. So the usage of a shareholder value-
a) – n) oriented number is scored with a 2. In sum, 18 points are possible.
9 of 14 Per number
3.2 Evaluating the Yes 8 The evaluation of the own value is the central question. So it is
value we will 2 scored with 8. A 2 is given, if it is planned to do an evaluation.
No 0
3.3 Age of evalua- 0–3Y 1 The longer an evaluation is done, the higher the experience and the
tion 3–6Y 2 added value for the controlling are. As shown above, the two com-
>6Y 4 panies with more than 6 years show value-oriented numbers.
3.4 Frequency Daily 6 The more often the value is evaluated, the better it is. So the scores
Weekly 5 beside are given.
monthly 4
quarterly 3
yearly 2
sporadic 1
3.5 Reason VBM721 4 If the evaluation is done voluntarily, the only reason can be a value
Rest 0 based management. Therefore a 4 is given.
3.6 Approach Equity 8 As equity and earnings value are those which fit best to a bank, an 8
Entity 2 is given for them. Suboptimal approaches were valued with 2 – 6.
Liquid. 2 Their usage is added, so that 36 points are available for this ques-
Reproduction 2 tion.
CCA 6
Real Option 2
Earnings val. 8
others 6
3.7 Intangible assets Yes 6 Whenever the implementation of intangible assets is done, a real
No 0 shareholder value-oriented management exists. So the existence of
such an approach is valued with 6.
3.8 Information Nice to know 2 The evaluation of a bank’s value only makes sense, if the manage-
Deciding 4 ment acts on the basis of this information. So the evaluation on the
Not known 0 left side is defined.
Sum722 98
Table 18: Definition of the scoring model723
720
Abbreviation for Income Statement.
721
Abbreviation for Value Based Management.
722
Question 3.6 is added completely.
723
Author’s own table.
These scores can only be an indicator of a qualitative measurement of the quality of the man-
agement. An application of these scorings on the sample leads to the following results:
Place Bank No Scoring Kind of bank Employees Balance Sheet Sum

1 3 68 Big Bank more than 3,000 more than 25,000
2 750 64 Geno between 250 and 500 between 1,000 and 2,500
3 173 56 Mortgage Bank between 0 and 100 more than 25,000
4 611 54 Geno between 100 and 250 between 500 and 1,000
5 449 49 Geno between 500 and 1,000 between 2,500 and 5,000
6 381 46 Savings Bank between 500 and 1,000 between 2,500 and 5,000
8 191 43 Big Bank more than 3,000 more than 25,000
9 616 43 Geno between 500 and 1,000 between 5,000 and 10,000
10 400 42 Savings Bank between 1,000 and 2,000 between 5,000 and 10,000
11 211 41 Savings Bank between 250 and 500 between 1,000 and 2,500
12 489 41 Geno between 0 and 100 between 0 and 500
15 118 38 Bank between 100 and 250 between 1,000 and 2,500
16 124 38 Bank between 100 and 250 between 1,000 and 2,500
29 10 18 Bank between 0 and 100 between 500 and 1,000
33 159 16 Geno special. between 0 and 100 between 0 and 500
34 388 16 Savings Bank between 100 and 250 between 500 and 1,000
37 51 14 Bank between 1,000 and 2,000 more than 25,000
38 100 14 Bank between 2,000 and 3,000 between 5,000 and 10,000
41 11 12 Bank between 100 and 250 between 500 and 1,000
45 395 10 Savings Bank between 100 and 250 between 500 and 1,000
46 164 8 Geno special. between 0 and 100 between 0 and 500
47 185 8 Mortgage Bank between 100 and 250 between 10,000 and 25,000
49 22 6 Bank between 0 and 100 between 0 and 500
50 160 6 Geno special. n.a. between 0 and 500
51 365 6 [anonymous] between 0 and 100 between 0 and 500
Figure 29: Scoring point values, n = 51724
724
Author’s own figure based on the results of the scoring model.
3.5 Conclusions from the Survey 85
The scoring point values show different results. The first place belongs to one of the two big
banks. As this bank is stock listed in the DAX725, its profile offered many aspects that are val-
ued with high scoring points. The second big bank is at rank 8. This is consistent, as the bank
does not really quantify its own value – even not per share price.
In total, shareholder value based management is not very famous in Germany. As the maxi-
mal scoring point value is 98, the best bank only reached 68 points and the average is about
27. However, it is surprising that small Genos and savings banks are amongst the top 10. The
size seems to have no influence on the corporate evaluation accordingly. This is shown at the
example of the rather small Genos, which evaluate their value most often726.
The scoring system combines the “hard” corporate evaluation factors with the “soft” share-
holder value aspects. It cannot be a quantitatively proven system, but the qualitative results
seem to be reliable. One of the big banks is number 1, and those banks that show weaknesses
in bank controlling have a low scoring. Therefore, this model is a first judgment tool, to score
the quality of value based management in German banks. It can be used to interpret, whether
the management of a bank is value-oriented or not.
3.5 Conclusions from the Survey
3.5.1 Summing up the Main Results of the Questionnaire
In a qualitative way, the survey is representative, as proven by many argumentations. The

results can be summarized as follows:
On the one hand, it has been shown that shareholder value-oriented management is not yet
famous in the German banking sector. Even though many banks say that they do so, they act
periodically. Further, the usage of controlling variables focuses on the “old” periodic vari-
ables. The same can be stated for to the given marks. Periodic variables get better marks than
value-oriented ones. Value based management is not really accepted in practice.
On the other hand, the knowledge about the corporate evaluation approaches seems to be
there, even though a misunderstanding according to the entity approach might exist. The posi-
tive aspect is that despite of a differing controlling, many banks evaluate their own value. As
this tendency is very young, the outlook for the next years is positive. Many banks will switch
from the classical periodic view to the shareholder value approach. Last, the survey led to
725
Abbreviation for Deutscher Aktienindex.
726
Cf. section 3.3.3, table 17.
high interest. Many banks want to have the results – and 19 of 51 banks want to have an indi-
vidual corporate evaluation.
3.5.2 Practical Impulses for a New Evaluation Model
Some aspects have to be discussed here. First, in some questions the risk cover mass was dis-
cussed indirectly727. Based on a present value approach the banks can quantify the present
value of the assets in order to define, what risks can be taken728. Implicitly, the knowledge is
there. Without knowing, many banks evaluate their own value. Techniques, methods and
models are available in practice. As presented above, a new model for valuating a bank must
be simple and known. The more parts of the model come from existing processes or systems,
the more efficient and accepted the new model will be. So the demands on a new model are to
use as much of the existing methods as possible and to keep it simple. Banks sometimes do
not have the know-how even to distinguish between the kinds of approach. The easier a new
approach is, the more easily it will be accepted.
727
Cf. question 3.6.
728
Cf. Reuse (2006), pp. 426.
4.1 The Main Idea of the Presented Approach 87
4 Development of a New Corporate Evaluation Approach for Banks
4.1 The Main Idea of the Presented Approach
The results of the survey have shown that corporate evaluation in the German banking sector
is not very famous. Even classically existing methods are not in use in most of the banks729.
The reason for this is often high complexity of the approaches and the fact that shareholder
value is not very important for non-stock listed companies730.
An approach that will be accepted by the banks has to be simple. A big advantage would be, if
at least parts of the model were used in practice, perhaps for another purpose. The main idea
of this individualized approach of a bank evaluation is as simple as brilliant: Why not take
existing parts of methods or models that are used for bank controlling? Combining and adjust-
ing them would lead to a new model of corporate evaluation. Therefore, the evaluation of a
new model has to be done as follows: First, the existing models or methods that could be used
have to be defined. In the second step, they have to be modified and arranged. Last, all addi-
tional parts that are really new have to be defined and put together into a new model.
The model shall be as simple as possible. As shown above731 the complexity will be low, if
not all cash flows are considered and the discounting factor is low. The central methodical
assumption is: every additional expected earning that can be generated has to be discounted
with a risk-adjusted yield as it is insecure. The best idea is to implement only those cash flows
that are nearly risk free or risk adjusted. As a consequence, the discounting factor is nearly
risk free as well and the CAPM, which was criticized previously732 can be avoided in a very
elegant way.
729
Cf. section 3.3.3.
730
Cf. section 3.3.
731
Cf. section 2.3.4.
732
Cf. sections 2.3.2 and 2.3.3.
88 4 Development of a New Corporate Evaluation Approach for Banks
4.2 Definition of the Model

Cash Flow Generation
40.00
30.00
20.00
risk free
Yield Book rate
Cash Flow in Mio. €

10.00
0.00
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
later
-10.00
-20.00
-30.00
-40.00
Trading Book Market value 350
300
250
Value of share, 01/01/2003 = 100

200
Shares and share funds 150
100
in strategic portfolios 50
0
37623
37643
37663
37683
37701
37721
37746
37764
37784
37804
37824
37844
37862
37882
37902
37922
37942
37960
37985
38007
38027
38047
38065
38085
38107
38127
38147
38167
38187
38205
38225
38245
38265
38285
38303
38323
38343
38365
38385
38405
38425
38447
38467
38485
38505
38525
38545
38565
38583
38603
38623
38643
38663
38681
38701
Time
Investments or stakes in
a company Book value, if not available
Corporate Value of the Bank

Reserves for expendi-
tures in the future Normally: Book Value
Assets Liabilities
Valuation adjustments
on claims
Other assets
Assets Liabilities
Other liabilities
Present value (PV) of Generating fictitious

credit expected loss cash flows according to
the assumption of risk,
cost and earning matur-
PV of expected other ity
risks
120.00
100.00
PV of earnings of exist-
80.00
60.00
risk free
ing contracts
40.00 rate
20.00
0.00
later
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
PV of costs of existing 0.00
contracts
later
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
-20.00
-40.00
-60.00
PV of taxes of existing -80.00
contracts -100.00
-120.00
Figure 30: Central structure of the treasury approach733
733
Author’s own figure, expanding the main ideas of Goebel/Schumacher/Sievi (1997), p. 389; Behr/Dörner
(2001), p. 24; Fingerhut (2001), p. 14; Schierenbeck (2001b), p. 18; Parchert/Markus (2002), p. 22, p. 44;
Weinzirl (2002), pp. 95; Bimmler/Mönke (2003), p. 31 – 33; Friedag/Klassen/Robers (2003), p. 36;
Biehsmann (2004), p. 11; Gröning (2004), pp. 343; Dietzel (2005), pp. 7; Giesecke/Kühne (2005), pp. 134;
Thaller (2005), pp. 144 – 152; Böhm-Dries (2006), p. 6; Dauber/Pfeifer (2006), pp. 232; Hortmann/Seide
(2006), p. 317; Münchow/Biehsmann (2006), p. 8, p. 24 and Reuse (2006), p. 428.
4.2 Definition of the Model 89
The idea of the used theoretical aspects is not really new. Several authors developed a present
value-oriented risk covering mass model734 implementing the market interest rate and the cash
flow generation approaches735. The core aspect of the model is to use these central ideas and
modify them. This new model is defined as the treasury approach. It can be set up as shown
in figure 3.:
The idea is to divide a bank into several value centres, similar to what Behm736 and Vetti-
ger737 suggest. The reason is that the market interest rate method presented above738 and dis-
cussed in Schierenbeck739 and Rolfes740 offers the possibility of separating the margin of cus-
tomer transfers from the maturity transformation741. All other approaches that do not offer this
possibility, show wrong assumptions according to the author’s opinion.
This approach follows the main argumentations offered above742. They can be summarized as
follows:
1. Only the existing contracted transfers are considered743.

2. No new deals with customers, no treasury results and no results of the trading book are
implemented in this approach, as everybody else can generate them without having to
buy the bank744.
3. According to this, only the costs and other earnings deriving from existing transfers
are transformed into cash flows and are discounted745. Taking the total value of all
costs and earnings of the future would be too much.
4. As a consequence, only risk free cash flows exist. They can be discounted at a risk
free rate.
734
Cf. Goebel/Schumacher/Sievi (1997), p. 389; Behr/Dörner (2001), p. 24; Fingerhut (2001), p. 14; Schieren-
beck (2001b), p. 18; Parchert/Markus (2002), p. 22, p. 44; Weinzirl (2002), pp. 95; Bimmler/Mönke (2003),
p. 31 – 33; Friedag/Klassen/Robers (2003), p. 36; Biehsmann (2004), p. 11; Gröning (2004), pp. 343; Diet-
zel (2005), pp. 7; Giesecke/Kühne (2005), pp. 134; Thaller (2005), pp. 144 – 152; Böhm-Dries (2006), p. 6;
Dauber/Pfeifer (2006), pp. 232; Hortmann/Seide (2006), p. 317; Münchow/Biehsmann (2006), p. 8, p. 24
and Reuse (2006), p. 428.
735
736
Cf. Behm (1994), p. 59, pp. 83 – 85.
737
Cf. Vettiger (1996), pp. 126 – 135.
738
Cf. section 2.3.1.
739
Cf. Schierenbeck (2001a), pp. 43, pp. 70.
740
Cf. Rolfes (1999), p. 12 – 18, pp. 270.
741
Cf. Rolfes (1999), p. 13.
742
Cf. section 2.4.
743
Cf. Reuse (2006), p. 427.
744
In contrast to the approaches of a present value-oriented risk covering mass, cf. Reuse (2006), pp. 427.
745
Cf. Parchert/Markus (2002), p. 22 and Bimmler/Mönke (2003), p. 31.
At last, adding all assets, liabilities, present value of costs, earnings and taxes could be de-
fined as the present value of a bank. During the following sectors, the evaluation of these
parts of a bank’s value will be discussed in a more detailed way.
4.2.1 Yield Book
The most important part of a bank’s balance sheet of is the so-called yield book746. It lists all
parts of the balance sheet, on which a bank receives or pays interests747. This could be credits,
bonds, current accounts, deposits, savings, emitted bonds or even derivate instruments748. All
these transactions are transformed into cash flows749.
4.2.1.1 Definition of Cash Flow
The most simple way is the most effective one: why not take the cash flows that could be de-
rived from the market yield method? Every loan, bond, deposit and savings generate cash
flows750 which are much more exact than those that are derived from the profit and loss ac-
count751. Further, this evaluation is done for the strategic treasury management as well752 – the
requirement that existing controlling approaches should be integrated into the new model, is
fulfilled. The result is that the present value of every financial asset can be quantified in a
very sophisticated but easy and exact way. Normally, the exactness of cash flows in an earn-
ings value method decreases over the considered time period753. However, when discounting
the cash flows of all financial transfers that occur in the balance sheet, the exactness stays the
same754. This may be visualized by the following figure, which represents the transactions of
the example above755. In this fictitious example, a credit and an emitted bond will be trans-
ferred into cash flows. The credit and the bond may be due completely after 10 years. So the
cash flows could be set up as follows:
746
Cf. Drosdzol/Hager (2005), p. 124 and Hortmann/Seide (2006), p. 317.
747
For example discussed in Bellarz (2002), p. 534; Jakob (2002), p. 340 and Menninghaus (2001), pp. 1148.
748
Cf. Hortmann/Seide (2006), p. 317 and Reuse (2006), p. 409.
749
Cf. Everding/Meier (2001), pp. 16 and Wimmer (2006), p. 317.
750
Done in Schierenbeck (2001a), p. 109, p. 220.
751
Cf. Sonntag (2001), pp. 113 – 114.
752
Cf. Reuse (2006), pp. 407.
753
754
Cf. Vitt (2002), p. 554.
755
Cf. figure 5, section 2.3.1.1.
100,000 € credit with 4.30% 100,000 € emitted bond with 3.20%
cash flows of a 10-year credit with no repayments cash flows of a 10-year emitted bond
150,000 150,000
100,000 100,000
50,000 50,000
cash flow in €
cash flow in €
0 0
year 0
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
year 0
year 1
year 2
year 3
year 4
year 5
year 6
year 7
year 8
year 9
year 10
-50,000
-50,000
-100,000
-100,000
-150,000
-150,000
Figure 31: Cash flows of the loan and of the emitted bond756
After the payout, the credit consists of 10+1 payment: 10 interest payments and the final re-
demption rate. The bond shows 10+1 cash flows as well: 10 interest payments, the last to-
gether with the repayment757.
But the balance sheet consists of many positions that do not have an interest fixing. Examples
are customer’s savings, current deposits and liabilities on current accounts758. As a conse-
quence, a fix cash flow cannot be evaluated. To solve this problem, fictitious cash flows have
to be defined. Sievi evaluated a system that offered the possibilities to do this at the end of the
nineties759. He called this the theory of a gliding average760. Variable positions at a certain
moment result from transactions in the past. Savings of 10,000 Euro might have been depos-
ited 10 years ago and might last 10 years. This happens every year. As consequence, savings
would stay in the bank for different times, as the following figure shows:
756
Author’s own figure based on the argumentations of Bauch (1998), pp. 447 and Weinzirl (2002), pp. 92.
757
Similar done in Weinzirl (2002), p. 92.
758
Cf. Hortmann/Seide (2006), p. 318. Further, Schierenbeck structures these positions into several categories.
Cf. Schierenbeck (2001a), p. 98, p. 109.
759
Cf. Sievi (1999), pp. 31 and Sievi (n.Y. a), chapter 2 pp. 6. Widened for example in Böttrich/
Drosdzol/Hager/Schleicher (2004), pp. 28.
760
Cf. Sievi (1995), pp. 224.
12,000 7.00
10,000 6.18
6.00
5.48 5.46
interest rate of cash flow in %

8,000
4.96 5.00
cassh flow or stock in €
4.77
6,000 4.48
4.40
4.10 4.00
3.79
4,000
3.34
3.00
2,000
2.00
0
(1996.12)
(1997.12)
(1998.12)
(1999.12)
(2000.12)
(2001.12)
(2002.12)
(2003.12)
(2004.12)
(2005.12)
1.00
year -10
year -9
year -8
year -7
year -6
year -5
year -4
year -3
year -2
year -1
-2,000
-4,000 0.00
time period
stock of asset cash-flow Interest rate
Figure 32: Gliding 10Y-maturity mixing and the related cash flows 2005.12761
The first tranche rests one year in the balance sheet after having stayed 9 years, the corre-
sponding market yield is 5.48%. The second cash flow lasts two years and has a market yield
of 4.10% and so forth. The cash flows of such a position could be defined as described ac-
cording to figure 31762. So if it is known, how long a product stays in the bank on average, the
related cash flows can be generated. It is very important to point out that “staying” means
leaving the money in the bank without wanting another interest rate763. Hence, the fictitious
interest fixing is the period, on which a discounted interest margin could be calculated764. The
related market rate for the net interest margin is the average of the above mentioned interest
rates: 4.70%765.
Thus, building up a cash flow implies a fictitious interest fixing. But how can the average
lasting period of a product be defined? Sievi answers this, too. His theory is based on one as-
sumption: even though the bank offers customers a variable interest rate, it is not changed
very often. The savings are the best examples: even though the interest market has shown a
high volatility in the past, the interest rates offered to the customers were always about one
percent. Sievi’s theory is that the less volatile an interest rate is, the longer the fictitious cash
761
Author’s own figure without interest rate cash flows based on Rolfes (1999), p. 255 and Schierenbeck
(2001a), p. 106. For data cf. Bundesbank (2006c).
762
A detailed example can be found in Crecelius (2006), pp. 266.
763
Cf. Sievi (n.Y. a), chapter 2, p. 7.
764
Cf. Sievi (1999), p. 32.
765
Done similar in Parchert/Markus (2002), p. 26.
flows stay in the balance sheet and lead to a constant margin766. On the one hand, a bank
changes the interest rate exactly at the point, at which the customer would close the transac-
tion, if he did not get a better interest rate767. Many savings banks and Genos face this situa-
tion at the moment as the market is saturated. On the other hand, a bank wants to generate a
constant interest margin768. Combining these two aspects, a complex mathematical algo-
rithm769 could be set up that tries to define the mixture of the gliding maturities, which would
have led to a constant margin in the past770. The results of this algorithm at the example of the
product “classical savings” are shown in the following figure. The product might consist of
100 €.
Calculations Graph
Reference Calc. 10
interst rate, gliding reference and margin in %
1 day 0.0%
1M 0.0%
9
calculated gliding reference
2M 0.0%
8
3M 0.0%
6M 0.0% 7
1Y 16.3%
2Y 5.2% 6
3Y 0.0%
4Y 0.0% 5 calculated gliding m
5Y 0.0%
6Y 0.0% 4
7Y 0.0%
3
8Y 0.0%
9Y 14.8% 2
10 Y 63.7%
interest rate of classical savings
sum 100% 1
correlation 0.9534
standard deviation 0.2809 0
Dec-81
Dec-82
Dec-83
Dec-84
Dec-85
Dec-86
Dec-87
Dec-88
Dec-89
Dec-90
Dec-91
Dec-92
Dec-93
Dec-94
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
minimum margin 3.7465
average margin 4.6930
maximum margin 5.2158
margin spread 1.4693 time period
Figure 33: Example of evaluating a gliding average 771
Describing this approach in detail would go beyond the scope of this dissertation772. Only the
transformation into cash flows is important for a bank evaluation. In this example the cash
flows773 are set as follows774:
766
Cf. Sievi (n.Y. a), chapter 2, pp. 12 and Sievi (n.Y. b), chapter 8, p. 1.
767
Cf. Sievi (n.Y. a), chapter 2, p. 7.
768
Cf. Sievi (1999), p. 32; Böttrich/Drosdzol/Hager/Schleicher (2004), p. 29 and Lüders/Herrmann/Sternberg
(2005), p. 234.
769
Done in the tool ProVari 4.3.1 of ifb AG.
770
Examples can be found in Goebel/Schumacher/Sievi (1998a), pp. 332 and Drosdzol/Hager (2005), pp. 126.
771
Author’s own figure based on calculations of the Tool ProVari 4.3.1 from ifb AG. For the data of the savings
cf. Bundesbank (2006d). Capital market data as mentioned above. A similar figure can be found in
Drosdzol/Hager (2005), p. 136.
772
For further details cf. Sievi (1999), pp. 31 – 39.
773
Only considering repayment cash flows, no yield cash flows.
774
Done similar in Schierenbeck (2001a), pp. 106 and Parchert/Markus (2002), p. 26.
x 16.3% within 1 year (12 tranches, 1.36 € per cash flow)

x 5.2% within 2 year (24 tranches, 0.22 € per cash flow)
x 14.8% within 9 years (108 tranches, 0,14 € per cash flow)
x 63.7% within 10 years (120 tranches, 0,53 € per cash flow)775
The correlation of 0.95 and the small standard deviation of the margin indicate that the prob-
ability that customers react as predicted is relatively high.
The gliding parameters should come from the internal controlling and should be investigated
as described above. They reflect the individual interest rate policy of a bank776. Just two fac-
tors have to be kept in mind: the longer the gliding average is and the higher the interest mar-
gin is, the more (less) assets (liabilities) would be worth777. The calibration of these parame-
ters has a strong influence on the present value of the related assets778.
Last, it has to be mentioned that every asset of a bank that reacts sensitively to interest
changes, can be transformed into cash flows – even bond-funds, if the structure of the fund is
known. The same can be done with swaps and interest caps, even though they are not be
shown in the balance sheet779.
4.2.1.2 Definition of Discounting Rate
The next step is to discount the cash flows. Taking a nearly risk free rate fits with the cash
flow definition780. Therefore, the normal spot rates are not used781. Derived from the spot
rates782, the so-called zerobond discounting factors783 are applied onto the cash flows784.
While classical discounting methods use one yield for all cash flows785, the zerobond dis-
counting factors are used consistently to the maturity786. Every cash flow is discounted with
the interest rate of the related maturity787. Normally, the zerobond yield is a little bit higher
775
Rounding differences may occur. A similar but more detailed description can be found in Lü-
ders/Herrmann/Sternberg (2005), p. 236.
776
Cf. Sievi (n.Y. b), chapter 8, p. 1.
777
778
Cf. Dauber/Pfeifer (2006), pp. 233.
779
For the definition and the structure of a swap cf. Rolfes (1999), pp. 74.
780
Cf. Section 4.1.2.
781
Cf. Rolfes/Dartsch (1998), pp. 67.
782
Done in Rolfes (1999), pp. 49 – 51.
783
Zdf = zerbond discounting factor.
784
Cf. Kotissek (1987); Marusev (1988); Grabiak/Kotissek/Küsters/Marusev (1998) and Biermann/Grosser
(1999), pp. 203.
785
Cf. for example Drukarczyk (1996), p. 9.
786
The reason for this is discussed in Rolfes (1999), p. 52.
787
Cf. Wiedemann (2002), p. 1416.
than the spot rate788 because the assumption of reinvestment of interest payments is done789.
The following figure shows the zerobond discounting factors and the related interest rates and
yields that will be used in this dissertation: 790
December 31st 2005 1 day 1M 2M 3M 6M 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10 Y
interest rate in % 2.420 2.401 2.445 2.488 2.637 2.710 2.850 2.940 3.010 3.070 3.130 3.180 3.230 3.270 3.310
zerobond discounting factor 0.9999 0.9980 0.9961 0.9938 0.9870 0.9736 0.9453 0.9166 0.8879 0.8593 0.8306 0.8023 0.7742 0.7470 0.7201
(zerobond) yield in % 2.420 2.401 2.445 2.488 2.637 2.710 2.852 2.944 3.016 3.079 3.143 3.196 3.250 3.294 3.339
Table 19: Interest rates and zerobond rates per December 31st, 2005791
Using these zerobond yields, the above mentioned cash flows of the loan and the bond can be
accumulated792 and discounted793 to the net present value of the fictitious bank794, as the fol-
lowing figure shows:
Discounting the credit: 100,000 €, 4.80%, yearly payment rates

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10 Y
cash-flows 4,300 4,300 4,300 4,300 4,300 4,300 4,300 4,300 4,300 104,300
discounting factor 0.9736 0.9453 0.9166 0.8879 0.8593 0.8306 0.8023 0.7742 0.7470 0.7201
present value 4,187 4,065 3,942 3,818 3,695 3,571 3,450 3,329 3,212 75,104
108,372
Discounting the credit: 100,000 €, 4.80%, yearly payment rates

1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10 Y
cash-flows -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -3,200 -103,200
discounting factor 0.9736 0.9453 0.9166 0.8879 0.8593 0.8306 0.8023 0.7742 0.7470 0.7201
present value -3,116 -3,025 -2,933 -2,841 -2,750 -2,658 -2,567 -2,478 -2,390 -74,312
-99,070
Present value of the bank 108,372 + -99,070 = 9,303
Figure 34: Present value of yield book cash flows795
The present value of the bank is positive, even though the difference between the two book
values would be zero. The reason is that the assets have a present value higher than the book
value and the liabilities have a present value that is lower than the book value796. This refers
788
Cf. Rolfes (1999), p. 55.
789
790
For detailed evaluation of this approach cf. Rolfes (1999), pp. 49 and Schierenbeck (2001a), pp. 161. During
this dissertation, all zerobond discounting factors are calculated with an Excel-macro-program in Visual Ba-
sic.
791
Author’s own figure, for market data cf. Bundesbank (2006a) and Bundesbank (2006b).
792
For the entire bank, normally a so-called mapping is done. Cf. Sievi (1998), pp. 7 – 15.
793
Bid and ask differences of a yield curve are not discussed here. Cf. Schierenbeck (2001a), pp. 220 for further
details.
794
Similar done in Reuse (2006), pp. 414.
795
Author’s own figure based on own calculations. Values in €.
796
Argued in Schierenbeck (2001a), pp. 163.
to the central assumption of the market yield method: Customers pay more for assets than
they would pay on the market and receive less for their savings than the market would pay797.
Assets Liabilities
Effect present value > book value present value < book value
if: customer yield > market yield if: customer yield < market yield
Profit and The bank receives more interest pay- The bank pays less interest than the
loss view ments on the loan than the market market would. So as mentioned above,
would pay for a risk free bond. So if 0.12% will be the result per year.
the bank issues a 10y bond, a margin
of 0.94% will last.
Discounted The difference between the present The difference between the present
cash flow value of the credit and its book value value of the credit and its book value
view are the discounted 0.94% for the whole are the discounted 0.12%.
term of the credit.
Table 20: Periodic view vs. present value view798
So assets are worthier than the book value while liabilities are less worth. The sum of these
present values represents the yield book value799.
4.2.2 Further Assets
The next asset that has to be considered is the trading book800. The present value of the trad-
ing book is the actual share price multiplied by the number of shares. Setting up cash flows
related to this position is not usual, even though in an ideal case a share might represent the
expected cash flows of another company. 801
Shares and share funds in strategic portfolios are handled similarly802. The present value is
defined as the current price at the market.803
Normally, investments or stakes in a company have a book value in the bank’s balance
sheet. But the present value shall be used if available804. Consequently, a corporate evaluation
of the company the bank is invested in should be done. Hence, the different methods dis-
797
Cf. Rolfes (1999), p. 13 and Reuse (2002.12), p. 25.
798
Author’s own figure referring to the sources mentioned above.
799
Cf. Hortmann/Seide (2006), p. 317.
800
Cf. Reuse (2006), p. 428.
801
802
803
Cf. Bimmler/Mönke (2003), p. 31.
804
Cf. Parchert/Markus (2002), p. 44.
cussed before805 can be applied here. The result may be that a bank has hidden reserves on the
participation. But the result may also be that the book value is much higher than the present
value. In case of a company not listed at the stock exchange, the book value is often used806 in
order to prevent a large-scale corporate evaluation for a small part of the bank’s assets.
At the end other assets have to be quantified. Usually, the most important positions of a
bank’s portfolio are buildings and branches. They could be calculated with the book value,
but if a current market value could be defined, this one would represent the present value of
the buildings better807. For other assets like accruals and deferrals, the book value is cho-
sen.808
4.2.3 Further Liabilities
Typical further liabilities for banks are reserves for expenditures in the future and valua-
tion adjustments on claims. Often a present value is not available, so the cash flows cannot
be taken from the internal controlling. The book value is chosen accordingly809.
The equity is the only part of the balance sheet, which is not considered as a liability when
defining the bank’s value. The present value of the equity is the residual value that results
from discounting all other assets and liabilities810. It is the value of the bank.
According to the other assets other liabilities are quantified with their book value as well.
They use to consist only of accruals and deferrals.
4.2.4 Expected Losses of Taken Risk
After having discussed the assets and liabilities in the balance sheet, the risks a bank has in its
portfolio have to be discussed. According to the existing assets the credit risk and the opera-
tional risk should be mentioned811, explained and discounted812.
805
Cf. Section 2.2.
806
Cf. Dauber/Pfeifer (2006), p. 233.
807
Cf. Parchert/Markus (2002), p. 44.
808
Cf. Hortmann/Seide (2006), p. 318 and Reuse (2006), p. 428.
809
Cf. Reuse (2006), p. 428.
810
Cf. Weinzirl (2002), p. 44.
811
For example done in Feix/Stechmeyer-Emden/Stückler (2006), p. 106.
812
Cf. Bimmler/Mönke (2003), p. 31.
Generally, the expected loss of the credit portfolio is the most important risk813. It has to be
deducted from the bank’s value814. Every year some parts of the credit exposure will come to
bankruptcy. A correction for these risk premiums should be done. The procedure is as fol-
lows815: a bank has to define an average of credit losses which will occur in the future. These
expected losses are often generated from an ex-post analysis. In the next step, this expected
loss has to be divided by the current credit exposure. This relation defines which percentage
of a credit exposure will be lost per year816. Last, this relation has to be applied on the average
credit exposure of the following years, which results from the yield book817, assuming 0.10%
of expected loss. The following figure visualizes this:
stock of credit expected loss discounting factor present value of

portfolio cash flows expected losses
2005-12 1,000,000 -1,000 1.0000 -1,000
2006-12 900,000 -900 0.9736 -876
2007-12 800,000 -800 0.9453 -756
2008-12 700,000 -700 0.9166 -642
2009-12 450,000 -450 0.8879 -400
2010-12 350,000 -350 0.8593 -301
2011-12 250,000 -250 0.8306 -208
2012-12 150,000 -150 0.8023 -120
2013-12 50,000 -50 0.7742 -39
2014-12 25,000 -25 0.7470 -19
2015-12 0 0 0.7201 0
-4,360
expected losses
credit portfolio = 0.10%
Figure 35: Present value expected losses818
Last, these cash flows have to be discounted. They could be defined as the present value of
the expected losses of the current credit exposure. Unexpected losses, which can be quantified
with the VaR819, 820 are not deducted here. They represent all those unexpected factors an in-
vestor does not implement into his calculations normally. The expected default risk is the big-
gest risk banks face today821, so the evaluation of this number is very important.
813
Defined and explained in Gröning (2004), pp. 335.
814
Cf. Giesecke/Kühne (2005), p. 128 and Hortmann/Seide (2006), p. 319.
815
Done in Dietzel (2005), p. 10.
816
Done in Münchow/Biehsmann (2006), p. 16.
817
Visualized in Biehsmann (2004), p. 12.
818
Author’s own figure referring to Dietzel (2005), p. 10.
819
Abbreviation for Value at Risk.
820
For a short overview of the idea of the VaR cf. Reuse (2003.10), pp. 25. A special overview for the credit
VaR can be found in Reuse (2006.07-08), pp. 366 – 371.
821
Credit risk also occurs in the bond portfolio of a bank. The procedure differs for evaluating
the expected losses of a bond portfolio. The so-called spread822 is used. It is defined as the
difference between the risk free rate and the risk individual rate, a bond has to be discounted
with. It quantifies the expected losses of a bond823. First, the bond is discounted with the risk-
individual interest rate and after that, with the risk-free rate. The difference of these present
values is the present value of the expected losses of the bond portfolio.
Another risk a bank faces is the operational risk. It uses to occur, when people make mis-
takes or machinery does not work in the right way824. Even risks resulting from lost legal pro-
ceedings are defined as operational risks825. The expected losses, which result from this risk
category, must be discounted as well826. The procedure is similar to the method of discounting
expected credit losses827. First, the average sum spent onto operational risk has to be quanti-
fied. This is difficult enough, as processes have to be transparent in banks in order to define
losses from operational risk. After that, the bank has to sum up all its transactions that exist at
a certain moment. The yield book and all other assets and liabilities are added. The result is a
relation of the expenditures on operational risks according to the sum of all transactions. As
these transactions will stay in the bank related to their interest fixings or gliding average, the
relation will be applied on a decreasing stock of transactions.
Expected losses are thus implemented into the treasury approach. Hence, the usage of the risk
free rate is verified. In this model, the equity investor has no risk, as all risks are deducted
with their expected value.
4.2.5 Costs related to Active Transactions
In the next step the costs have to be discounted as well828. First of all they have to be divided
into several categories in order to define whether they have to do something with existing
transfers or future deals829. The idea is to discount only the costs that have to do with existing
transactions830. The following categories of costs could be defined:
822
Cf. Reuse (2003.12), pp. 16.
823
A small part of this difference contains unexpected losses, partly discussed in Hornbach/Jung (2001), p. 52.
These effects should not be discussed here.
824
Discussed in Pfeifer (2006), pp. 446.
825
Cf. Pfeifer (2006), pp. 446.
826
Done in Reuse (2006), p. 428.
827
Cf. figure 35.
828
Cf. Weinzirl (2002), p. 44.
829
Done in Hortmann/Seide (2006), p. 319.
830
Cf. Biehsmann (2004), p. 13 and Giesecke/Kühne (2005), pp. 134.
Kind of costs Back office costs Overhead Sales services

Description All costs that deal with the All costs that have noting to All personal staff related to
handling of customer’s trans- do with customer’s transac- sales. Typically, the employ-
actions. The best example is tions, for example control- ees of the branches and the
the credit department. ling, organization, audit de- specialists in investment
partment and other strategic banking can be mentioned
departments including the here.
management board.
Exists for Partly for new deals Partly for new deals Only for new deals
Partly for existing deals Partly for existing deals
Denominator Sum of customer’s transac- Whole balance sheet sum ---
tions
Table 21: Categorization of costs 831
The next sectors describe the way of discounting those costs. It has to be kept in mind that
only those costs should be considered, which are related to existing transactions832. Costs that
only come up when new deals occur must not be discounted, as the related earnings are not
considered either.
The next question is how long the costs and earnings may appear.
Back Office costs: The same idea that occurs when discounting risks is used when discount-
ing costs. After defining the part of the overhead costs that belongs to existing contracts, this
sum has to be discounted over the time. Back office costs will remain related to the average
sum of current accounts deposits and credits generated by fixed maturities or gliding aver-
ages833.
The most important number that has to be figured out is how much percent of the existing
costs belong to the existing transactions in the balance sheet. This is solved as follows: the
sum of all customers’ transactions at a certain moment is compared to the sum, which remains
one year later. Dividing these two numbers leads to the factor the current costs have to be
multiplied with in order to receive the costs that belong to existing deals. If on 31st December
of 2006, 1,000 € customer deals exist and one year later 350 € remain, the factor is 35%. 65%
belong to existing deals vice-versa.
Overhead costs (fix costs) have little relation to the daily business of a bank, but they are
important as well. The procedure is similar to the back office costs. The only difference is that
the whole balance sheet sum is considered when generating the above described multiple as
shown in the sector operational risk. The percentage of the overhead costs relating to existing
831
Author’s own figure referring to Bimmler/Mönke (2003), p. 31 and Münchow/Biehsmann (2006), p. 17.
832
Cf. Dietzel (2005), p. 11.
833
Cf. Bimmler/Mönke (2003), pp. 31; Dietzel (2005), p. 11 and Thaller (2005), p. 147.
deals has to be defined as well834. To simplify the model in the practical section835, the over-
head costs can be treated in some way as the back office costs.
Sales services are related to generating new contracts. As a consequence, they have not been
considered when discounting costs of existing transactions. The conclusion is that sales forces
do not generate additional value for the bank according to existing deals. Surely, they gener-
ate earnings with new deals, but this aspect of sales forces is discussed later on836.
4.2.6 Earnings related to Active Transactions
As several cost aspects that have to be discounted related to active transactions exist, some
earning positions have to be considered as well. The procedure is always the same:
1. Defining the earnings per year.
2. Evaluating how long these earnings will last according to the existing balance sheet
transactions.
3. Discounting those earnings837.
A bank has some typical earnings positions that are related to existing transactions. The fol-
lowing table gives a short review and describes how the discounting should be done.
Earning position Description Discounting method

Earnings of guaran- Many customers need guarantees for sev- The earnings of guarantees will decrease
tees eral purposes. This is strictly related to the related to the decreasing asset transactions
existing asset balance sheet transactions. in the yield book.
Safe fees Earnings from safes have a long maturity. For evaluating this, two figures have to be
They are stable earnings for a bank. known: the sum of all current accounts and
the average closing rate of accounts. With
these two numbers, the earnings can be
simulated and discounted.
Earnings of depot Many customers deal with shares. They Similar to the earnings of safes.
accounts need custodianship accounts for this. A
yearly fee has to be paid for having such
an account.
Rental income A bank may have several buildings, which Buildings are depreciated with 4% a year.
cause earnings as well. These earnings are The earnings will decrease with the same
stable and belong to the existing stock in rate.
the balance sheet.
Table 22: The present value of earnings 838
834
Cf. Dauber/Pfeifer (2006), p. 232.
835
Cf. section 5.
836
Cf. section 4.2.8.
837
Cf. Dietzel (2005), p. 10.
838
This detailed information is often not available. As a simplification, a percentage of how

much of the earnings belong to existing contracts is estimated and discounted in relation to
the whole balance sheet sum deduction839.
4.2.7 Tax Effect
The tax effect is one of the most important aspects. Taxes are treated as costs; they are dis-
counted according to the deduction of the balance sheet sum. The aim is to quantify the taxes
belonging to existing contracts. The procedure is as mentioned above840. Usually, all deals of
the balance sheet are used to discount the taxes resulting of existing business. Further, a tax
rate has to be estimated. If no historical data is available, 40% can be chosen.
4.2.8 Performance Aspects
Last, the performance aspects have to be discussed. The central question is whether they will
cause additional earnings. Three sectors have to be considered here:
x Treasury,
x Trading,
x Future deals with customers.
According to the treasury a positioning in a maturity transformation structure does not gener-
ate additional value. The same aspects mentioned in the previous sections could be used here.
As everyone who has access to the capital market would be able to duplicate the maturity
transformation portfolio of a bank, the expected earnings do not increase the value841. In the
long run no one can beat the market, so additional value cannot be generated in this sector842.
However, another aspect has to be mentioned – the realized earnings of maturity transforma-
tion have to be implemented. If a loan is granted and the treasurer decides not to close the
position, a realized shareholder value results, if the interest rates decrease843. The argumenta-
tion according to the liability side is similar. These realized earnings can be found in the pre-
sent value of the yield book – if the treasurer closes the position today, exactly the present
value of the yield book can be realized844. The same is done with trading. It does not generate
value and can be neglected as mentioned845.
839
Done in section 5.
840
Cf. section 4.2.4, figure 35.
841
842
Cf. Sonntag (2001), p. 81.
843
Cf. Bannert (2000), pp. 6 and Lach/Neubert/Kirmße (2002), pp. 8.
844
Cf. Lach/Neubert/Kirmße (2002), p. 18.
845
4.3 Theoretical Analysis of the Model 103
The last performance part consists of expected deals with the customers. New loans and new
savings will generate additional interest margin in the future. However, they also generate
new cost cash flows, which were not considered in the sector above. This is not an individual
advantage of a bank, sales people are interchangeable. So this part is set as zero as well.
As only secure cash flows shall be considered, all performance aspects are treated as zero –
otherwise discounting with a risk free ratio is not possible.
4.3 Theoretical Analysis of the Model
4.3.1 Structuring the Model according to Existing Literature
Structuring the model according to the categorization mentioned above846, a clear allocation is
not possible. On the one hand, it is a separate evaluation method, as all parts of the bank are
described without the synergies847. A classical reproduction or realization approach would be
the result. The main argument is that new deals are not considered; only existing contracts are
discounted. On the other hand, the (available) assets, liabilities, cost and earnings are trans-
formed into cash flows and thus discounted according to an equity approach. As the yield
book implements the refinancing side848, the cash flow is defined according to the equity ap-
proach without the usage of the CAPM. It is not an entity approach, as the paid interests for
the liability side are deducted directly in the beginning before discounting; a subtraction of the
liability side in the end is not done and the WACC is not used.
As a consequence the presented model is a mixture method, combining the aspects of a sepa-
rate evaluation approach with those of a risk free equity approach.
4.3.2 Conclusions and Theory-Based Criticism of the Model
The presented model consists of existing approaches and is widened with aspects that are al-
most not described in literature. The model quantifies the value of a bank more exactly than
every other approach. Theoretically, this approach has to lead to a lower value than the equity
and earnings value approach, because maturity transformation is not considered as a value
center.
The model offers several advantages. First, the usage is relatively simple. A bank that prac-
tices an integrated bank controlling can offer all required data very easily. Further, the sepa-
846
Cf. section 2.2.
847
Cf. for example Thaller (2005), p. 147 and Hortmann/Seide (2006), p. 317. They define the parts used in the
model explicitly as a separate evaluation method.
848
The present value of liabilities is inherently deducted.
rated evaluation has the advantage of showing the real value drivers or even value destroyers
in a bank. This helps to manage a bank in a value based management style. Further, the exact-
ness of results is given, as maturities of customer deals help to quantify the value in a balance
sheet for the next years. Further, the earnings generated by the treasury are eliminated in an
elegant way. Hence, the value of the bank consists of its efforts in the past only. Further, the
risk free rate is taken, the CAPM discussion849 is solved in a very elegant way. Possible risks
are discounted as well and subtracted from the value of the bank, so that nearly no rest risk
exists850.
Of course, several disadvantages can be mentioned. The first one is data availability. Gliding
averages and the other discussed data are only available from the internal strategic control-
ling, so that the approach can only be applied, if internal data are available. This is very diffi-
cult for the standard investor. Standard equity approaches could be done based on the balance
sheet and the profit and loss account. But the target group of the bank’s value often is the
management that wants to do value based management. The management has access to all
internal data, so this disadvantage only occurs for external investors.
Every method of corporate evaluation has its critical parameters which influence the value of
a bank. The standard equity approaches need an individual discounting factor and forecasted
annual surpluses as well as a terminal value. Varying these factors will lead to different val-
ues. The presented treasury approach does not need the terminal value or the individual dis-
counting factor. The gliding averages, the percentages of costs belonging to existing transac-
tions and the assumptions of discounting those earnings, risks and costs have strong influence
on a bank’s value. This has to be kept in mind when interpreting the results deriving from this
approach.
Further, synergies are not directly implemented. The simple addition of the value parts is un-
able to consider synergies. But it can be argued that these synergies are inherently quantified
in the existing present value, as they must have led to higher contribution margins in the end.
Last, missing intangible assets851 might lead to an undervaluation of the value. However, as
only one bank implements this factor into its evaluation model852, this idea is not quantified in
this dissertation. Defining the other parts of a bank is more important in the beginning. Intan-
gible assets are important as well, but they have to be added in an extension of the presented
model. The advantage is that they can be added simply – the model is open enough to offer
this possibility.
849
Cf. section 2.2.2.
850
Despite from the unexpected loss, the VaR. Discussed in Münchow/Biehsmann (2006), p. 26.
851
For example human capital and value of a brand. A structure of intangible assets can be found in Aschoff
(1978), p. 40 and Scholz (2004), p. 24.
852
Cf. question 3.7 of the survey.
5.1 Central Idea of the Empirical Corporate Evaluation 105
5 Quantifying the Value of German Banks
Taking into consideration the theoretical and practical results of sections 2 and 3 and the new
model coming out of section 4, the value of German banks shall be analyzed in this section.
The model developed by the author and other, existing approaches of corporate evaluation
will be applied on those banks that asked for a corporate evaluation.
5.1 Central Idea of the Empirical Corporate Evaluation
The central idea is relatively simple. The survey was the best way to address banks. Section 4
of the questionnaire contains all data that are necessary for a corporate evaluation853. Hence,
linking the survey to 5 standardized corporate evaluation models is the real new fact.
As the questionnaire was standardized in this part as well, the harmonization work was out-
sourced to the banks, as they had to quantify the numbers defined in the survey. Based on
these harmonized data, a structured corporate evaluation is possible. For the banks, answering
the questions in section 4 took a bit more time than answering the other questions854, but it has
to be kept in mind that a complete evaluation was done based on these data.
As the system is standardized, not all specialties of all banks can be considered. Simplified
assumptions and the quality of given data might lead to differences between the 5 used ap-
proaches. However, the general conclusions will be of general interest.
5.2 Detailed Evaluation for One Bank
Every bank offered several data. In this section, the detailed procedure from the data evalua-
tion process up to the application of the approaches and presentation of the results will be
done. Therefore, a calculation sheet is developed which evaluates the value for every bank by
the same process. A macro, developed by the author, filled the evaluation sheet and inserted
the results into another table database. The structure of the evaluation sheet will be explained
at the example of bank 365, a classical small bank855. This bank offered data with a high qual-
ity; almost no adjustments were required.
853
Cf. appendix 3, questions 4.2 – 4.5.
854
The author tested it: About an hour of concentrated work has to be reserved.
855
Anonymity was required by the answering bank. So no further details can be mentioned.
106 5 Quantifying the Value of German Banks
5.2.1 Required Data
5.2.1.1 General Data
First, some general data have to be defined. The yield structure as presented above856 will be
used here to develop the present values in the classical way and to define the zerobond dis-
counting factors. Further, a minimum tax rate of 40% is defined857. The spreads evaluated in
the survey858 will be used as well for some evaluation approaches. If a bank does not offer an
own spread, the average spread of its banking group will be used.
5.2.1.2 Specific Data based on the Empirical Study
In the next step, the bank individual data have to be analyzed. Balance sheet sum, employees
and some other basic factors resulting from other sections of the questionnaire are presented.
For some evaluation approaches, several other, often more detailed data are necessary. Ques-
tion 4.2 of the survey discussed the classical income statement data.
856
Cf. section 4.2.1.2, table 19. For market data cf. Bundesbank (2006a); Bundesbank (2006b).
857
Assumption. Many banks in Germany pay about 40% taxes, depending on the “Gewerbesteuerhebesatz”.
Analyzed for example in Reuter/Blees (2006).
858
5.2 Detailed Evaluation for One Bank 107
Year -2 Year -1 Year 0 Ø Prog.

+ Interest Earnings 18.400 17.700 17.000 16.900
- Interest Expenditures -9.100 -7.900 -7.600 -7.700
+/- Derivates 0.000 0.000 0.000 0.000
= Net interest yield 9.300 9.800 9.400 9.200
+ Fees 1.600 2.100 1.900 2.000
- Personal Expenditures -4.400 -4.700 -4.500 -4.800
- Non-Personal Expenditures -2.900 -3.000 -2.800 -2.700
+/- other 0.000 0.000 -0.500 -0.100
= Result before valuation 3.600 4.200 3.500 3.600
+/- Provisions for lost loans -1.100 -1.700 -0.800 -1.000
+/- Depreciation of Bonds 0.000 0.000 -0.100 -0.100
= Earnings before taxes 2.500 2.500 2.600 2.500
- taxes -0.900 -0.900 -1.100 -1.000
= Result of operating business 1.600 1.600 1.500 1.500
+/- §340f HGB -0.800 -0.500 -0.400 -0.400
= Balance sheet earnings 0.800 1.100 1.100 1.100
Check:
= Balance sheet earnings 0.800 1.100 1.100 1.100
O.K. O.K. O.K. O.K.
Tax Rate 36.00% 36.00% 42.31% 40.00%
Table 23: Income statement data at the example of bank 365859
The recent three years and, if available, an average prognosis for the following years had to be
inserted by the banks. The four years are requested in order to verify the sustainability of the
income parts and to adjust the prognosis year if necessary. Nevertheless, no changes of the
forecasted income statement had to be done, growth assumptions were always realistic for all
banks. It has to be kept in mind, that no growth rate according to this eternal annual surplus is
prognosticated. Further, no inflation adjustments will be done.
The detailed data of the income statement were used to quantify extraordinary effects. But
this is not as simple as it seems to be. The income statement had to be put into a standardized
format that might differ from the bank’s own annual report. This format divides the income
statement into sustainable income and those earnings or costs that are no cash flows860. This
led to several complications in the banks. Very often, a correction of the values had to be
made. Several inconsistencies were found and the author had to communicate with the banks
in order to verify the data.
859
Author’s own figure based onto question 4.2 of the survey.
860
Despite the depreciation. Therefore, a simplified assumption will be done.
Question 4.3 requested information from the balance sheet. According to the income state-
ment, the balance sheet has to be structured in a certain form as well. The definition of the
yield book as presented above861 and the differentiation into fix and variable positions was
requested. Further, the yield of the balance sheet position and the average rest maturity was
asked in order to build up a yield book cash flow, if this one is not given in the second part of
question 4.3. The requested balance sheet structure is as follows:
Assets Liabilities
Position Value Ø Yield Ø Maturity Position Value Ø Yield Ø Maturity
Customer Customer
Deals fix 178.10 5.220% 4.00 Deals fix 123.40 2.850% 2.50
Yield Book
Yield Book
Customer
Customer
41.30 8.200% 0.50 Deals 109.70 0.960% 3.40
Deals variabel
variabel
Depot A 61.50 3.610% 5.00 Emissions 34.30 4.490% 4.00
Other Assets 52.90 Other Liabilities 53.50
Shares 8.30 Equity 21.20
342.10 342.10
Table 24: Balance sheet data at the example of bank 365862
The definition of the yield book and other assets and liabilities can be recognized. The diffi-
culties that were stated according to the income statement occurred again. Some of the banks
did not know how to structure the balance sheet positions. Most difficulties occurred when
analyzing the average maturity of the balance sheet positions. Very often a second contact had
to be made by the author in order to verify the data863.
Thereafter, the cash flow of the yield book – corrected by the value corrections and the cash
position – was requested. 13 of the 19 banks that asked for a corporate evaluation offered the
yield book cash flow as well. In these cases, the average maturity was only used to generate
fictitious cash flows of costs and earnings. In the 6 other cases it was used to generate a ficti-
tious yield book cash flow as well.
Questions 4.4 deals with the costs. It was asked, how much percent of the costs belong to ex-
isting business and new deals. Question 4.5 asked which part of the fees belongs to existing
transactions. These percentages will be used in the treasury approach.
It becomes clear that using the earnings value method and the equity approach are only based
on the income statement data. Cash inflows and cash outflows coming out of a balance sheet
861
Cf. section 4.2.
862
Author’s own figure based onto question 4.2 of the survey.
863
Often, the standard factors of the BaFin survey were used in the end. Cf. BaFin (2006), p. 8.
will not be analyzed here.864 The other questions aim at the treasury approach only. The data
are more complex, but the results might be better as well.
5.2.2 Setting up the Approaches
Five approaches are used to quantify the value: net asset value, earnings value, equity ap-
proach, treasury approach and multiplier approach865. After having inserted all given data into
the Excel-database, they are calculated in the evaluation sheet of the database.
5.2.2.1 Net Asset Value Approach / Substance Value
The most simple approach is to mention the equity of a bank866, a classical substance value.
As all banks were requested to insert their equity including the §340 reserves867, the real eco-
nomic capital, including hidden reserves868 and excluding certain forms of secondary loan
funds is quantified. This is the book value of the company, a floor for all other approaches.
For example, the book value of bank 365 is about 21.20 Mio. €.
5.2.2.2 Multiplier Approach
Next the multiplier method as the external benchmark approach shall be applied ono all
banks. When using the CCA, the first step is to define a possible peer group. As the value of
German banks has to be quantified, a comparison with stock listed German banks should lead
to a fair value. The comparable companies should show a good mixture of the German market
and they have to be listed on the German stock exchange. Defining strategies and policies of
each bank of a peer group would go beyond the scope of this dissertation, so it is not dis-
cussed here. The author decided to chose the following companies:
864
Cf. section 5.3.
865
Cf. section 2.2 and section 4.
866
For example done in Yegge (1996), p. 51.
867
For the character and definition of the reserves cf. §340 HGB.
868
§340f reserves are not clearly mentioned in an annual report, so they can be treated as hidden.
x Aareal Bank869
x Comdirect870
x Deutsche Postbank871
x Hypo Real Estate872
x IKB Deutsche Industriebank873
x Deutsche Bank874
x Hypovereinsbank (HVB)875
x Commerzbank876
This peer group might represent almost all kinds of German banks. Direct banks, classical
private banks and a former state-owned enterprise, the Postbank can be found in the group. In
order to get a better overview, the share price development of the last three years (January 2nd,
2003 – December 31st, 2005) will be presented. The share prices were indexed to 100 on
January 3rd, 2003877 and combined with the lognormal daily yields that could be derived from
the historical share price development. Together with the DAX the following development
can be visualized:
02/01/2003 02/01/2004 03/01/2005 30/12/2005

Aareal Bank 100.00 197.98 199.35 258.63
Comdirect 100.00 254.21 242.42 268.01
Postbank 144.19 215.87
Hypo Real Estate 177.50 264.12 375.31
IKB 100.00 151.25 174.17 208.33
Deutsche Bank 100.00 139.41 137.86 171.70
HVB 100.00 138.73 128.80 195.65
Commerzbank 100.00 193.17 187.80 317.32
DAX 100.00 129.42 138.21 174.18
Figure 36: Development of the indexed share prices of the peer group878
869
Cf. S-Investor (2006aa – ab).
870
Cf. S-Investor (2006ba – bb).
871
Cf. S-Investor (2006ca – cb).
872
Cf. S-Investor (2006da – db).
873
Cf. S-Investor (2006ea – eb).
874
Cf. S-Investor (2006fa – fb).
875
Cf. S-Investor (2006ga – gb).
876
Cf. S-Investor (2006ha – hb).
877
Postbank’s prices are only available till June 23rd, 2004, Hypo Real Estate till October 6th, 2003. They are
indexed on the DAX-price guilty on that day.
878
Author’s own figure based on data of Reuters (2006) and own calculations.
The development of each share differs. Some of them beat the DAX, others even underper-
form it. This leads to the conclusion that some of the banks might have problems. It turns to
be true, when considering the recent last annual reports. The Aareal Bank for example had to
build many corrections for lost loans. The annual surplus was negative in 2005879.
Further, the important fundamental data have to be analyzed and a share price analysis has to
be done. The following table gives an overview of the chosen comparable companies and the
data which are basis for the CCA. All annual accounts are per December 31st, 2005. The cho-
sen date to do the CCA is December 31st, 2005 as well. Fundamentals were taken directly
from the S-Investor880, while the share price analysis bases on data of Reuters881.
879
Cf. S-Investor (2006ga).
880
Cf. S-Investor (2006aa – hb).
881
Cf. Reuters (2006).
882
All data per December 30th, 2005. Aareal Bank Comdirect Deutsche Hypo Real IKB Deutsche Hypo- Commerz- DAX
112
Values in Mio. € Postbank Estate Deutsche Bank vereinsbank bank

Holding Industrie-
bank
reference number DE0005408116 DE0005428007 DE0008001009 DE0008027707 DE0008063306 DE0005140008 DE0008022005 DE0008032004 DE0008469008
share price per Dec 30th, 05 32.07 7.96 49.00 43.98 25.00 81.90 25.61 26.02 5,408.26
shares outstanding (May 29th, 06) 42,755,159 141,000,000 164,000,000 134,072,175 88,000,000 514,535,270 750,699,140 656,812,557 ---
market cap. = corporate value 1,371 1,122 8,036 5,896 2,200 42,140 19,225 17,090 ---
Index MDAX MDAX MDAX MDAX MDAX DAX DAX DAX ---
12 months 23.33% 25.01% 20.03% 24.79% 17.16% 17.61% 22.45% 22.29% 12.08%
Volatility 24 months 31.79% 31.40% 18.11% 25.29% 16.04% 19.55% 25.27% 22.72% 14.01%
36 months 32.55% 39.01% 18.11% 27.47% 14.60% 26.33% 40.13% 33.12% 20.57% Beta
12 months 0.7295 0.8424 0.6010 0.8632 0.4415 1.1814 0.8602 1.0981 1.0000 0.8272
Beta 24 months 0.6872 0.9632 0.5160 0.8002 0.4393 1.0947 0.9692 1.0712 1.0000 0.8176
Risk
36 months 0.4696 0.7563 0.5165 0.8220 0.2243 1.0893 1.3410 1.1543 1.0000 0.7967
12 months 0.3779 0.4071 0.3625 0.4208 0.3109 0.8106 0.4631 0.5955 1.0000
Correlation 24 months 0.3029 0.4299 0.3600 0.4433 0.3836 0.7847 0.5374 0.6607 1.0000
36 months 0.2967 0.3988 0.3600 0.4333 0.3159 0.8510 0.6873 0.7169 1.0000
daily lognormal yield
0.12% 0.13% 0.14% 0.22% 0.10% 0.07% 0.09% 0.15% 0.07% 50 year Ø
03.01.2003 - 30.12.2005
p.a. yield
31.01% 32.18% 33.80% 53.78% 23.95% 17.64% 21.90% 37.69% 18.11% 9.60%
Perform.
03.01.2003 - 30.12.2005
annual surplus -55 34 492 359 143 3,529 642 1,165
net interest revenue 419 64 1,675 685 442 6,001 5,885 3,172
sum of balance sheet 39,186 3,367 140,280 152,460 38,303 992,161 493,523 444,861
economic equity 997 565 4,980 3,066 2,289 28,672 12,976 12,375
common share equity 128 141 410 402 225 1,420 2,252 1,705
equity ratio 2.5 16.8 3.6 2.0 6.0 2.9 2.6 2.8
net interest spread 1.069% 1.902% 1.194% 0.449% 1.154% 0.605% 1.192% 0.713%
net income before valuations 168 44 693 520 313 5,132 3,469 1,632
Fundamentals 2005
number of employees 3,217 638 9,523 1,233 1,438 63,427 61,251 33,056 Average Median r2
net interest revenue 3.27 17.53 4.80 8.61 4.98 7.02 3.27 5.39 6.86 5.18 0.8127
sum of balance sheet 0.0350 0.3334 0.0573 0.0387 0.0574 0.0425 0.0390 0.0384 0.080 0.041 0.9924
Author’s own table based on data of Reuters (2006) and S-Investor (2006aa – hb).
economic equity 1.38 1.99 1.61 1.92 0.96 1.47 1.48 1.38 1.52 1.48 0.9963
Multiples 2005
net income before valuations 8.16 25.67 11.60 11.34 7.04 8.21 5.54 10.47 11.00 9.34 0.9356
Table 25: Fundamentals of the peer group882

In the next step, those fundamentals that might be able to be used in a CCA have to be de-
fined. As a bank shows another structure as other companies, multiples like turnover or EBIT
are not suitable for banks. New multiples have to be defined:
Possible Multiple Explanation Usage

The easiest number to get is the annual surplus. But the ques-
tion, whether it can be used as a comparable multiple should
Annual surplus be answered with no, as taxes and other effects cover up the
No
sustainable earnings.
Apart from some other small corrections, the total net reve-
nue before provisions for loan losses is a figure that repre-
Total net revenue
sents the sustainable earnings. It may vary over the years,
before provisions too. But if it becomes negative, the bank is really worth noth-
Yes
for lost loans ing. As a consequence it is tested, whether it can be used for
the CCA.
Even though the scope of the yield book differs from bank to
Net interest reve- bank, the largest part of the balance sheet consists of deals,
which lead to the net interest revenue. So this might be a
Yes
nue
good multiple as well.
This figure represents the size of the bank. Even though it
Sum of balance
might be “tuned” by window dressing, it is a stable value to Yes
sheet compare banks.
Banks normally have a low equity ratio. But the more equity
they have, the more they are worth. But taking the common
Common share
share equity into account would not be enough, as reserves No
equity derived from §340f HGB often build up a great part of the
equity. So this value cannot be used.
Going one step further, the economic equity including all
Economic equity these visible reserves may be a good multiple. So it is ana- Yes
lyzed here.
Even though the size of a bank could be represented by this
Number of em-
figure, it is not suitable for all types of banks. Different No
ployees structures lead to a different number of employees.
Table 26: Evaluation of new multiples883
These four multiples show significant dependencies between the market value of the bank and
the basis variable. This can be visualized as follows, containing average, median and coeffi-
cient of determination r2:
883
Net interest revenue Sum of balance sheet

Average Median r2 Average Median r2
6.86 5.18 0.8127 0.080 0.041 0.9924
net interest revenue of the banks in Mio
8,000 1,200,000
balance sheet sum of the banks

7,000
1,000,000
6,000
800,000
5,000
in Mio. €
2
R = 0.8127 2
R = 0.9924
4,000 600,000
€
3,000 400,000
2,000
200,000
1,000
0 0
5,000
0
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
value of the banks in Mio. € value of the banks in Mio. €
Economic equity Total net income before valuations

Average Median r2 Average Median r2
1.52 1.48 0.9963 11.00
total net revenue before provision for
9.34 0.9356
35,000 6,000
30,000 5,000
loan losses in Mio. €
equity of the banks
25,000
4,000
in Mio. €
2
20,000 R = 0.9356
2
R = 0.9963 3,000
15,000
2,000
10,000
5,000 1,000
0 0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
value of the banks in Mio. € value of the banks in Mio. €
Figure 37: Definition of the multiples for the CCA884
These multiples differ partially from those which would be used usually. Adamus/Koch de-
fine Market/Book, Price/Earnings and Price/AuM.885 The first one is called economic equity
multiple in this dissertation. It is consistent in its definition. Koch evaluated an r2 of 0.86 in
2004886. However, the Price/Earnings ratio is defined in a different manner in this dissertation.
Adamus/Koch subtract the value corrections. The author does not do this, as significant de-
pendencies between the bank’s value and the earnings do not exist, if value corrections are
implemented. Koch evaluated an r2 as well – it was only 0.58, when using the price/earnings
ratio887. The last ratio, the Price/AuM is not used here, as it is only suitable for investment
884
885
886
Cf. Koch (2004), p. 134.
887
Cf. Koch (2004), p. 132.
banks, as Adamus/Koch admit888. The balance sheet multiple, offering a good r2 in this disser-
tation, is not considered in Adamus/Koch however.
These multiples are applied on every bank. The average of the four multiples coming out of
the multiplier approach is defined as the bank’s value. For example, a value of 40.47 Mio. €
can be stated for bank 365:
Banks's Multiple Value of

value bank
net interest revenue 9.20 6.86 63.09
sum of balance sheet 335.000 0.08 26.87
economic equity 21.20 1.52 32.31
total net income bef. valuations 3.60 11.00 39.61
40.47
Table 27: Multiplier approach at the example of bank 365889
It is obvious that the net interest revenue of the savings bank would lead to a higher value
than the other multiples might define. The strengths of the savings banks are customer deals
in the balance sheet while the economic equity is lower than in the peer group.
After having presented the equity of the bank in section 5.2.2.1 and after having done the ex-
ternal analysis of the bank in this section, three internal approaches will be presented.
5.2.2.3 Earnings Value Approach
The earnings value approach is the first internal approach applied on the banks. Only the sus-
tainable parts of the income statement shall be used890. Following this, the given data of the
income statement have to be corrected by the non-sustainable values891. First, all other and
extraordinary results are treated as non-sustainable. Further, the tax payments are modified.
The tax ratio has to be paid only onto the sustainable income as well. Value corrections for
lost loans remain uncorrected – expected losses will always occur in future and are often de-
ducted in current literature892. As the usage of a nearly risk free ratio will be favoured, all ex-
888
889
Author’s own figure based onto the evaluation sheet.
890
Cf. Schierenbeck (1998), p. 395. For a detailed analysis of the evaluation of the relevant earnings cf. Schell
(1988), pp. 92.
891
For example done in Ballwieser (2004), pp. 24.
892
Cf. Copeland/Koller/Murrin (2002), p. 505. This problem will be discussed later on again. Cf. section
5.2.2.4.
pected risks have to be deducted. Thereafter, the sustainable income after taxes can be quanti-
fied. For bank 365, it looks as follows:
Position Ø Prog. Explanation

+ Interest Earnings 16.900 Sustainable income of the yield book
- Interest Expenditures -7.700 Sustainable expenditure of the yield book
+/- Derivates 0.000 Sustainable income of the yield book
+ Fees 2.000 Sustainable income
- Personal Expenditures -4.800 Sustainable expenditures
- Non-Personal Expenditures -2.700 Sustainable expenditures
+/- other expenditures/earnings Set as zero - no sustainable income!
+/- Provisions for lost loans -1.000 Have to be deducted as they minimize the sustainable income
+/- Depreciation of Bonds -0.100 Considered, even though the sustainablity may be discussable.
= Earnings before taxes 2.600
- taxes -1.040 Minimum tax rate: 40%. Adjusted taxes of the data given.
= Result of operating business 1.560
Yield 3.310%
Spread 0.158%
Discounting factor 3.468%
Terminal Value 44.98
Table 28: Earnings value approach at the example of bank 365893
While the net interest yield remains unchanged, other expenditures and the building of §340f
reserves are eliminated, as they cannot be considered as sustainable income. After that, the tax
rate resulting from the average tax rate of the last years, at least 40% is applied on this cor-
rected result894.
Further, the question of the discounting rate has to be discussed. As all risks as expected loss
and depreciation for bonds are deducted, the remaining income is almost risk-free as well.
Only the market risk remains, so that the discounting rate is defined as the 10Y market
yield895 plus the related spread. For bank 365, the earnings value is about 44.98 Mio. € –
twice as much as the net asset value.
5.2.2.4 Equity Approach
Discussing the equity approach leads to other assumptions and accordingly to other results.
The cash flow is setup as requested in current literature896. Cash inflows and cash outflows
coming out of the customer deals are not considered here, as they cannot be quantified by the
893
Author’s own figure based onto the evaluation sheet. Cf. table 23 for the average tax rate of bank 365.
894
Cf. Reuter/Blees (2006).
895
Following the argumentation of Adolf/Cramer/Ollmann (1989b), pp. 552.
896
Cf. Börner/Lowis (1997), pp. 106; Copeland/Koller/Murrin (2002), pp. 504; Koch (2004), pp. 128 and Ada-
mus/Koch (2006), pp. 154.
data given897. It has to be kept in mind that the presented approaches are only simplifications;
a more exact valuation would require much more data.
In order to receive a cash flow resulting from the income statement898, several adjustments
had to be done. All those expenditures and earnings that are no cash flows have to be cor-
rected. This is done in the following table:
Position Ø Prog. Explanation

+ Interest Earnings 16.900 Treated as 100% cash flow
- Interest Expenditures -7.700 Treated as 100% cash flow
+/- Derivates 0.000 Treated as 100% cash flow
+ Fees 2.000 Treated as 100% cash flow
- 85% Personal Expenditures -4.080 Assumption - 15% are no cash flow
- 85% Non-Personal -2.295 Adjusted by depreciation. Assumption: 15% of given non-personal
Expenditures expenditures
+/- other expenditures/earnings 0.000 Set as zero - no sustainable income!
+/- Provisions for lost loans 0.000 Set as zero - no cash flow
+/- Depreciation of Bonds No cash flow - set as zero
= Cash Flow before taxes 4.825
- taxes -1.040 According to Earnings Value Approach
= Result of operating business 3.785
Yield 8.32%
Terminal Value 45.49
Table 29: Equity approach at the example of bank 365899
Net interest earnings are treated as a cash flows. Some small aspects that are no cash flows
might exist, for example discounts of loans that are spread over the years. However, these
effects are only marginal; they shall not be considered here. Also fees are treated as 100%
cash flow, even though some of them might be no cash flow. Personal expenditures and non-
personal expenditures on the other side are corrected. It was assumed that 15% of the personal
expenditures are used for pension obligations. They stay in the bank and cause no cash out-
flow. The same is done with the non-personal expenditures. 15% are treated as depreciations
that cause no cash outflow as well.
However, the most important factor that has to be discussed is the value correction position.
As value corrections are no cash outflows900, they are not considered in this calculation901.
But this topic has to be treated very critically, as literature does not finally answer the ques-
tion, but tends to neglect the value corrections902. On the one hand, it is no cash flow in the
897
Only balance sheet data was requested in the survey, no changes between two years. A complete example is
given in Koch (2004), p. 129.
898
As for example done in Koch (2004), p. 129.
899
Author’s own figure based onto the evaluation sheet. Yield as per share price analysis based on CAPM.
900
901
Following Koch (2004), pp. 128 and Adamus/Koch (2006), pp. 15.
902
Beneath Koch and Adamus/Koch, Börner/Lowis do so as well. Cf. Börner/Lowis (1997), pp. 106.
beginning. On the other hand, some future expected cash inflows903 might be lost. These cash
flows cannot be anticipated904. The presented equity approach assumes that these lost yield
cash flows are considered in the income statement prognosis in form of a lower interest yield.
The value corrections can be neglected as redemption payments or other capital cash flows
are in general not considered in this model905. It has to be kept in mind that as soon as these
capital cash flows are inserted into the model, the value corrections have to be implemented
as well.
In case of a bond, this problem does not occur. Depreciation in this case is only a time ef-
fect906, so it is considered as zero907. In the last step, the evaluated taxes of the earnings value
approach are deducted908. They are completely taken as cash outflows. It has to be kept in
mind that the taxes must not differ to the earnings value approach, as they are not calculated
on the basis of a cash flow, but on the basis of sustainable earnings.
The resulting returns to discount are much higher than the earnings value approach909. Ac-
cording to this, a risk adjusted discounting rate has to be used. The 10Y market yield is com-
bined with the CAPM approach – even though it is often criticised in theory910. The share
price history of the DAX and the peer group presented above911 lead to an average beta of
0.7967 and a DAX yield of 18.11%912.
But this DAX yield has to be considered very critical as it only represents 3 years. While be-
tas can be stable during time913, the market yields show a high volatility. Between 1948 and
2003, the one year yield varied between -43.9% and 161.3%914. Taking the average of three
years would not lead to the right results. So the average of the last 50 years, 1953 – 2003 was
chosen to evaluate the CAPM ratio. The yield is about 9.60%915. This fits to current literature.
While Behm916 states a market yield of 10.07% in 1994917, Rolfes918 offers 11.7% in 1997919.
903
Interest cash flows and payback cash flows.
904
905
Börner/Lowis for example deduct value corrections. Cf. Börner/Lowis (1997), pp. 110.
906
All bonds are paid back at 100%, if no default occurs.
907
Cf. Strutz (1993), pp. 87.
908
Deprecations and value corrections have a tax effect. Cf. Copeland/Koller/Murrin (2002), pp. 504.
909
910
Cf. section 2.2.2.
911
Cf. section 5.2.2.2, table 25.
912
Presented in detail during the multiplier approach. Cf. section 5.2.2.2.
913
Shown and summarized in Grimmer (2003), p. 159.
914
Cf. Deutsches Aktieninstitut (2004), p. 1.
915
Cf. Deutsches Aktieninstitut (2004), p. 1.
916
Cf. Behm (1994).
917
Time period: 1970 – 1992.
918
Cf. Rolfes (1997), pp. 95 – 118.
919
Time period: 1954 – 1995.
Nevertheless, the evaluated betas fit with those of Rolfes. Deutsche Bank gets a beta of 1.12
in Rolfes work, the own calculations offer 1.08. The same can be stated according to the
Commerzbank. Rolfes offers 1.04, the own calculations lead to 1.15. So the betas evaluated at
a three year average can be used in this analysis.
Together with the 10Y market yield, a CAPM yield of 8.32% can be stated920.
A beta correction as requested by many authors921 is not done, as Adamus/Koch had proven
empirically that there is no dependency between leverage and beta922. An unadjusted beta can
be used accordingly.
The central question that has to be answered is why the discounting rates in the earnings value
approach and the equity approach differ. This is explained as follows: while the earnings
value approach consists of secure and sustainable earnings only (all measurable risks are de-
ducted), the equity approach is based on some insecure cash flows, as the value corrections
are not deducted. Accordingly, the discounting factor must be higher.
5.2.2.5 Treasury Approach
Last, the treasury approach is applied on the banks. The assumption to prove is that the value
coming out of it must be a little bit smaller compared to the other approaches923. This can be
explained as follows: Future maturity transformation is not worth anything, as worked out
above924. Hence, the expected additional earnings that are inherent quantified in the earnings
value method or the equity approach are set as zero in the treasury approach.
Further, only secure cash flows are discounted in the treasury approach. The fact that the sum
of the cash flows is smaller than in the equity approach is compensated by using a complete
risk free rate to discount the cash flows. If it can be proven in practice that the value based on
the treasury approach is smaller than in the other approaches, the treasury approach will be
verified.
First of all, the present value of the yield book is defined. In the cases the bank offered it, the
discounting was relatively simple, as only some corrections according to the yield book defi-
nition had to be done. If the cash flow was not given, a simplified approach based on the av-
920
iCAPM = 3.31% + (9.60 – 3.31%)*0.7967 = 8.32%
921
A beta adjustment as requested in Kirsten (2000), pp. 158 is not done in this dissertation.
922
Cf. Adamus/Koch (2006), pp. 155.
923
Cf. section 4.3.2.
924
Cf. section 4.2.8.
erage maturity date was evaluated. Multiplying the average maturity with the factor 2 leads to
a gliding average. Taking that as a fact, the cash flows were set up as follows925:
Assets - Customer Deals Fix

Year Date Value Repayment Yield Yield CF Cash Flow ZDF PV
31/12/2005 178.10 5.22% 0.00 0.00
1 31/12/2006 155.84 22.26 5.22% 8.72 30.98 0.9736 30.16
2 31/12/2007 133.58 22.26 5.22% 7.55 29.82 0.9453 28.19
3 31/12/2008 111.31 22.26 5.22% 6.39 28.65 0.9166 26.27
4 31/12/2009 89.05 22.26 5.22% 5.23 27.49 0.8879 24.41
5 31/12/2010 66.79 22.26 5.22% 4.07 26.33 0.8593 22.63
6 31/12/2011 44.53 22.26 5.22% 2.91 25.17 0.8306 20.90
7 31/12/2012 22.26 22.26 5.22% 1.74 24.01 0.8023 19.26
8 31/12/2013 0.00 22.26 5.22% 0.58 22.84 0.7742 17.69
9 31/12/2014 0.00 0.00 5.22% 0.00 0.00 0.7470 0.00
10 31/12/2015 0.00 0.00 5.22% 0.00 0.00 0.7201 0.00
11 31/12/2016 0.00 0.00 5.22% 0.00 0.00 0.6970 0.00
12 31/12/2017 0.00 0.00 5.22% 0.00 0.00 0.6747 0.00
189.50
Table 30: Simplified cash flow evaluation of fix customer deals of bank 365926
With the use of the gliding average, a continuous declining of the asset’s volume can be simu-
lated. Interests are paid per assumption at the end of each year, always paid on the annual av-
erage. Adding all cash flows lead to the simulated present value of the yield book. The present
value of the yield book can be approximated by this approach, but the maturity transformation
and interest rate sensitivity differ. It can be used in this model only for quantifying the present
value of the yield book. If the real yield book cash flow is given by the bank, it always domi-
nates the simplified approach. In this case the latter is only used for discounting costs and
earnings.
With the example of bank 365, the difference is about 2.61%. Even though most of the other
banks also have similar small differences, some show higher differences. The problem might
be that the given basis data are not exact enough. Bank 365 certainly is one of the best exam-
ples to apply the treasury approach.
These results are visualized in the following figure:
925
Cf. table 24 for the basis data. Volume: 188.30 Mio. € , 5.440% yield, Ø maturity 2.96 years, gliding aver-
age 5.92 years.
926
Author’s own figure based on the evaluation sheet.
General Data Given Cash Flow Simplified approach

Time ZDF Cash Flow PV Cash Flow PV
Day 0.9999 -33.60 -33.60
Year 1 0.9736 2.40 2.34 31.55 30.71
Year 2 0.9453 12.60 11.91 -11.78 -11.14
Year 3 0.9166 11.10 10.17 -12.11 -11.10
Year 4 0.8879 17.50 15.54 -12.45 -11.05
Year 5 0.8593 11.30 9.71 -12.78 -10.98
Year 6 0.8306 8.10 6.73 11.21 9.31
Year 7 0.8023 7.40 5.94 13.39 10.74
Year 8 0.7742 7.70 5.96 25.16 19.48
Year 9 0.7470 -3.10 -2.32 6.48 4.84
Year 10 0.7201 1.10 0.79 6.26 4.51
later 0.6970 1.80 1.25 0.00 0.00
44.30 34.43 44.94 35.33
40.00
30.00
20.00
10.00
0.00
Day
later
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
-10.00
-20.00
-30.00
-40.00
Given Cash Flow Simplified approach
Figure 38: Cash flow of the yield book – simulated vs. given cash flows927
Thereafter, the value of other assets and liabilities is added. Further, the costs, fees and taxes
are discounted according to the rest cash flows of existing business, as explained in section 4:
927
Position Value Percentage To discount Assumption
928
122
Expected Losses Loans -1.000 0.46% -1.000 Asset Customer Deals

Costs -7.500 40% -3.000 Whole Customer Deals
Fees 2.000 60% 1.200 Whole Customer Deals
Taxes -1.000 100% -1.000 Whole Yield Book Deals 40.00%
General Data Aggregations Cash Flow Present Value

Year Date ZDF Assets Whole Whole Expected Costs Fees Taxes Expected Costs Fees Taxes
Customer Customer Yield Book Losses Losses
Deals Deals
31/12/2005 0.0000 219.40 452.50 548.30 -1.00 -3.00 1.20 -1.00
1 31/12/2006 0.9736 155.84 348.13 433.49 -0.71 -2.31 0.92 -0.79 -0.69 -2.25 0.90 -0.77
2 31/12/2007 0.9453 133.58 285.05 359.98 -0.61 -1.89 0.76 -0.66 -0.58 -1.79 0.71 -0.62
3 31/12/2008 0.9166 111.31 221.98 286.46 -0.51 -1.47 0.59 -0.52 -0.47 -1.35 0.54 -0.48
4 31/12/2009 0.8879 89.05 158.90 212.95 -0.41 -1.05 0.42 -0.39 -0.36 -0.94 0.37 -0.34
5 31/12/2010 0.8593 66.79 95.83 139.44 -0.30 -0.64 0.25 -0.25 -0.26 -0.55 0.22 -0.22
6 31/12/2011 0.8306 44.53 57.43 90.61 -0.20 -0.38 0.15 -0.17 -0.17 -0.32 0.13 -0.14
7 31/12/2012 0.8023 22.26 22.26 45.00 -0.10 -0.15 0.06 -0.08 -0.08 -0.12 0.05 -0.07
8 31/12/2013 0.7742 0.00 0.00 12.30 0.00 0.00 0.00 -0.02 0.00 0.00 0.00 -0.02
9 31/12/2014 0.7470 0.00 0.00 6.15 0.00 0.00 0.00 -0.01 0.00 0.00 0.00 -0.01
10 31/12/2015 0.7201 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
11 31/12/2016 0.6970 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
-2.60 -7.30 2.92 -2.66

Table 31: Present value of fees, costs and taxes of bank 365928
The expected losses are determined by the asset customer deals. The discussion of the value
corrections929 leads to the conclusion that they must be deducted, as capital cash flows and
redemptions are considered as well.
The costs and fees factor given for existing business (40% and 60%) are deducted according
to the whole customer deals, while the taxes are discounted according to the whole yield book
sum development. The presented model is simplified here, as a differentiation into overhead
and back office would have been too complex for a questionnaire.
Last, all value parts of the treasury approach are added. This is shown in figure 39:
120
100
80
53.50
in Mio. €
61.20
60
2.92
40 7.30 2.66 2.60
20
34.43 32.49
0
Present value of
Present value of
Present value of
Present value of
Present value of
of other assets
Present Value
expected losses
Corporate Value
Present Value
liabilities
yield book
of other
costs
taxes
fees
parts of the corporate value
Figure 39: Treasury approach at the example of bank 365930
The resulting value is about 32.49 Mio. €, it is a lower than in the equity and earnings value
approach. The advantage of the treasury approach is that the parts of the bank’s value can be
structured and added. The main value part is the yield book, as the all purpose banks do most
of their business in it.
929
930
5.2.3 Summing up the Results
Figure 40 aggregates the results. The requested result is optimal. The treasury approach offers
a lower value than the equity and the earnings value approach. Further, the other two internal
approaches offer almost the same value while the multiplier approach is a little bit higher. For
sure, this example represents one of the banks that offered the best data quality. As to the
other banks, the results differ and are often not as good as in this example. This is shown in
the following section.
50.00
45.00
40.00
35.00
30.00
value in Mio. €
25.00
45.49 44.98
20.00 40.47
32.49
15.00
10.00 21.20
5.00
0.00
Book Value Treasury Approach Equity Approach Earnings Value Approach Multiplier Method
used method of corporate evaluation
Figure 40: Value of bank 365 based on all approaches931
5.3 General Evaluation for all Banks
5.3.1 Structuring the Banks
In total, 19 banks wanted to have an individual evaluation. This is about 37.25% as mentioned
above932. The next step is to have a closer look onto the related banks. A corporate evaluation
was done for the following banks:
931
932
Cf. section 3.3.4.
5.3 General Evaluation for all Banks 125
Type of Bank Number of Wanting an Percentage

answered Evaluation
surveys
Big Bank 2 0 0.00%
Bank 7 3 42.86%
Geno 21 8 38.10%
Sum 51 19 37.25%
Table 32: Structure of the banks with an interest in a corporate evaluation933
It is not surprising that the two big banks did not fill out the questions due to the fact that they
treat internal data as very sensitive. The other results lead to the conclusion that the interest in
a corporate evaluation exists in all banking groups. But the type of bank which should be in-
terested in a corporate evaluation, the savings bank sector, only offers a ratio of 31.25%. Even
though this is only a conclusion based on a small database, this percentage should be higher in
order to grant shareholder value management, considering the actual background of 3 pillar
discussion.934 The result fits with question 3.2 of the survey. Only 37.50% evaluate their own
value up to now935.
Nevertheless it is a success that so many banks offered internal data in order to get a corporate
evaluation936. The topic seems to be interesting for the banks.
5.3.2 The Corporate Value of the 19 Banks
Using the evaluation sheet presented in detail above leads to the following results for all
banks, including bank 365:
933
934
Cf. section 1.1.
935
936
Every bank gets its own evaluation sheet in a *.pdf format as a result of the corporate evaluation.
Data of the banks Absolute Results

Number Name of the Bank Equity Treasury Equity Earnings Multiplier
Value Approach Approach Value Method
Approach
11 Bank 11 29.00 67.18 69.67 56.46 53.72
22 Bank 22 15.00 18.69 35.33 49.67 28.67
51 Bank 51 1,500.00 4,671.62 3,720.74 6,473.83 3,450.20
159 Bank 159 10.00 13.87 28.70 22.82 22.31
160 Bank 160 5.20 6.31 13.16 11.53 9.56
185 Bank 185 513.00 498.11 1,019.12 1,900.29 985.59
277 Bank 277 393.00 575.33 722.17 1,004.09 687.29
311 Bank 311 232.26 200.99 250.72 354.94 288.33
346 Bank 346 160.84 218.14 342.80 117.24 282.61
365 Bank 365 21.20 32.49 45.49 44.98 40.47
398 Bank 398 726.00 1,059.76 1,360.18 1,577.65 1,301.97
476 Bank 476 11.00 39.89 21.06 14.69 22.15
488 Bank 488 33.21 48.10 78.70 83.64 62.12
489 Bank 489 14.30 21.02 28.24 25.64 26.45
607 Bank 607 15.26 30.38 30.41 29.48 28.94
621 Bank 621 83.00 137.39 99.15 86.47 122.17
637 Bank 637 20.76 17.36 28.26 37.93 31.39
695 Bank 695 22.20 28.90 51.56 38.15 42.21
Table 33: Results of the corporate evaluation for all banks, n = 19937
It is interesting to see that the results often do not fit as optimal as in bank 365. Sometimes,
relatively big differences can be found between equity approach and earnings value method.
Certainly, one reason is that the assumptions are generalized for all banks. This might not fit
for specialized banks. Further, the data quality is not optimal, even though many banks were
contacted a second or third time. The author had to adjust several data in order to keep consis-
tency in data – another indication that there is not a huge experience in German banks with
respect to corporate evaluation. Otherwise the necessary data would have been available di-
rectly.
5.3.3 Interpreting the Results
It would make no sense to analyze the results according to the type of banks, as the sample is
too small and the results are considered to be too volatile. But analyzing the sum of all banks,
differentiated into the five approaches, is useful. In total, the above mentioned volatile effects
should be much lower. Setting the equity book value as 100% and generating an average of
all banks leads to the following figure:
937
Author’s own figure based on the evaluation sheet. Specialized banks (not defined as all purpose banks) are
marked bold in the table.
5.3 General Evaluation for all Banks 127
250.00%
216.95%
204.57%
200.00%
183.44%
value in % of multiplier approach
162.52%
150.00%
100.00%
100.00% 89.36%
73.27%
46.99%
50.00%
24.70%
0.00%
Equity Treasury Equity Approach Earnings Value Multiplier Method
Value Approach Approach
used method of corporate valuation
Average Stand.Dev
Figure 41: Indexed value of all banks based on all approaches, n = 19938
The value generated by all other approaches is higher than the equity value. This is a good
indication for the validity of the data. Analyzing the approaches in detail leads to the follow-
ing results: The multiplier method generates a value that is 183.44% of the equity on average
– with a standard deviation of only 24.70%. The internal approaches lead to higher standard
deviations. This implies that the multiplier approach is better than the other models, as the
results are very stable. But this has to be seen critical. The multiplier approach is only an ex-
ternal approach. It does not consider internal aspects and can thus be treated as a first hint
only. Further, corporate values react more sensitive to internal data changes. A higher volatil-
ity is normal.
The equity approach, often discussed as the best model in theory, leads to the lowest standard
deviation and a corporate value of about twice the equity. The earnings value approach leads
to nearly the same result but with a higher standard deviation. Both approaches state that the
bank is worth about 205% - 215% of the equity. This is very interesting, as this result is
higher than the 183.44% coming out of the multiplier approach, based on the stock-listed
German big banks. A possible conclusion is that smaller banks in Germany have a higher
value than the stock-listed companies – but no one considers this. This is the main problem in
938
the German banking sector. Genos and savings banks represent themselves under value, even
though many hidden reserves and a high potential of growth are given in these sectors. How-
ever, the banks do not realize this. Both shareholder value based management and the evalua-
tion of the own value belong together. Nevertheless, both are not realized completely in prac-
tice. Most investors think that the major stock listed banks have the highest value – but this is
not the fact. A missing brand management or a better shareholder value management might
help to increase in particular the value of Genos and savings banks.
Last, the verification of the treasury approach is also given – even though the underlying data
are not reliable in a quantitative way. This leads to a higher standard deviation compared to
earnings value and equity approach. The treasury approach reacts more sensitively to changes
in the parameters than the other approaches. But the value of the bank is lower when using the
treasury approach, even though a real risk free ratio is used. The reason is that the expected
result of maturity transformation is set as zero. Therefore, the value of the banks generated by
the treasury approach must be lower than in the other approaches. This is a fact – the value is
about 1/4th lower when using the treasury approach. This verifies the quality of the approach;
it is proven by the practical application. It is interesting to see that the resulting value is even
lower than the value resulting from the multiplier approach. A conclusion can be that even the
market has not recognized that maturity transformation is worth nothing regarding the ques-
tion of corporate value.
5.4 Empirical Evaluation of Internal Multiples
Last, some further multiples can be defined. These multiples differ from above939, as they are
not based on the market price but onto the fictitious price coming out of internal approaches.
Leaving the specialized banks out of this analysis940, the table 34 offers some additional re-
sults, compared to those of the external based multiplier approach. The multiples remain al-
most constant – and the effects discussed in section 5.3.3 are visible in this table as well:
While the equity multiple and the balance sheet multiple lead to a higher value, net interest
revenues and income before valuation lead to a lower one. This can be interpreted as follows:
The stock listed peer group has a higher equity, a higher balance sheet sum and lower value
corrections. However, the net interest revenue seems to be higher in small companies – using
the brand and market power. The underestimation of the banks in the market according to the
net interest yield leads to the conclusion that the balance sheet and its earnings are still the
most important and strategic success factor. Genos and savings banks offer a relatively high
rate.
939
940
Banks 51, 160 and 185 have special functions and cannot be treated similar to other all purpose banks.
5.4 Empirical Evaluation of Internal Multiples 129
The defined multiples941 can be used in practice accordingly. It is really new that multiples
resulting from internal approaches are evaluated in order to apply them onto other banks.
However, it is interesting to see that these multiples do not differ very much from the external
multiplier analysis. Multiples resulting from both, internal and external analysis, will lead to
an objectified value. But the usage of the multiples has to be seen critical. They will only lead
to reliable results, if real comparable companies are used. The value coming out of such an
analysis will only quote a value that offers no hints according to the value parts of the bank.
The real value drivers of a bank cannot be controlled with this approach. No hints for the
management can be generated. A value based management is not possible when using this
approach. A multiplier approach thus can only be a first orientation value. Therefore, the clas-
sical approach or in best case the treasury approach have to be used. The latter fits best to a
value based management, as the value parts are quantified best.
941
4 external and 4 internal multiples.
Results Equity Multiple Balance sheet sum Multiple Net interest revenue Net income before valuation Ø Multiple
942
130
Average 1.8354 0.1145 4.8002 13.1384 4.9721

Ratios Multiples 1.5970 1.9884 1.9209 0.0978 0.1232 0.1225 4.1268 5.1467 5.1270 11.8754 14.1074 13.4324
Standard deviation 42.00% 24.33% 33.17% 35.79% 20.29% 38.41% 33.07% 15.56% 37.97% 72.90% 54.22% 47.68%
Bank Name Treasury Equity Earnings Treasury Equity Earnings Treasury Equity Earnings Treasury Equity Earnings
No Approach Approach Value Approach Approach Value Approach Approach Value Approach Approach Value
Approach Approach Approach Approach
11 Bank 11 2.3165 2.4025 1.9469 0.0940 0.0974 0.0790 4.8681 5.0488 4.0914 39.5176 40.9845 33.2122
22 Bank 22 1.2457 2.3555 3.3111 0.0788 0.1491 0.2096 3.7372 7.0665 9.9334 5.3389 10.0950 14.1906
51 Bank 51
159 Bank 159 1.3865 2.8701 2.2822 0.0670 0.1387 0.1103 2.7731 5.7402 4.5645 6.6026 13.6671 10.8678
160 Bank 160
185 Bank 185
277 Bank 277 1.4639 1.8376 2.5549 0.1064 0.1336 0.1857 4.1691 5.2331 7.2760 8.2190 10.3167 14.3441
311 Bank 311 0.8654 1.0795 1.5282 0.0905 0.1128 0.1597 3.6412 4.5421 6.4301 9.1154 11.3707 16.0971
346 Bank 346 1.3563 2.1313 0.7289 0.0860 0.1352 0.0462 3.5629 5.5990 1.9149 9.1594 14.3938 4.9228
365 Bank 365 1.5324 2.1456 2.1216 0.0970 0.1358 0.1343 3.5311 4.9443 4.8890 9.0239 12.6355 12.4940
398 Bank 398 1.4597 1.8735 2.1731 0.0883 0.1133 0.1315 4.1888 5.3762 6.2358 8.3053 10.6597 12.3640
476 Bank 476 3.6260 1.9145 1.3353 0.2157 0.1139 0.0794 7.9140 4.1785 2.9143 19.5714 10.3334 7.2070
Author’s own table based onto the evaluation sheet.

488 Bank 488 1.4484 2.3695 2.5184 0.1040 0.1701 0.1807 3.6853 6.0291 6.4078 7.4305 12.1559 12.9195
489 Bank 489 1.4701 1.9750 1.7931 0.0891 0.1197 0.1086 3.6246 4.8693 4.4209 9.1402 12.2791 11.1483
607 Bank 607 1.9910 1.9927 1.9321 0.1044 0.1045 0.1013 4.2192 4.2230 4.0944 16.8767 16.8918 16.3776
621 Bank 621 1.6553 1.1945 1.0418 0.0981 0.0708 0.0618 6.2449 4.5067 3.9305 15.2653 11.0164 9.6079
637 Bank 637 0.8359 1.3609 1.8269 0.0629 0.1024 0.1375 2.5667 4.1785 5.6095 7.5167 12.2370 16.4277
695 Bank 695 1.3017 2.3224 1.7185 0.0843 0.1504 0.1113 3.1756 5.6656 4.1923 7.0482 12.5748 9.3049
Ratios as per multiplier approach 1.5238 0.0802 6.8580 11.0038 4.8665
Difference: + internal approaches are higher 20.45% 42.73% -30.01% 19.40%
Table 34: Multiples resulting from the applied internal approaches942

6.1 Summary of the Main Results 131
6 Critical Discussion and Outlook
6.1 Summary of the Main Results
Summing up the results of this dissertation leads to the following aspects: First, the theoretical
status quo was defined. Existing approaches of corporate evaluation cannot be used directly
for banks. The entity approach for example is not useful in the banking sector as it does not
consider the fact that banks earn money with the liability side.
When analyzing the existing approaches of bank evaluation it becomes clear that several as-
pects remain unsolved in theory, even though many authors offered possible solutions. How-
ever, these statements differ. Crucial aspects are the discounting rate, the procedure of inte-
grating value corrections and the consideration of maturity transformation. The latter is the
most contested one. Many authors implement these additional earnings into their present
value approaches, others do not. The author of this dissertation follows Sonntag in his argu-
mentation not to implement maturity transformation results. Everyone has access to the capi-
tal market and can build up maturity positions. Hence, this value can be generated independ-
ent of the fact whether the bank that does maturity transformation is acquired or not.
The impulses for a new model coming out of the existing theory are simplicity and the usage
of secure cash flows and thus secure discounting rates in order to prevent the problems com-
ing out of the CAPM.
The status quo of corporate evaluation in the German banking sector was done by the author’s
survey. This survey can be treated as representative. It offered some real new aspects of cor-
porate evaluation, as current published surveys to this topic do not exist in literature. Two
topics were analyzed: the dissemination of shareholder value based management combined
with shareholder value-oriented controlling tools and the usage of corporate evaluation meth-
ods. The results are very remarkable. Shareholder value based management is not very fa-
mous in the German banking sector. Even those banks stating to be shareholder value-
oriented prefer periodic oriented values and controlling methods. On the one hand, EVA and
RAROC as the most important value-oriented numbers are not used often. Further, they get
the worst marks943. On the other hand, CIR and annual return get the best marks. It is disap-
pointing to see that the consideration of the own brand is not important for most banks – even
though this represents the future of the German banks. This is proven by a scoring model to
value the quality of shareholder value based management. The resulting scoring points con-
firm that shareholder value has no priority in German banks. A maximum rate of 98 points
943
Cf. figure 19.
132 6 Critical Discussion and Outlook
was possible, but the best bank received only 68 points, the average of all banks was about 27
points.
Nevertheless, it has to be taken as positive that nearly half of the banks quantify their own
value. At least the know how and the methods are available in German banks. This is proven
by the analysis of the known and used methods. Despite the good mark for the entity ap-
proach – only one bank944 found out that the entity approach is not useful for banks – the
theoretically derived approaches were valued similarly in practice. Even though shareholder
value is not famous in German banks, many banks stated that they evaluate their value in or-
der to do such a management. At least, the specialists in the banks, the controllers, are on the
right way. The main practical impulse for a new model was that existing bank controlling
methods as risk covering mass models and market interest rate method should be integrated
into a new model. Acceptance would increase and the banks would have much of the needed
know how in-house.
The developed treasury approach took all these aspects into consideration. Using the present
value extension of the market interest rate method and the gliding average approach, only the
cash flows of existing deals and positions are considered. Costs, expected losses, taxes and
earnings are subdivided into those that belong to new deals and into those that belong to exist-
ing deals. Discounting all those cash flows can be done with a risk free rate. Further, the ex-
pected earnings of maturity transformation are not considered in an elegant way. Accordingly,
every bank that does integrated bank controlling should be able to apply this approach.
Surely, the assumptions are debatable, as some of them react very sensitively to changes. But
as no new deals of the future have to be forecasted, the prognosis risk does not occur. This is
a very important advantage. Further, the model enables the bank to get management impulses
out of it. As it is a mixture between a separate evaluation approach and a discounted cash flow
approach, the parts of the bank that generate the most value can be defined. The management
thus knows about its critical success factors and about its core competencies. This information
is not generated by classical approaches. The parts of the developed model are completely
known in theory and even often in practice – but their combination and their usage as a corpo-
rate evaluation tool is new.
The model is verified in practice. As 19 banks are valued by the approach, the general result
is that earnings value approach and the equity approach generate a higher value on average,
even though the treasury approach is the only one that uses a risk free rate. The reason is that
the effect of maturity transformation is not considered. The model can be treated as verified in
practice, even though the results of the three approaches differ for some banks. This can be
explained by several reasons. First, the data quality might be low in some questionnaires.
944
Bank 3, one of the two big banks.
6.1 Summary of the Main Results 133
However, the most important conclusion is that the treasury approach only functions with all
purpose banks. Specialized banks with a low yield book have to be treated differently; the
treasury approach might lead to inconsistent results.
Another result is that the multiplier approach offers better results than expected. If a good
peer group is chosen, the results are quite stable. The multiplier approach can be used as a
first hint for the value of a bank, if the presented multiples are used. But is has to be kept in
mind that only external factors are considered. Only an internal analysis offers impulses for
the management. Internal approaches will always be better than an external multiplier ap-
proach accordingly.
During the development of the model, the question of integrating intangible assets occurred.
The model is flexible and allows the implementation of intangible assets as a further addi-
tional component. However, the usage of intangible assets, in particular human resources, was
very low in practice. Only one bank stated that the value of human resources is implemented
into the corporate value945. Further, as mentioned above, the brand and the increase of its
value does not seem to be important for German banks. This might have two reasons. On the
one hand, the interviewees of the questionnaire nearly always were controllers. Immaterial
assets and their valuation are not very famous in controlling. On the other hand, even a finan-
cial oriented value based management often cannot be found in practice. Implementing human
capital and the brand value would go too far at the moment. But in five or ten years, the situa-
tion might change.
Nevertheless, the empiric analysis has evaluated some additional multiples to estimate a
bank’s value in a quick and simple manner in order to receive a first result. The database of
the 19 banks offers supplementary multiples based on internal information. This is really new
considering the classical CCA. It is interesting to see that the net interest rate multiple is sig-
nificantly higher in the internal setup – banks that are not listed at the stock exchange have
high hidden values in the balance sheet. This was proven by the comparison of the multiplier
approach with the average value946, too. Equity approach and earnings value method gener-
ated a higher value than the multiplier approach.
Finally, the main questions of this dissertation947 have to be answered. Aggregating all aspects
mentioned above leads to table 35.
945
Bank 750, a rather small Geno.
946
Cf. figure 41.
947
Cf. section 1.1.
Question Main Arguments Status

The main weaknesses of existing methods of corporate
Do the existing ap-
evaluation are worked out in section 2.2. The entity
proaches of corporate
evaluation lead to the
approach is not useful for banks and the individual
structure of banks including the maturity transforma-
9
right values?
tion effect demand another model.
The status quo of bank evaluation was worked out and
explained in section 2.3. The weaknesses as the im-
How far is theory in
plementation of maturity transformation results were
quantifying the value of
banks?
discussed. Critical aspects as the definition of relevant 9
cash flow and the discounting yield were presented as
well.
The empirical study of the author answers all question
What is the practical
according to the status quo and the integration of value
status quo of corporate
evaluation in the German
based management. The usage of corporate evaluation
and value based management controlling numbers are
9
banking sector?
quantified.
The application of several corporate evaluation meth-
What is the value of a ods including the treasury approach solves this ques-
typical German bank? tion. Internal and external multiples were defined to 9
quantify the value of a German bank.
The survey in section 3 answers this question as well.
The interlink of value based management and corpo-
Do banks manage their
rate evaluation was analyzed in a detailed way. The
business in a shareholder
value-oriented way?
result is that a value based management does not occur 9
very often in practice. But quantifying the own value
will lead to a value based management during time.
Table 35: Answering the central questions of the dissertation948
It can be stated that all questions are answered in a sufficient way. This dissertation expands
existing theory, defines the practical status quo and evaluates a new approach to measure the
value of a bank.
6.2 Recommendation and Outlook
It has to be stated that the outlook for a value based management in the German banking sec-
tor is positive. Many banks evaluate their own value and the controlling tools to apply the
treasury approach are available in practice. Even though the methods are very young in prac-
tice, management knows about the results. During the next years, corporate evaluation will be
established in practice.
The main recommendation is to implement the value of immaterial assets. Classical Genos
and savings banks have the biggest brand value, but most of them do not consider this essen-
948
6.2 Recommendation and Outlook 135
tial factor in their evaluation process. The recommendation for German banks is to be aware
of this central asset they have.
Banks do not have material assets. Their balance sheet consists of customer deals. Getting
new deals in the future can only be realized by two strategies: being quality leader or price
leader949. While banks as DiBa950 try to get the customer by attractive prices, classical savings
banks and Genos can only generate new contribution margins by good services and by the
value of the brand that promise competence and sympathy. Therefore the intangible values as
the quality of the service, the know-how of the employees and the resulting value of the brand
will become the most important value drivers for the quality leader banks in the future. It has
to be realized in practice and connected to the shareholder value approach951. It will be the job
of internal and external marketing to publish these strategies adequately.
The treasury approach extends current theory and existing models. It is the only approach that
is able to implement immaterial assets into the corporate value by adding it. As only existing
customer deals and no future deals are considered, an addition of the brand value is possible.
Only a distinguishing into the part that belongs to existing assets and the part that belongs to
future expected earnings has to be done. It has to be kept in mind that in case of implementing
immaterial assets, the related costs have to be deducted as well. The dissertation did not im-
plement immaterial assets on purpose. The financial aspects of the treasury approach or simi-
lar models have to be accepted in practice first. After that, the treasury approach shall be ex-
tended.
Further, an integration of this model into the shareholder value process is necessary. This is
not a modification of the model itself; it is a transformation of its usage into the management
workflow. As the value drivers and its changes during time can be recognized, a shareholder
value-oriented management can react to these changes. Therefore a balanced scorecard should
be implemented and integrated with the existing treasury approach. A fixed process has to be
setup that leads to impulses and results for the management. In many banks, a balanced score-
card and a evaluation model exist. But they are not connected. Integrating both aspects into
this process offers the advantage that management decisions can be backtested. The direct
dependency between management decisions and EVA can be measured. Nowadays control-
ling often offers a highly sophisticated risk/return model, but management does not use it to
increase shareholder value. The required process can be modeled as follows:
949
Cf. Porter (1996), pp. 62; Thompson/Strickland (2003), pp. 151 and Kotler/Armstrong (2004), p. 574.
950
Direktanlagebank.
951
Cf. Vogler (n.Y.), pp. 467.
Balanced Scorecard Ex post Analysis
Financials
„What do our Ob jec- Mea- Target Initiative
investors tive sures
expect as yield
x Did the actions lead to the expected eco-

and strategy?”
Cause-eff ect connection Cause-effect connection
Cause-eff ect connection nomic value added?

Cause-effect connection
„How do we
have to act
Customer
Ob jec-
tive
Mea-
sures
Target Initiative
Internal Business Processes
„Which core
processes are
Ob jec-
tive
Mea-
sures
Target Initiative x Why did a difference occur?
x What could have been done better?
according to the most
our customer Vision & important ones
to fulfill our Strategy to satisfy
vision?“ customers and
shareholders?”
Learning and Growth

Cause-eff ect connection „How do we Ob jec- Mea- Target Initiative Cause-effect connection
get the ability tive sures
to change
ourselves in
order to reach
strategy and
vision?”
x Setting up the relevant controlling num-

bers.
x Setting up cause-reaction chains.
Measures Valuing the Bank
120
x Steps to increase the value. 100
x Specified actions and their estimated 80
53.50
in Mio. €
61.20
value added. 60
2.92
40 7.30 2.66 2.60
20
34.43 32.49
0
Present value of
Present value of
Present value of
Present value of
Present value of
of other assets
Present Value
expected losses
Corporate Value
Present Value
liabilities
yield book
of other
costs
taxes
fees
parts of the corporate value
x Using the treasury approach.

x Added: immaterial values.
Figure 42: Integrated shareholder value management process952
By sing the above mentioned process, management obliges itself to the bank’s strategic aims.
The risk of wrong management decisions will be minimized.
Therefore the most important recommendation for the banks is to use evaluation models as
the treasury approach and to combine them with the core management processes. German
banks are better than their reputation. The immaterial values as customer satisfaction, brand
and employees will determine the success of the banks in the future. A value based manage-
ment is the key to communicate this to customers, employees and to other banks. In this case,
unnecessary mergers and fusions can be prevented.
952
Appendix 1 137
Appendix
Appendix 1: Survey Letter
ANSCHREIBEN ZUR UMFRAGE “UNTERNEHMENSBEWERTUNG IM BANKENBEREICH“ SEITE 1 / 2
Mülheim an der Ruhr, 15.05.2006

Svend Reuse / Hornhof 23 / 45478 Mülheim
«Name»
- «Contactperson» -
«Street»
«Place»
Empirische Analyse zur Unternehmensbewertung im Bankenbereich
«Field_in_Letter»,
haben Sie sich nicht schon oft gefragt, was Ihr Institut wirklich wert ist? Genau diese Frage
versuche ich im Rahmen meiner abschließenden Master Dissertation
„Corporate Valuation in the German Banking Sector – Definition of the Status Quo,
Quantifying the Value of German Banks by existing Approaches and Development of a
new Evaluation Model“
zur Erlangung des Grades „Master of Business Administration (MBA)“ zu beantworten. Mit
dieser Umfrage möchte ich gerne den Status quo in der deutschen Bankenlandschaft darstel-
len und ein eigenes Modell zur Unternehmensbewertung im Bankenbereich entwickeln.
Um zu brauchbaren Ergebnissen zu kommen, bin ich auf Ihre Hilfe angewiesen (vgl. auch
umseitiges abgedrucktes Begleitschreiben meiner Universität). Deshalb richte ich hiermit
meine Bitte an Sie, beiliegenden Fragebogen zu beantworten und an mich zurückzusenden.
Die Beantwortung ist aufgrund der Erläuterung der Fachtermini recht einfach und schnell
erledigt. Die Beantwortung der Umfrage ist auch für Sie interessant – wenn Sie mir einige
wenige Daten Ihres Hauses zur Verfügung stellen, bewerte ich Ihr Unternehmen nach klas-
sischen, bereits bestehenden Verfahren und nach meinem selbst entwickelten Ansatz.
Selbstverständlich garantiere ich Ihnen absolute Anonymität Ihrer Antworten! Da die Master
Dissertation nur über einen begrenzten Zeitraum geschrieben werden darf, wäre ich Ihnen für
eine schnelle Rücksendung sehr dankbar! Die Ergebnisse lasse ich Ihnen nach Fertigstellung
gerne zukommen. Sollten Sie weitere Rückfragen haben, stehe ich selbstverständlich unter
unten genannten Referenzen zur Verfügung.
In der Hoffnung auf Antwort verbleibe ich
mit freundlichen Grüßen
- Svend Reuse - SVEND REUSE

BC / DIPL.-BETRIEBSW. (FH) / DIPL.-INFORM. (FH)
HORNHOF 23 • 45478 MÜLHEIM AN DER RUHR•
Anlagen TELEFON: 0208/84709949 • MOBIL: 0172/2842093
EMAIL: [email protected]
138 Appendix 2
Appendix 2: Confirmation Letter of the FOM

ANSCHREIBEN ZUR UMFRAGE “UNTERNEHMENSBEWERTUNG IM BANKENBEREICH“ SEITE 2 / 2
SVEND REUSE
BC / DIPL.-BETRIEBSW. (FH) / DIPL.-INFORM. (FH)
HORNHOF 23 • 45478 MÜLHEIM AN DER RUHR•
TELEFON: 0208/84709949 • MOBIL: 0172/2842093
EMAIL: [email protected]
Appendix 3 139
Appendix 3: Questionnaire addressed to 750 Banks
Svend Reuse
Hornhof 23
45478 Mülheim an der Ruhr
Sie brauchen den Bogen nur zu falten und in einen frankierten Fensterumschlag zu stecken, meine
Adresse ist passgenau.
Eine Bitte von mir: Setzen Sie pro Frage bzw. Kategorie nur ein Kreuz – es sei denn, es ist etwas
anderes angegeben. Sonst sind die Antworten nur sehr schwer auswertbar.
1. Allgemeine Daten zum Kreditinstitut
Dieser Abschnitt hilft mir, die Repräsentativität der Umfrage festzustellen und generelle Aussagen
bezüglich eines bestimmten Bankensektors ableiten zu können.
1.1. Wie viele Mitarbeiter hat Ihr Institut?
Anzahl Mitarbeiter:
1.2. Wie groß ist die Jahresdurchschnittsbilanzsumme (JDBS) Ihres Institutes?
JDBS: Mio. €
1.3. Wie lange existiert das Institut bereits?

seit weniger als 10 Jahren
seit mehr als 10 Jahren
1.4. Ist Ihr Institut Handelsbuchinstitut?

ja
nein
1.5. Ist Ihr Institut börsennotiert?

ja
nein
1.6. Was zahlen Sie für einen Ø Spread am Geld- und Kapitalmarkt (unbesicherte Papiere)?
Spread: %
140 Appendix 3
2. Fragen zur Banksteuerung
Unternehmenswertermittlung, integrierte Gesamtbanksteuerung und wertorientierte Steuerung sind

eng miteinander verbunden. Dieser Abschnitt hat das Ziel, den Status quo der wertorientierten Steue-
rung festzustellen.
Wertorientiert bedeutet in diesem Zusammenhang primär barwertige Steuerung, aber auch Sharehol-
der Value-orientierte Unternehmensführung.
Gesamtbanksteuerung bedeutet Allokation von Risikokapital auf Risikoklassen, Gesamtbanklimitie-

rung und Ermittlung von Risikotragfähigkeit.
2.1. Verfügt Ihr Haus über eine integrierte Gesamtbanksteuerung?

ja
eine Umsetzung ist nur in Teilbereichen vollzogen
nein
2.2. Welche Steuerungsart hat bei Ihnen den größten Stellenwert?

Optimierung der GuV bzw. der Bilanzwerte
Optimierung aus wertorientierter Sicht
2.3. Welche der folgenden Kennzahlen nutzen Sie zur Unternehmenssteuerung? Wie werten Sie
diese?
Kennzahl Erläuterung Nut- Wichtigkeit
zung? 1 (hoch) – 4 (gering)
a) Barwert Ziel kann es sein, einen Gesamtbankbarwert zu addie- ja 1 2 3 4
der Bank ren und dessen Optimierung zu steuern.
nein
b) BE vor Betriebsergebnis vor oder nach Bewertung. Vor Steu- ja 1 2 3 4
oder nach ern, aber nach außerordentlichen Positionen.
nein
Bewertung
c) VaR Value at Risk. Der Verlustwert, der innerhalb einer ja 1 2 3 4
bestimmten Zeit (z.B. 10 Tage) mit einer bestimmten
Wahrscheinlichkeit (z.B. 99%) nicht überschritten nein
wird. Übertragbar auf nahezu alle Risikokategorien.
d) RORAC Return on risk adjusted capital. Definiert als erwartete ja 1 2 3 4
Performance durch Value at Risk.
nein
e) RAROC Risk adjusted return on risk adjusted capital. Vergleich ja 1 2 3 4
des Ist-RORAC mit dem Ziel-RORAC.
nein
f) EVA Economic Value added. Definiert als: NOPAT (Net ja 1 2 3 4
operating Profit after taxes) abzüglich gewichtetem
Kapitalkostensatz multipliziert mit dem investierten nein
Kapital. Echte Überrendite über einer am Markt übli-
chen Rendite.
g) CIR Cost Income Ratio. Vereinfachend definiert als ordent- ja 1 2 3 4
liche Kosten / ordentliche Erträge.
nein
Appendix 3 141
Kennzahl Erläuterung Nut- Wichtigkeit

zung? 1 (hoch) – 4 (gering)
h) EKR Eigenkapitalrentabilität. Bezogen auf alle Eigenkapi- ja 1 2 3 4
talbestandteile nach KWG, aber exklusive Nachrang-
mittel. nein
i) Bilanz- Wachstumsziel in diversen Bilanzpositionen. ja 1 2 3 4
wachstum
nein
j) Marktan- Gegebenenfalls ist Ihr Ziel Expansion um jeden Preis: ja 1 2 3 4
teil dann ist der Marktanteil eine zentrale Steuerungsgrö-
ße. nein
k) Wert der Falls ermittelbar, kann auch eine Steigerung des imma- ja 1 2 3 4
Marke teriellen Firmenwertes eine zentrale Steuerungsgröße
sein. nein
l) Deckungs- Nettoertrag. Kundenzins bereinigt um Refinanzierung, ja 1 2 3 4
beitrag gegebenenfalls abzüglich Stückkosten und Risikokos-
ten. nein
m) DB- Verbarwertung der oben genannten Größe. ja 1 2 3 4
Barwert
nein
n) Balanced Vierdimensionales Kennzahlen- und Prozesssystem ja 1 2 3 4
Scorecard zur ganzheitlichen Unternehmenssteuerung.
nein
3. Fragen zur Unternehmenswertermittlung
Mit diesem Abschnitt soll der Status quo der Unternehmenswertermittlung evaluiert werden. Der Un-
ternehmenswert ist der Kaufpreis, den Ihr Institut zur Zeit am Markt erzielen könnte – natürlich immer
unter gewissen Annahmen. Eine Fusion / ein Verkauf ist nur ein Grund der Unternehmenswertermitt-
lung. Zu internen Steuerungszwecken und auch für die Ermittlung der Risikotragfähigkeit ist es schon
wichtig, diesen Wert zu kennen.
3.1. Welche Form der Unternehmenswertermittlung kennen Sie? Wie werten Sie diese? Bitte
werten Sie diese in der letzten Spalte nur, wenn Sie sie auch kennen.
Bewertungs- Kurze, nicht abschließende Erläuterung Be- Wertung

methode kannt? 1 (gut) – 4 (schlecht)
Repro- Wert bei Neuerrichtung eines Unternehmens „auf der ja 1 2 3 4
duktions- grünen Wiese“.
Substanzwert
wert nein
Veräußerung des Unternehmens im Liquidationsfall. ja 1 2 3 4
Liquida- Keine Berücksichtigung immaterieller Vermögensge-
tionswert nein
genstände.
Verbarwertung zukünftiger nachhaltig erzielbare (!) ja 1 2 3 4
Ertragswert- Erträge des Unternehmens. Steuerzahlungen sind zu
verfahren berücksichtigen. Diskontierung mit risikofreier Rendite nein
plus Aufschlag.
Verbarwertung der Cashflows des Unternehmens statt ja 1 2 3 4
Discounted Cash-
der Gewinne. Beim Equity Approach wird mit dem

flow Ansätze
Eigenkapitalkostensatz (z.B. über CAPM – Capital nein

Equity
Approach Asset Pricing Model) abgezinst. Hierbei gilt der Cash-
flow nach Steuern, Zinsen, Tilgung und Investitionen.
Der (Bar)Wert des Fremdkapitals ist nicht abzuziehen.
142 Appendix 3
Bewertungs- Kurze, nicht abschließende Erläuterung Be- Wertung

methode kannt? 1 (gut) – 4 (schlecht)
Der Cashflow, der allen Kapitalgebern zusteht, wird ja 1 2 3 4
mit dem WACC (weighted average costs of capital)
abgezinst. Zum Cashflow des Equity Approaches wer- nein
Entity
Approach
den Zinsen und Tilgungen addiert. Der Wert des
Fremdkapitals ist im Nachgang hiervon abzuziehen.
Unter dieser Position wird vereinfachend (!) auch das
APV (Adjusted Present Value) Verfahren verstanden.
Multiplikator- Analyse von vergleichbaren (börsennotierten) Unter- ja 1 2 3 4
verfahren /& nehmen und Ermittlung von Relativkennzahlen. Bei-
Comparable spiel: Ein Unternehmen hat nach Analyse der Markt- nein
Company Ana- kapitalisierung einen Marktwert, der im Schnitt dem
lysis
1,8-fachen Buchwert entspricht.
Übertragung des Finanzoptionsmodells auf reale Opti- ja 1 2 3 4
onen: Ein Unternehmen hat die Möglichkeit, aber nicht
die Pflicht, eine (real existierende) Option auszuüben. nein
Real Option
Approach
Wird oft verwendet, wenn kein positiver Cashflow
oder Ertrag zu erwarten ist. Der Wert des Unterneh-
mens entspricht vereinfacht ausgedrückt dem Zeitwert
der Option.
3.2. Ermitteln Sie bereits Ihren Unternehmenswert?

ja
nein,
wir planen aber, dies in naher Zukunft umzusetzen
wir werden dies auch in absehbarer Zeit nicht anstreben
Wenn Sie die Frage 3.2. mit „nein“ beantwortet haben, können Sie direkt mit Abschnitt 4 fortfah-
ren. Alle nun folgenden Fragen sind nur dann relevant, wenn Sie bereits Ihren Unternehmenswert
ermitteln. Scheuen Sie sich jedoch nicht, den Fragebogen trotzdem einzusenden – natürlich sind
auch solche Bögen für die Auswertung sehr interessant!
3.3. Wie lange ermitteln Sie bereits Ihren Unternehmenswert?

seit 0 – 3 Jahren
3 – 6 Jahren
länger als 6 Jahre
3.4. Wie oft ermitteln Sie Ihren Unternehmenswert?

täglich
wöchentlich
monatlich
vierteljährlich
jährlich
sporadisch
3.5. Was ist bzw. war für Sie der Grund für die Unternehmensbewertung?
Fusion
Unternehmensverkauf (in Teilen)
Börsengang
wertorientierte Unternehmenssteuerung
Appendix 3 143
3.6. Welche(s) Verfahren nutzen Sie? (mehr als ein Kreuz möglich)
Equity Approach
Entity Approach / Adjusted Present Value
Liquidationswert
Reproduktionswert
Multiplikatoransatz
Real Option Approach
Ertragswertverfahren
Andere: Bitte kurz erläutern, um was es sich handelt:
3.7. Implementieren Sie immaterielle Vermögenswerte (z.B. nicht bilanzierbare Firmenwerte

oder Human Capital) in Ihren Unternehmenswert?
ja
nein
3.8. Kennt Ihre Geschäftsleitung die Ergebnisse?

ja, die Geschäftsleitung wird regelmäßig hierüber informiert, ein konkreter Handlungsim-
puls wird jedoch nicht generiert – „nice to know“
ja, die Geschäftsleitung wird regelmäßig hierüber informiert und handelt dementsprechend
nein, die Ermittlung ist nur für Fachbereiche interessant
4. Unternehmensbewertung Ihres Institutes
Auch wenn Sie Ihren Unternehmenswert bereits kennen sollten – ich werde dies für Sie aufbereiten,
wenn Sie mir entsprechende Daten zur Verfügung stellen. Diese lasse ich Ihnen dann natürlich
zukommen. Selbstverständlich behandele ich diese Detaildaten absolut vertraulich! Bedenken Sie –
billiger und vor allem diskreter können Sie hier keine Ergebnisse erhalten! Und: je genauer Ihre An-
gaben, desto realistischer wird der von mir ermittelte Wert sein.
4.1. Wünschen Sie eine individuelle Unternehmensbewertung?

ja
nein
Wenn Sie die Frage 4.1. mit „nein“ beantwortet haben, bitte ich Sie, direkt mit Abschnitt 5 fort-
fahren! Allerdings gebe ich zu bedenken, dass Sie gratis eine individuelle Unternehmensbewer-
tung mit einem von mir entwickelten Modell erhalten!
4.2. Daten zur GuV

Hierzu benötige ich von Ihnen die aktuellen Ist-Zahlen der letzten drei Jahre sowie eine Wachs-
tumsprognose für die kommenden Jahre. Ist letztere nicht vorhanden, wird der letzte Jahresab-
schluss für die Zukunft fortgeschrieben. Alle Angaben bitte in Mio. €!
144 Appendix 3
Jahr -2 Jahr -1 Jahr 0 Ø Prognose

Folgejahre
+ Zinsertrag
- Zinsaufwand
+/- Derivateergebnis
+ Provisionsergebnis
- Personalaufwand
- Sachaufwand
+/- Saldo sonstige und
a.o. Positionen
+/- Bewertungser-
gebnis Kredit
+/- Bewertungser-
gebnis Wertpapiere
- Steuerzahlungen
+/- §340f HGB
= Bilanzgewinn
4.3. Daten zur Bilanz passend zur GuV aus 4.2

Des Weiteren benötige ich von Ihnen Daten zur Bilanz. Einige dieser Dinge sind bereits von der
BaFin per 30.09.2005 im Rahmen der Zinsschockumfrage Basel II bei Ihnen erfragt worden –
deshalb handelt es sich primär um bereits bekannte Daten.
Aktiva Passiva
Position Volumen in Ø Zins Ø Rest- Position Volumen in Ø Zins Ø Rest-
Mio. € in % Zinsbin- Mio. € in % Zinsbin-
dung in dung in
Jahren Jahren
Kunden- Kunden-
geschäft geschäft
fest fest
Zinsbuch
Zinsbuch
Kunden- Kunden-
geschäft geschäft
variabel variabel
Depot A Eigenge-
– Bonds schäft
Buchwert Buchwert
sonstige Ak- sonstige Pas-
tiva & Kasse siva inkl.
EWB/PWB
Aktien und Eigenkapital
Beteiligun-
(ohne Nach-
gen rang)
Appendix 3 145
Anmerkung zur Ø Rest-Zinsbindung: Zu vergleichen mit der Duration. Haben Sie Geschäfte,
die in der Regel 10 Jahre laufen und über die Laufzeit gleichverteilt sind, so ist die Ø Rest-
Zinsbindung 5 Jahre. Ein gleitender Durchschnitt von 10 Jahren entspricht somit auch einer Ø
Rest-Zinsbindung von 5 Jahren. In der Regel führen nur sehr viele endfällige Geschäfte zu grö-
ßeren Ø Rest-Zinsbindungen als 5 Jahre. Das BaFin bezeichnete diese Größe in seiner Umfrage
als „mittlere Laufzeit“.
In Ergänzung dazu können Sie mir auch Ihren Gesamtbank-Cashflow zur Verfügung stel-
len, am besten auf Jahresbänder gemappt und passend zu o.g. Bilanz. Der Cashflow enthält
in dieser Definition festverzinsliche und variable Aktiva und Passiva, aber auch Spezial-
fonds und Derivate. Nicht enthalten sein sollten Wertberichtigungen und Kasse.
Zeitpunkt Cashflow in Mio. €

Tag 1
Jahr 1
Jahr 2
Jahr 3
Jahr 4
Jahr 5
Jahr 6
Jahr 7
Jahr 8
Jahr 9
Jahr 10
Summe Folgejahre
4.4. Daten zur Kostenverteilung (Personal und Sachkosten)

Des Weiteren benötige ich Daten zur Kostenverteilung. Zentrale Idee ist die Aufteilung aller
Kosten nach der Verursachung: Kosten für Bestandspflege (Stab/Overhead) vs. Kosten für
Neugeschäfte (Vertrieb). Generell gilt: in einer „idealen“ Welt sind zumindest die „Vertriebler“
(Personalkosten) einer Bank zuständig für Neugeschäfte.
Kostenart Erläuterung Prozentsatz

Vertrieb Zuständig für neue Geschäfte, nicht oder kaum für Bestandsge- %
schäft.
Back Office & Zuständig für die Pflege des Bestandsgeschäftes oder für die %
Stabsmitarbeit. Geht voll als verbarwerteter (negativ wirken-
Overhead der) Kostenbestandteil in den Unternehmensbarwert ein.
100 %
4.5. Daten zur Bestandsprovision

Bitte schätzen Sie: Wie viel Prozent Ihrer Provisionen (vierte Zeile auf Seite 6 oben) sind echte
Bestandsprovisionen, die Sie auch erhalten würden, wenn Sie keine Akquise mehr betreiben
würden?
Schätzung: %
146 Appendix 3
5. Abschließendes
5.1. Wenn Sie noch weitere fachliche Dinge oder Anmerkungen zu diesem Fragebogen haben,
so können Sie dies hier zum Ausdruck bringen:
5.2. Art und Umfang der Veröffentlichung

Selbstverständlich habe ich Verständnis dafür, dass Sie Ihre Daten absolut vertraulich behandelt
wissen wollen. Generell verpflichte ich mich, die von Ihnen erhaltenen Informationen nur ano-
nymisiert für meine Master Arbeit zu verwenden, wenn Sie dies wünschen. Allerdings kann eine
namentliche Nennung Ihres Institutes partiell sinnvoll sein. Bitte treffen Sie Ihre Wahl:
Sie können den Namen und die Daten meines Institutes in Ihrer Arbeit erwähnen.
Wir möchten nicht, dass der Name unseres Institutes in Ihrer Arbeit auftaucht. Bitte wählen
Sie Bezeichnungen wie „Bank «No»“ o.ä.
5.3. Kontaktadresse
Nach Vollendung meiner Arbeit stelle ich Ihnen bei Bedarf gerne die Ergebnisse zur Verfügung.
Bitte geben Sie doch in diesem Falle Ihre Kontaktadresse oder Email an, an welche ich Ihnen Ihr
persönliches Exemplar senden kann.
Bitte senden Sie mir nach Vollendigung die Ergebnisse der Master Dissertation zu.
Name:
Straße:
Ort:
Tel.:
Email:
Herzlichen Dank, dass Sie sich die Zeit genommen haben, diesen Fragebogen zu beantworten!
Svend Reuse
Bibliography 147
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Svend Reuse

Corporate Evaluation in the German Banking Sector

With a foreword by Prof. Dr. Eric Frère

1. Auflage März 2007

Das Werk einschließlich aller seiner Teile ist urheberrechtlich geschützt.

Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem

Prof. Dr. Eric Frère

Prof. Dr. Burghard Hermeier

Table of Contents ..................................................................................................................... IX

2 Theoretical Status Quo of Corporate Evaluation.............................................................. 5

2.3.1.2 Maturity Transformation ....................................................................... 38

3 Practical Status Quo: An Empirical Study in the German Banking Sector................. 53

4 Development of a New Corporate Evaluation Approach for Banks ............................. 87

4.2.2 Further Assets..................................................................................................... 96

5 Quantifying the Value of German Banks....................................................................... 105

6 Critical Discussion and Outlook ..................................................................................... 131

Appendix ............................................................................................................................... 137

Bibliography ......................................................................................................................... 147

Figure 1: Research methods and methodology ................................................................. 4

Table 1: Development of the number of German banks.................................................. 1

Equation 1: The earnings value approach ........................................................................... 18

1.1 Problem Definition

Nowadays a shareholder value3-oriented management with the evaluation and improvement

Kind of bank type 1990 2005 Percentage

Table 1: Development of the number of German banks8

1.2 Reasoning and Motivation

1.3 Research Methods

Section of the Dissertation Secondary Research Primary Research

Section 4: New Model

Section 6: Final Con-

Figure 1: Research methods and methodology28

2 Theoretical Status Quo of Corporate Evaluation

2.1 Motivations for a Corporate Evaluation

2.1.1 Reasons for a Corporate Evaluation

Combining these two aspects leads to table 2:

Change of property No change of property

Table 2: Motivation for a corporate evaluation39

2.1.2 The Difference between Price and Value

2.1.3 Functions of Corporate Evaluation

x At this price, a buyer would buy and a seller would sell.

function x Often only for parts of the company.

x Based on balancing rules, book values have to be established.

By defining several functions of corporate evaluation, the argumentation according to a

2.2 Methods of General Corporate Evaluation

Ballwieser offers a holistic structure of corporate evaluation methods. Separate evaluation

Global evalua- APV

Real prices Fictitve prices

Figure 2: Main structure of corporate evaluation approaches75

2.2.1 Separate Evaluation Methods

2.2.1.1 Reproduction Value Method

2.2.1.2 Liquidation Value Method

2.2.2 Global Evaluation Methods

Equity yield Debt yield

Currency Normally € Normally €, depending on the debt struc-

i share E share u (im  irf )  irf Capital market line

with: i = yield of a certain investment

0 1 1,5 2 Beta (ȕ)

Figure 3: Graphical visualization of the CAPM161

2.2.2.1 Earnings Value Method

Equation 1: The earnings value approach181

2.2.2.2 Discounted Cash Flow Methods

Component Used for

2.2.2.2.1 Equity Approach

i share E share u (im irf ) irf Capital market line

CV CVno debts ts Vdebt

CVtotal VDCF Voptions

( SEV EV ) SEV n add . profit n 5

n= periods of addi- CV SEV 0.45 ( EV CV ) ¦

tional profit CV 0.69 SEV 0.31 EV