Looking for a primer on financial institutions. I am looking into investing some money in beaten up UK/European banks and am getting a little confused doing my analysis. I feel like my analysis has been too simple, focusing on Tier 1 ratios, BV ratios, and ROE. I'd like to understand the loan loss provision booked on the BS and whatever else is considered analyzing banks.
Thanks, XSX
With regards to your plans on investing in FIG (and European FIG no less), I invoke the words of Alexander Pope on this point:
A little learning is a dangerous thing ; Drink deep, or taste not the Pierian spring : There shallow draughts intoxicate the brain, And drinking largely sobers us again.
In other words, this is a dangerous space to dabble in given its complexity and the significant headwinds facing the EU. If you don't take this space extremely seriously, you're gonna lose a lot of money.
However, if you choose to walk down this path despite my warning, a good book to read would be The Principles of Banking by Moorad Choudry. Keep in mind, this is a like a ~700 page book or so, but it's long for a reason (this stuff is really complicated).
BAML put out a primer on regulatory capital too if you (or a friend) have a Merrill Edge account. That's like a ~100 page read. BAML's primer is particularly good because it does a comparative analysis of regulatory regimes by country/region (i.e. US vs Europe vs Japan vs Asia ex-Jap vs etc).
Also, as a banker, do you have any friends on the buyside? These guys have access to a lot of the primers out there. If you need specific recommendations as to specific notes, feel free to PM me.
This post is a lot less content heavy relative to my usual responses, but I do need to preserve my anonymity for obvious reasons. Happy to provide specific guidance if you can more narrowly tailor your requests and questions in a way that doesn't run afoul of this of course (i.e. specific FIG questions you may have).
Brain,
Thanks for the response. I ended up finding a 2011 US large cap bank primer from DB. I am going to give this a read this weekend and will follow up. Unfortunately, I do not have many close contacts that I can think of in the big banks. I work in a boutique in a non-core region.
I may know someone in Merrill, although not banking, that may be able to help pull that.
Thanks, XSX
If its Matt O'Connor over at DB that wrote it, it's probably a pretty good primer. As for the Merrill Edge thing, it's just an online brokerage account. Assuming your compliance allows you to, you can sign up for it too and then you'll get their research for free (I think it's limited to anything published in the last 6 months and no models).
Some other online brokerage out there has a similar setup with Morgan Stanley.
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