M&I EV vs Equity Value section question 10 says that "Enterprise value is not even used for commercial banks in the first place." So out of curiosity, what is used to value commercial banks?
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As opposed to industrial companies and due to the nature of their business, banks are valued based on cash flows to shareholders only (in contrast to cash flows to shareholders and debt holders), as debt funding is directly correlated to the bank's assets and its profitability.
Banks tend to trade primarily based on Tangible Book Value (book value that would be available to shareholders in bankruptcy) and Earnings (P/TBV and P/E).
DDM - Dividend discount method because cash flows are irrelevant to banks and they can't declare 100% dividends
Multiples - P/Loans, P/Deposits etc
You don't use enterprise value because debt is not the same as in normal companies (banks have about 80/90% of their capital in liabilities)
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