Course Overview

A two-day advanced case study based workshop which drills down into the financial statements of banks and securities companies in order to identify and quantify the risks of more complex business lines.

Course Objectives

Participants will be equipped to:
• Recognise how and the extent to which more complex banking businesses are reflected in the balance sheet and how the risk profile is evidenced in the income statement
• Identify and quantify exposures where all or part of the exposure is off-balance sheet, including derivatives and structured finance vehicles
• Understand how the new accounting and reporting conventions under both US GAAP and IFRS impact differently the financial statements of banks and investment banks
• Use the information provided to evaluate the bank's risk profile and appetite.

Course Content

Day One

Introduction
Banking Regulation
Role of Central Banks
Foreign Exchange Restrictions
Foreign Ownership Considerations
Legal enforcement
State of the Bank and Financial Institution Market
Study of the Banks
Licensing regime
Regulatory vs. Guidance

Credit Analysis
Balance Sheet -limitations
Profit and Loss
Covenants unique to Banks
Bankers Almanac
Published data -what it does not tell
Listed vs. Unlisted banks
Private banks which support promoters

Case Study: Study of the various banks based on publicly available data will be made. Participants are expected to have access to Google and access to bank websites to obtain public information.

Intangibles
Management Team
Quality of Deposits
Perception of Promoter Group
Assets at historical value
State of Technology
Checks and balances

Case Study: Analysis of particular bank financial statements from publicly available information. Teams will be given certain information which would need careful study to see the effect on the financials. Some elements will be added to ensure the participants understand how banks could blow up balance sheet by scam transactions etc.

Due Diligence
Process
Parties Involved
Sampling unavoidable
80:20 rule- focus on bigger picture
Ratios done by branches - focus on unusual trend
Dissection of Portfolio - say by security
Stress Testing of Portfolio

Day Two

Report Writing
Objective
Format
Credit Analysis
Considerations
Management Action Triggers (MAT)
Recommendations

Case Study: The Participants will be given a Case Study to analyse the data. There will not be enough time to do a full report writing exercise but the essential parts of the exercise will be covered. Emphasis will be placed on understanding Notes to accounts, Derivatives explained and other contingency items not reflected well in the financials.

Cash Flow Analysis

Discussion on the Bank’s main income sources and their impact and use as an early warning signal.

Earnings Analysis Trail
Non performing loans and provisions
Speculative practices and their detection
Highlighting organisational risks.
Sustainable growth rates….are we reviewing a going concern?
Operating Expenses and their management.
The Quality and Riskiness of earnings.
Growth as strategic policy and out of control.
Direct and Indirect Cash Flows.
Cash Flow Ratios including:-
Ratios to assess the ability to generate future earnings, the reliance on outside sources as financiers for a riskier growth analysis, Mandatory and Discretionary Cash Flows.

Structuring Investments
Inter Bank Lines needs
Difficulty in monitoring risks
Valuation Expectations
Understanding Loan, Mezzanine and Equity Structures
Valuing the different scenarios
Choice of best structure for the Bank
Covenants - both positive and negative
Claw back provisions
Hurdles- to incentivize Management
Punitive steps - if not met

Exercise; To work on Excel the valuation of a bank under different methods and to arrive at a term sheet for the structure of the Investment to discuss with the bank.

PDF of course outline - Please note that tailoring is possible


IF YOU HAVE ANY QUESTIONS ABOUT THIS SEMINAR PLEASE WRITE TO US AT post@redcliffetraining.co.uk

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