Special characteristics to consider when doing a financial Due Diligence for a bank?

Anonymous A asked on Jan 11, 2019 - 1 answer


after I finished my B.A. Finance & Management recently I decided to change my profession and now I'm looking for a vanacy in the field of TAS. Now, I received a vey short-term invitation for a recruiting day on monday.

I'm working for a bank at the moment but I have nearly no druck with the relevant topics.

They told me on the phone, that i have to prepare two cases in the morning which I have to present in the afternoon. The main topics will be financial due diligence for a bank (adjusting of the balance sheet and especially the profit) and secondly, the calculation of the banks value.

1. What are the special characteristics which i have to consider for the financial DD?

2. Is it the correct way, to calculate the value by using the DCF based of the profit?

1 answer

  • Upvotes
  • Date ascending
  • Date descending
replied on Jan 18, 2019
Experienced professional with Strategy Consulting and Investment Banking expertise
Book a coaching with Nicolo

0 Meetings

0 Q&A Upvotes

USD 109 / Coaching

Hi, to answer your questions separately:

1. In principle, a bank's financial due diligence is not different from any other company's. Obviously the KPIs and metrics are different (e.g.EBITDA margin is meaningless, and instead you'd be looking at ratios related to efficiency, loans and deposits, income margin, etc.). In terms of adjustments, a common one relates to NPL ratios: it might be the case that those are understated and not enough money is set aside; if that's the case, you'll need to book the adjustment into the income statement (profit down) and decrease the book value of the loans accordingly on the balance sheet. Just an idea though, the actual adjustments you need to make will depend on the specific case!

I would say that the Legal DD becomes particularly relevant when assessing a bank - due to all the legal/compliance requirements and the potential liabilities that may arise. Also, in case of local banks, the commercial DD should place more emphasis into the state of the local economy are they are oftern intertwined.

2. DCF is not a good method when it comes to banks. Rather, you should use DDM (Dividend Discount Model), and you can then triangulate the resulting value with trading/transaction multiples.

Good luck!


Related BootCamp article(s)

Opportunity Costs

Opportunity costs are an economic concept to quantify benefits of (discarded) alternatives. They measure the lost benefits that occur if you choose the best alternative instead of the second best one.



Valuation case studies require you to estimate how much a firm, patent, or service is worth. For these cases, use the Discounted Cash Flow method or the Industry multiple method.

Cost-Benefit Analysis

Investments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in most cases you need to have an idea about future financial impacts. A key tool to asses this impact is the cost-benefit analysis which is used to determine the net effect of potential revenues and costs.

1 Q&A

Related case(s)

Gravestone Inc.

Solved 11.9k times
4.4 5 421
| Rating: (4.4 / 5.0) |

Your client, Gravestone Inc., is a mason producing gravestones situated in Switzerland. He is producing high-quality, hand-crafted gravestones with very skilled labour-force. In the recent past a technology was developed that would allow him to produce his gravestones with much less labour. He is ... Open whole case

Water flows

Solved 4.2k times
3.5 5 66
| Rating: (3.5 / 5.0)

We are a German owned water provider company based in the south west of the United States. As the biggest water provider in the region we serve the majority of the south west region. We measure our performance using the Economic Value Add (EVA) valuation technique. We are currently at a negative EV ... Open whole case