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ING Groep N.V. Message Board

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  • jpomper jpomper Aug 13, 2011 4:46 AM Flag

    Book values and current PPS

    Banks by definition have 10-15 leverage ratio, called gearing. It is mesured as RWA (RiskWeightedAssets) ratio to Equity(BookValue);

    If a 10 times leveraged bank lost just 10% of RWA by way of recession, crash, etc.(which is a lot),
    they lose all their Equity. And by law they must bankrupt.

    The bank is risky business; and their pricing reflects this fact, particularly when investor's sentiment becomes extremly risk-averse, just like now.

    To demonstrate how extrem risk-aversion Is:

    1)Currently the bank's pricing equation is (using multiple linear regression) cca.
    Price=0.9*Bookvalue+5*Dividend%
    And othertimes important factors like Earnings, Growth, etc. are absolutely insignificant.

    2)Longterm, the pricing equation is cca.
    Price=2*Bookvalue+6*Earnings+1.5*Div%

    This just shows the potential.

 
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