Valuing banks with negative equity

Hey Guys,

How would you go about valuing a bank with negative equity (distressed). Would you value it based soley on the asset value? If so, how would you treat their liabilities? Since you would inherit it, it would have to be way lower than assets alone.

Any advice?

Yes, inheret that thing, declare bankruptcy, and liquidate that mofo. (Answer: Liquidation Value)

I don’t cover financials, but The National Bank of Greece (ticker NYSE: NBG in the US) had negative BOOK value for quite some time before recently. Maybe you can pull some analyst reports on NBG to see how analysts valued the bank. It’s no easy task slapping a price target on that one.

Hi JSobes, yeah, we are thinking of liquidiation value, but then again, we would inherit their liabilities. It is actually a negative earnings asset. The value that it brings is the synergy once we merge as we get to inherit their branch licenses… very odd situation.

Wouldn’t it be valued at its assets minus its liabilities (after reducing for haircuts on bondholders) ?


I don’t know anything about bank licenses, but I would assume that if we’re looking at a merger then we’d have to look at a “investor’s” value due to synergies. How much can you expand revenue? Do you have fixed costs in place that would not need to increase if you started managing the asset? If you can expand revenue through the new branches and realize enough earnings through realized operating leverage I would assume the purchase would be worth it. For example, if the branches are underperforming because they aren’t lending enough out due to managerial issues then we’re looking at an underperforming asset. Yes, the book value is lower, but if you’re a PE firm with the ability to realize synergies and generate enough cashflow to pay off the excess liabilities you’re looking at a winner. I do this for a living (small-cap public markets) but I’m very interested in this from a mental perspective. Shoot me a PM if this is a real-life scenario, I’d love to chat about it