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22-09-2020 : "Is the cost of capital a relevant concept in the banking field? »


Bank finance differs from corporate finance on a number of points. This is due to the fact that the notion of working capital, fixed assets and net debt does not exist or is transposed differently from the business world to the banking world.

Indeed, because of their business, banks do not take on debt to invest but to lend, they do not have inventories, nor really significant suppliers, and their customers can pay them over 20 or 30 years (in the case of real estate loans), therefore not really working capital.

Under these conditions, the cost of capital does not exist in the banking industry. Even if one measures the profitability of a bank's assets (the ROA, return on assets) to which one would expect to compare a weighted average cost of capital, it is almost never calculated. Only the cost of equity is of great importance.


Have a nice day.

18-09-2020 : Unibail Rodamco Westfield, the anti-Tesla?



From a financial point of view, certainly! URW announced yesterday a capital increase of €3.5bn while the shopping centre group was worth €5bn on the stock market for a book equity of €21.5bn. This means that the new shareholders will contribute 14% of the book equity, but will be granted at least 41% of the shares (the operation should be carried out with a preferential subscription right and therefore a discount on last night's price, unknown at this time and therefore not included in the calculation).


It is true that when your equity is worth less than a quarter its book, when 96% of the real estate assets on your balance sheet are valued at market price (and not historical cost), when you have recently purchased assets at the highest level by financing them with debt, and when the first page of your website proudly displays a dividend yield of 15%, which is unsustainable over time, it is difficult to do better.


If governments have effectively addressed liquidity risk, solvency risk clearly weighs on the most affected sectors. The only positive point for URW is that it is among the first one to raise equity even if a deal in June would have been much better as its June's price was 80% higher), but those who will come last (Air France, Vallourec, Europcar, etc.) risk making their shareholders swallow a bitterer potion.


Have a good weekend


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