Introducing BEES Banks, Enterprises and the Economy Simulation Alessandro Raimondi Unicredit Group Strategy and Business Development Alessandro.Raimondi@unicreditgroup.eu Agent Based Modeling for Banking and Finance raimondi@econ.unito.it Torino, 9-11 February 2009
What is BEES • An engine for the study of the economic system and of the role played by its actors: Consumers Enterprises Banks Central banks Governments. • The fulcrum of the model are banks, their intermediation function and their choices in terms of business and risk positioning . • The intent is to put real life in the model, and to bring the model to real life.
Topics BEES B anks E nterprises and the E conomy S imulation Banks Market Capitalization TSR and its Drivers Capital Requirements Market Attractiveness, Profitability and Risk Exposure The Model Framework Endogenous Characteristics Use and Future Developments
Changes in Market Capitalization can be fundamental for stakeholders… Market Value as of January 20 th 2009, $Bn Market Value as of Q2 2007, $Bn Morgan RBOS Deutsche Credit Societe Barclays BNP Unicredit UBS Stanley Bank Agricole Generale Paribas 120 116 108 91 93 76 80 67 49 16 4.6 10.3 17 26 7.4 32.5 26 35 Citigroup Credit Goldman Santander JP Morgan HSBC Suisse Sachs 255 215 165 116 100 75 27 35 64 19 85 97 Source: Datastream, Jan 20 th 2009
…as well represented by the Total Shareholder Return (TSR) 3yr TSR ranking (2005 -2007) 28 NBG; 18,6% StChart; 15,5% KBC; 12,2% IntesaSP; 10,1% Nordea; 9,9% Santander; 9,4% UCG; 6,9% 21 CMZBK; 6,5% SkaEns; 6,4% DB; 6,2% BNP; 5,7% CS; 5,6% Danske; 4,5% BBVA; 3,8% 14 SocGen; 1,5% HSBC; 1,4% ERSTE; 0,9% BPE; -1,0% Natexis; -1,4% BCP; -1,8% Lloyds; -1,9% 7 Dexia; -2,5% AIB; -2,8% Fortis; -4,1% BKIR; -6,5% Barclays; -6,9% UBS; -8,7% RBS; -12,9% 0 -20,0% -10,0% 0,0% 10,0% 20,0% 30,0% The TSR signifies the market performance in terms of stock price variation and dividend yield Source: UCG S&BD
(after the shock…) 1yr TSR ranking (2h07 – 2h08) Santander; -11,80% Nordea Bank AB; -20,21% HSBC; -23,28% 17 KBC; -25,70% Intesa Sanpaolo; -26,80% Erste; -30,29% BBVA ; -30,77% 13 BNPP; -31,09% Banco Popular Espanol SA; - 34,61% 3yr TSR ranking (2h05 – 2h08) Unicredit; -37,44% Credit Suisse; -41,46% 9 Commerzbank; -43,63% Nordea Bank AB; 10,10% DeutscheBank; -45,03% Santander; 9,51% Lloyds TSB; -46,39% Banca Monte DEI Paschi; - KBC; 6,58% 17 47,46% 4 Intesa Sanpaolo; 6,23% SocGen; -56,35% BNPP; 5,05% Barclays; -58,82% Commerzbank; 4,67% RBOS; -61,41% UBS AG; -66,22% 13 Unicredit; 0,64% 0 -70,00% -60,00% -50,00% -40,00% -30,00% -20,00% -10,00% 0,00% Erste; 0,18% Credit Suisse; 0,06% DeutscheBank; -0,94% 9 Banca Monte DEI Paschi; - 1,37% Market, being not perfect, were unable to Banco Popular Espanol SA; - 2,31% HSBC; -4,75% determine and evaluate adequately risk inside SocGen; -8,42% 4 banks: the change in valuation after the crisis Lloyds TSB; -10,60% Barclays; -17,37% shows what is the value incorporating UBS AG; -20,94% RBOS; -21,94% higher risk expectations, according to the 0 -25,00% -20,00% -15,00% -10,00% -5,00% 0,00% 5,00% 10,00% 15,00% failures that took place in the last 6 months. Source: UCG S&BD
TSR drivers: how can we endogenously affect market value? 60% 3.0 2006 50% 2006 y = 6.9875x + 0.7352 R 2 = 0.4239 2.5 40% y = -0.1606x + 0.2782 R 2 = 0.0055 TSR P/B value 30% 2.0 20% 1.5 10% 0% 5% 10% 15% 20% 25% 30% 35% 1.0 ROE 5% 10% 15% 20% 25% 30% 35% ROE Organic equity ROE Sectoral Lagged Explained variable ROE Δ ROE growth volatility Relative size specialisation Country adjustment Explained variance 16% 7% 10% < 1% 11% < 1% < 1% < 1% Excess market return (yearly) Sign of relation - + + n.m. - n.m. n.m. n.m. Explained variance 52% < 1% n.a. < 1% 2% < 1% < 1% 26% P/B value Sign of relation + n.m. n.a. n.m. - n.m. n.m. + 2000-2006 timeframe. Sectoral and geographic patterns: limited role in explaining different market performances Profitability is by far the most important feature determining both market performance and valuation An high ROE is conducive of an high valuation, but at the same time it implies a negative impact on potential TSR Source: UCG S&BD
Capital requirement is another fundamental target… Core T1 ratio, 2007 Higher risk means higher capital requirements: banks who did not have adequate capital level had to intervene and raise their equity. As a consequence, being risk not adequately covered by capital, profitability was highly over valuated and previous levels of ROE weren’t coherent with the effective risk-return profile of the market. Higher risk means higher capital requirements: banks who did not have adequate capital level had to intervene and raise their equity. Therefore, new profitability levels will be lower. Source: UCG S&BD
…differentiated across banks’ types and countries Core Tier 1 Basel II ratios Tier 1 Basel II ratios (actual and estimate after capital increases) (actual and estimate after capital increases) 13,4 14,5 13,8 12,7 Capital increase Capital increase 12,112,0 11,911,8 10,2 T1 pre capital increase CT1 pre capital increase 11,2 10,4 9,1 9,1 9,1 8,8 10,310,0 Sample weighted average 7,3 10,0 Sample weighted average =9,4 8,4 8,2 8,1 8,1 8,0 7,8 7,7 7,5 = 9,4 9,4 9,3 9,2 9,1 9,0 8,8 8,4 8,2 7,0 7,0 6,8 6,8 6,5 6,4 6,4 6,4 6,2 6,2 6,2 6,1 7,8 7,7 7,6 7,6 7,2 6,9 6,0 5,6 6,1 4,6 5,6 4,2 5,2 4,1 a S s S S S C C G H C B I E c M A B P t A P p e s B r n G z r S k i C d O B k O R C B e i V I r S S N o x B i t N D e P e C P A e a P n y s U n I _ P e B U B K r A I S S G B L U B B m h B M a o n o d C A B b D H R B B H c & B l a F s m C t a S S S S C C B G H A n C P E A B M I G P S L o l t s s z e r c e B k p D e l S i C O d O B R r B D k C S e e i t e B N P V I P C S n o P S A o o x e N _ n s G A U r e B y B U A K s I S L r S B B B B U I a P M D C P D o m n A d & E c B b B R l H B B s H L m a C l o s t D e A l S o r o C D P Capital ratios by type of banks’ Capital ratios by country Core Tier 1 Tier 1 Core Tier 1 Tier 1 pre-capital post-capital pre-capital post-capital pre-capital post-capital pre-capital post-capital increase increase increase increase % increase increase increase increase Italy 5,73 5,96 6,53 6,76 Credit intensive banks 6,1 7,1 7,8 9,2 Germany 6,08 6,66 8,26 9,96 Credit intensive, excl. Spain 6,39 7,24 7,89 8,75 6,3 7,5 8,3 10,1 Italian banks France 5,58 6,07 7,61 8,70 Non Credit intensive 6,5 7,7 8,6 10,2 banks UK 6,30 8,16 8,53 10,97 Benelux 7,31 8,89 8,90 10,49 Total sample 6,3 7,3 8,0 9,4 Switzerland 8,55 9,62 10,65 12,83 Core Tier 1 Capital : Shareholder’s Equity - Intangibles Assets (e.g. Goodwill) - 50% of Participations in Associates and Joint Ventures Tier 1 Capital : CT1Capital + Preferred Shares + Hybrid Tier1 instruments Source: UCG S&BD
Topics BEES B anks E nterprises and the E conomy S imulation Banks Market Capitalization TSR and its Drivers Capital Requirements Market Attractiveness, Profitability and Risk Exposure The Model Framework Endogenous Characteristics Use and Future Developments
Recommend
More recommend
