NEWSLETTER of February 19, 2021

The following content has been added at finexpert:

We updated the capital market data

(Multiples, Betas and Returns) as to January 15, 2021 >more

Oliver Wyman
IMPROVING CUSTOMER DECISIONS IN RETAIL BANKING
Behavioral biases often prevent customers from making the best and most beneficial financial decision. It is important for banks to support their customers by influencing their financial decisions. In doing so, they help not only their customers but also themselves by reducing complexities and signaling to their customers that they will be by their side even during difficult times, such as the ongoing COVID-19 pandemic. >more

Deloitte
2021 BANKING AND CAPITAL MARKETS OUTLOOK
The banking industry has responded to the pandemic with unprecedented speed and effectiveness. Implementing the complete switch to virtual working and thus entirely new operating procedures in the shortest possible time was no easy task. Of even greater importance, banks played a key role in stabilizing the economy by passing on government stimulus and aid programs. >more

BCG
RACIAL EQUITY IN BANKING STARTS WITH BUSTING THE MYTHS
Among the inequities many Black and Latinx consumers in the US face, one of the most concerning is the lack of access to necessary financial products and services. Making up just 32% of the US population, Black and Latinx households represent 64% of the country’s unbanked and 47% of its underbanked households. While this problem is widely acknowledged, misconceptions about its causes and its effects on families make it difficult for banks to meet the challenge. >more

ValueTrust | finexpert | WU Vienna
DACH CAPITAL MARKET STUDY
In our DACH Capital Market Study (December 31, 2020), we derive valuation parameters and cost of equity in a comprehensive manner for Germany, Austria and Switzerland to provide a sound basis for investment decisions, which is paramount in the current uncertain economic environment. We present current valuation levels based on trading multiples and estimate cost of equity according to four different methodologies for twelve different sectors. >more

NORMALIZED RISK-FREE RATE: FICTION OR SCIENCE FICTION?
Pablo Fernandez
2020
As interest rates on Government Bonds have decreased, some analysts and consultants in Europe and in the US are using what they call “Normalized Risk-Free rate”. We show several inconsistencies and errors in the use of “Normalized Risk-Free rate”. Section 5 is a short case that may be used in class. It contains 26 interesting comments. >more

FINANCIAL FRAGILITY IN THE COVID-19 CRISIS: THE CASE OF INVESTMENT FUNDS IN CORPORATE BOND MARKETS
Antonio Falato, Itay Goldstein, and Ali Hortaçsu
2020
In the decade following the financial crisis of 2008, investment funds in corporate bond markets became prominent market players and generated concerns of financial fragility. The COVID-19 crisis provides an opportunity to inspect their resilience in a major stress event. Using daily microdata, we document major outflows in these funds during this period, far greater than anything they experienced in past events. Large outflows were sustained over several weeks and were widespread across funds. Inspecting the role of sources of fragility, we show that both the illiquidity of fund assets and the vulnerability to fire sales were important factors in explaining outflows. The exposure to sectors most hurt by the COVID-19 crisis was also important. By providing a liquidity backstop for their bond holdings, the Federal Reserve bond purchase program helped to reverse outflows especially for the most fragile funds. The impact materialized quickly after announcement and was large over the post-crisis period among funds that held bonds eligible for purchase. In turn, the Fed bond purchase program had spillover effects, stimulating primary market bond issuance by firms whose outstanding bonds were held by the impacted funds and stabilizing peer funds whose bond holdings overlapped with those of the impacted funds. The evidence points to a new "bond fund fragility channel" of the Federal Reserve liquidity backstop whereby the Fed bond purchases transmit to the real economy via bond funds. >more