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Financial Services Firms: Governance, Regulations, Valuations, Mergers, and Acquisitions


Now that the dust has settled from the government bailouts, it's time to take a look at the new best

practices in governance, regulations, valuations, mergers, and acquisitions

A recent report from the Financial Crisis Inquiry Commission (FCIC) suggested the 2007–2009 financial crisis—caused by ineffective regulations that failed to ensure the soundness of the financial system—could have been avoided.

Thoroughly updated, Rezaee's Financial Services Firms, Third Edition presents a new regulatory framework for financial institutions in the post-bailout era. This book answers important questions surrounding financial institutions, their challenges, and their opportunities in the post-Sarbanes-Oxley era with a clear look at:

  • Emerging initiatives affecting financial reporting and governance functions

  • Recent financial accounting standards under GAAP and IFRS on business combinations and fair value

  • The Dodd-Frank Act of 2010 and its related implementation rules

  • SOX- and SEC-related implementation rules

  • Executive compensation standards for the banking industry

  • Bailouts of troubled financial institutions

  • Government efforts to influence bank rescues through the Trouble Asset Relief Program (TARP)

Whether you are a financial analyst, mergers and acquisitions appraiser, regulator, banker, or auditor, you need the latest coverage on the changes taking place in the financial services industry with the expert advice found in Financial Services Firms, Third Edition.

ZABIHOLLAH REZAEE, PhD, CPA, CFE, CMA, CIA, CGFM, is the Thompson-Hill Chair of Excellence and Professor of Accountancy at the University of Memphis and has served a two-year term on the Standing Advisory Group (SAG) of the PCAOB. He is a prolific writer, having published six books and 190 articles in a variety of accounting and business journals.



Part I: Financial Services Industry: Its Markets, Regulations, and Governance.

Chapter 1: Fundamentals of the Financial Markets and Institutions.


The Financial Markets.

Financial Information and Capital Markets.

Financial Crisis and Financial Regulatory Reforms.

Types and Roles of Financial Markets.

Financial Services Firms.



Chapter 2: Introduction to Financial Institutions.


Landscape of the Financial Services Industry.

Structural Changes in the Financial Services Industry.

Historical Perspective of American Banking.

Current Trends in the Financial Services Banking Industry.

Regulatory Reforms.

Valuation Process.



Chapter 3: Corporate Governance.


Corporate Governance Effectiveness.

Global Regulatory Reforms.

Sarbanes-Oxley Act of 2002.

The Dodd-Frank Act.

Corporate Governance Functions.

Board of Directors and its Committees.

Audit Committee Roles and Responsibilities.

Executive Compensation.



Part II: The Foundation: Financial Institutions, Valuations, Mergers, Acquisitions, Regulatory and Accounting Environment.

Chapter 4: Overview of the Valuation Process.


Valuation Services.

Valuation Profession.

Valuation of the Business.

Attracting Valuation Clients.

Accepting a Client.

Pricing Valuation Services.

Importance of the Engagement Letter.

Planning an Appraisal Engagement.

General Planning.

Appraiser's Traits.

Appraiser's Due Diligence Process.

Risk Assessment.



Chapter 5: Overview of Mergers and Acquisitions.


Historical Perspective of M & A.

Recent Trends in M & A.

Regulations of Bank Mergers.

The Players in M&A.

Motives for Business Combinations.

Determinants of Mergers and Acquisitions.

Perceived Shortcomings of M & A.

Studies on Mergers and Acquisitions.

Leveraged Buyout.

Post M&A Performance.

Shareholders' Wealth and Effect of M&A.

Joint Ventures and Strategic Alliances.

Ethics in M&A.

Governance in M&A.

Mergers and Acquisitions Process.



Chapter 6: Regulatory Environment and Financial Reporting Process of Financial Institutions.



Regulatory Environment.

Bank Supervision.

Financial Modernization: The Gramm-Leach-Bliley Act.

Financial Reporting Process of Financial Institutions.

Statement of Financial Accounting Standards (SFAS) No. 115.

Auditing Proper Classifications of Marketable Securities.

Tax Consideration of Fair Value.

Recent Development of Fair Value Accounting.

Financial Reporting Requirements of Financial Institutions.

Corporate Governance of Financial Institutions.



Part III: Fundamentals of Valuations: Concepts, Standards, and Techniques.

Chapter 7: Value and Valuation: A Conceptual Foundation.

Asset-Liability Management.

Investment Management.

Lending Management.

Liquidity Management.

The Nature of Value.

Twelve Concepts of Value.

Types of Property That Can Be Valued.

Relationship among Different Types of Value.

Principles of Valuation Theory.

Pricing Value Versus Reporting Value.

Limitations of the Valuation Process.


Chapter 8: Approaches to Measuring Value.

Overview of the Valuation Process.

The Cost Approach to Valuation.

The Market Approach to Valuation.

The Income Approach to Valuation.

Special Topics—Approches to Intangible Asset Valuation.

Special Topics—Business Valuation.

Valuation and Business Concentrations.

Special Topics—Closely Held Stock.

Special Topics—Valuing Widely Traded Companies.



Chapter 9: Valuations for Tax and Accounting Purposes.

Tax Aspects of Mergers and Acquisitions.

Typical Tax-Oriented Valuations.

Accounting Aspects of Mergers and Acquisitions.

Typical Accounting-Oriented Valuations.

Acquisition Method.

Business Combinations Presentation, Disclosure, and Transition Requirements.

Convergence in Accounting Standards on M&A.



Chapter 10: Intangible Asset Valuation.

Nature and Types of Intangible Assets.

Amortizable versus Nonamortizable Intangible Assets.

Measuring the Useful Life of an Intangible Asset.

Establishing Value of Intangible Assets.

Amortization Methods.

Supporting Intangible Asset Valuation and Amortization.

Goodwill Impairment.



Part IV: Assessment of Financial Institutions.

Chapter 11: Financial Analysis of Banks and Bank Holding Companies.

Types and Sources of Financial Data.

Overview of Financial Statements.

Composition of Bank Assets.

Composition of Bank Liabilities.

Off-Balance Sheet Items.

Composition of Bank Capital.

Regulatory Capital Components.

Risk-Based Capital.

Value-at-Risk (VaR) Models.

Composition of Bank Income.

Composition of Bank Expenses.

Balance Sheet Analysis Illustration.

Income Statement and Profitability Analysis Illustration.

Loan Risk Analysis Illustration.

Liquidity and Investment Portfolio Analysis Illustration.

Portfolio Equities Analysis (Realm Model).

Special Bank Holding Company Considerations.

Liability Management.



Chapter 12: Internal Characteristics Assessment.

Objectives and Benefits of an Internal Characteristics Assessment.

The “Ten P Factor” Framework.

Shareholder Value Creation.



Chapter 13: External Environment Assessment.

Impact of External Environment on Value.

Political Analysis.

Economic Analysis.

Social Analysis.

Technological Analysis.

Other Analysis.



Part V: Valuation of Mergers and Acquisitions.

Chapter 14: The Bank Merger and Acquisition Process.

Strategy Phase.

Negotiation and Investigation Phase.

Finalization and Integration Phase.

Other Considerations.



Chapter 15: Valuing a Bank as a Business Enterprise.

Business Enterprise versus a Collection of Assets.

The Concept of the Banking Franchise.

Difference between Strategic and Tactical Valuations.

Why the Cost Approach is not Used for Strategic Bank Valuations.

Application of the Market Approach to Valuing a Bank.

Application of the Income Approach to Valuing a Bank.

Sensitivity of Value Estimate to Assumption Changes.

Value Creation Opportunities and the Acquisition Price.

Valuation Methods for Mergers and Acquisitions.

Sophisticated Valuation Techniques for Mergers and Acquisitions.

Relation between Price and Value and Effect on Stockholders.



Chapter 16: Valuation of Tangible Bank Assets.

Tangible Physical Assets.

Tangible Financial Assets.

Tangible Assets in Bank Mergers and Acquisitions.

Intangible Assets in Bank Mergers and Acquisitions.


Chapter 17: Core Deposits as a Special Type of Intangible Asset Valuation.

The Concept of Core Deposit Base as an Intangible Asset.

Internal Revenue Service Position on Core Deposits.

Important Core Deposit Tax Court Cases.

Deposits to be Included in Valuation.

Alternative Approaches to Valuing a Core Deposit Base.

Core Deposit Base Life Estimation.

Application of the Cost Savings Approach.

Application of the Future Income Approach.

Systemically Important Financial Institutions.



Chapter 18: Derivative Financial Instruments.

Authoritative Guidelines on Derivatives.

Derivative Markets.

Derivatives Risk Management.

Derivatives Risk Management Policy.

Accounting of Derivatives.

Tax Considerations of Derivatives.

Audit of Derivative Transactions.

Sources of Information on Derivatives.

Derivatives Valuation Models.

Derivatives under the Dodd-Frank Act of 2010.



Chapter 19: Real World Bank Valuation Complications.

Banks Experiencing Recent Losses.

Banks with Low Equity Capital.

Banks with Uncertain Fututre Loan Loss Exposure.

Preferred and Common Stock.

Highly Leveraged Banks.

Branch Acquisitions.

European Banking Model.

Initial Public Offering (IPO).

Islamic Banking System.

Emerging Issues in the Financial Services Industry.



About the Authors.