Excellent summary. The premium is basically capitalized cost savings, as you say.
Your two valuation charts share the same Achilles heel of trying to reduce a three variable calculation to two variables. Essentially, the buyer is buying the net worth $ for $ and then paying a premium for the deposits. Measuring either P/BV or P/Deposits isn't terribly accurate because a thrift with 5% equity/assets and a thrift with 10% equity/assets will show very different P/BV even if they get the same deposit premium. Really, you want to calculate (P-BV)/Deposits for the best measure.
Hey Corpus Colossus, thanks for the comment. I agree with you, but if I'm not mistaken, the second chart does in fact reflect the premium to tangible book as a percent of core deposits. It isn't explicitly stated in the graph title, but in another section of the book the author calculates "core deposit premium" in the same fashion that we're talking.
Banks love buying banks! Who knew!?
Excellent summary. The premium is basically capitalized cost savings, as you say.
Your two valuation charts share the same Achilles heel of trying to reduce a three variable calculation to two variables. Essentially, the buyer is buying the net worth $ for $ and then paying a premium for the deposits. Measuring either P/BV or P/Deposits isn't terribly accurate because a thrift with 5% equity/assets and a thrift with 10% equity/assets will show very different P/BV even if they get the same deposit premium. Really, you want to calculate (P-BV)/Deposits for the best measure.
Hey Corpus Colossus, thanks for the comment. I agree with you, but if I'm not mistaken, the second chart does in fact reflect the premium to tangible book as a percent of core deposits. It isn't explicitly stated in the graph title, but in another section of the book the author calculates "core deposit premium" in the same fashion that we're talking.
You're right - I read it wrong. I'll return to my perch now.