Cathay Bank Report Business Plan

Pages: 6 (1582 words)  ·  Bibliography Sources: 1  ·  Level: College Senior  ·  Topic: Economics

¶ … Regulatory environment post 2008 on Cathay bank

Bank valuation

Equity Evaluation

Cathay general Corp (2011). CATHAY GENERAL BANCORP - FORM 10-

In this paper we present a detailed d report on Cathay Bank. In this analysis, we present an evaluation of the effect of the post 2008 regulations on the bank's operations as well as an equity evaluation of the bank. We conclude that the bank has a positive growth and is worth investing in.

The process of determining the value of bank is a complex one. This is because the process requires a proper understanding of the level of the proposed valuation, the nature of underlying business as well as the general outlook of the specific market being served. Also important are the financial history and competitive position among other equally important factors (Miller,1995).In this paper, we present the valuation of Cathay Bank.

The impact of the Regulatory environment post 2008 on Cathay bank

A review of literature indicates that the Regulatory environment which was constituted after the 2008 financial crisis had a lot of impact on small and large financial institutions (Otker-Robe et al.,2010). The 2008 financial crisis lead to the revelation of the existence of significant risks that are posed by the large and sometimes complex and highly interconnected banking institutions to the regulatory as well as oversight system (Otker-Robe et al.,2010). This is because tenpast two decades saw the precedence of the financial crisis by banks in the advanced nations making significant expansions in their sizes as well as an increase in the level of their global outreach. In several cases, these banks moved away from the traditional and conventional banking models and then adopted globally inclined and regionally active banking institutions (Otker-Robe et al.,2010). A large number of cross-border financial systems for financial institutions like Cathay Bank are still intermediated by a large number of the active large and complex financial institutions (LCFIs) with their rising level of interconnections. Some of the common trends prior to the crisis involved a sharp rise in the level of leverage, an over-reliance on the short-term but wholesale funding, significant levels of off-balance activities. Mismatches of maturity and a general increase in share of revenue sourced from the complex products and trading activities. In most countries including the U.S., the regulatory ratios were never sensitive enough to detect the build-up of certain risks. The capital was also inadequate or lacked a sufficient quality necessary for building a buffer (Otker-Robe et al.,2010). This led the adoption of significant reforms aimed at rectifying the failures and deficiencies in order to safeguard the overall stability of the global financial system (Otker-Robe et al.,2010).

Some of the changes due to the Regulatory environment post 2008 on Cathay bank are the issuing of capital securities in order to provide the bank with a cost-effective approach of obtaining the Tier 1 capital necessary for the regulatory purposes (Cathay General Corp,2011). Its products such as the fixed-rate residential mortgage loan as well as the adjustable residential mortgage loan are heavily regulated by the post 2008 regulations.

The other reforms that emanated from the post 208 regulations are the Consumer Protection Act on the 21st of July 2010 made significant revisions and expansions on the rulemaking, enforcement authority as well as supervisory roles of the federal bank regulators. The Dodd-Frank Act has a great impact on various aspects of the U.S. financial industry. Some of the requirements that affect Cathay Bank are;

The establishment of a highly strengthened capital as well as liquidity requirement for all the banks as well as bank holding companies that includes the minimum level of leverage as well as other risk-based capital requirements.

The requirement by the statute that all bank holding companies effectively serve as the main source of financial strength for all of their depository institution subsidiaries (Cathay general Corp,2011).

The regulation of the financial markets such as the securitization and derivative markets as well as the elimination of some proprietary trading activities by the banks

The authorization for banks to pay interest on all business checking accounts

The elimination of the barriers to the de novo interstate branching by the financial institutions

Increased restriction on the transaction among affiliates as well as insiders as required by the Section 23A as well as 23B of the Federal Reserve Act (Cathay General Corp,2011).

Bank valuation

An evaluation of the Cathay Bank's financial revealed the following;

P/E ratios

Market Value per Share

Earnings per Share (EPS)

P/E current= -236.50

P/E Ratio (with a consideration of extraordinary items)


Generally, A high P/E ratio suggests that the investors of a given company are expecting a relatively higher level of earnings in the future as compared to the companies with low P/E ratios. P/E ratio however does not provide the investors with all the details or rather it does not present the whole story. It is therefore more useful for the investors to compare the P/EW ratios of a given company with the one for the other companies who are in similar industries. To the market average as well as against the one for other companies. It is worth noting that it is not prudent for investors to use the P/E ratio values as the basis of their investment in comparing for instance the P/E of a gas company to that of a bank. This is because each industry possesses a different growth prospect.

P/E however shows how much the investors are sincerely willing to pay for every dollar earned. Investors must avoid basing their investment decisions on P/E rations alone.

Price to Book (P/B) Ratio

Cathay has a Price to Book (P/B) Ratio of 1.11.

The lower the value of the P/B ratio, the more undervalued the stocks are. However, it is worth noting that it could imply that something is fundamentally gone wrong in the company. This ratio gives the investors an idea if they are investing too much for the wealth that would be left should the company be declared bankrupt at any instant.

Price to Cash Flow Ratio

This is the measure of a given market's expectation of a firm's future health financially. This measure deals with the concept of cash flow, effects of depreciation as well as other factors. It is similar to the P/E ratios. It however provides an indication of the relative value

Price to Cash Flow Ratio= 7.64

This ratio can allow investors to appropriately assess the companies that are foreign but in the same industry (e.g banks)

Enterprise Values to Sale

This is a valuation measure used in comparing the enterprise value of a given company to the sales of the same company.EV/sales provides the investors with a rough idea on how much it would cost to purchase the company's sales. A lower value of EV is considered to be more attractive.

Enterprise Values to Sale = 6.37

This ratio can be negative if the company's cash floe is larger than the market capitalization as well as debt structure. A high EV/sale value is never a bad thing since it can signal the fact the investor's belief that there will be greater future sales.

Enterprise Value to EBITDA

The Enterprise Value to EBITDA is a measure of the average cost of stock that is more frequently regarded more valid for conducting comparisons across several companies than the P/E ratios.

Enterprise Value to EBITDA =210.08

Equity Evaluation

The equity valuation for Cathay Bank is evaluated in this paper using the Dividend Discount Model Valuation.

The dividend discount model (DDM) is employed in finding the intrinsic value of the company's stocks through the summation of the present value of the company's cash flows.

Estimation of the value of Equity for the DDM

DPS = Dividends expected to be received within a year.


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Cite This Business Plan:

APA Format

Cathay Bank Report.  (2011, December 7).  Retrieved January 20, 2019, from

MLA Format

"Cathay Bank Report."  7 December 2011.  Web.  20 January 2019. <>.

Chicago Format

"Cathay Bank Report."  December 7, 2011.  Accessed January 20, 2019.