Top 10 banks in the world by market capitalization as on Feb 26, 2009

The top 10 banks in the world by their market value as on yesterday (Feb 26, 2009) are presented in this article. The top three slots are occupied by banks from China. The other banks in top 5 are HSBC of UK, and American bank JPMC, the two being very close in market value.

In the top 10 list four banks are from China, two from US and one each from Italy, Japan, Spain and UK.

	Bank	Country	Mkt Cap bil. USD
1	ICBC	China	169.6
2	China Construction Bank	China	118.4
3	Bank of China	China	103.2
4	HSBC	UK	91.4
5	JP Morgan Chase	US	90.0
6	Wells Fargo	US	62.6
7	Banco Santander	Spain	53.6
8	Mitsubishi UFJ Financial	Japan	52.5
9	Bank of Communications	China	34.6
10	Intesa Sanpaolo	Italy	31.8

Because of the financial crisis the market capitalization of most of the US banks has eroded heavily leaving only two banks from the country in the top 10 valued banks of the world. The top 10 banks at the end of previous year (Dec, 2008) as mentioned in an earlier article had three US banks.

	Bank	Country	Mkt Cap
1	ICBC	China	173.9
2	China Construction Bank	China	128.3
3	JP Morgan Chase	US	117.7
4	HSBC	UK	115.2
5	Bank of China	China	98.2
6	Wells Fargo	US	98.0
7	Banco Santander	Spain	75.0
8	Bank of America	US	70.6
9	Mitsubishi UFJ Financial	Japan	70.1
10	BBVA	Spain	45.1

The market value of Bank of America had fallen to 28.6 billion USD (26 Feb '08) from 70.6 (31 Dec '09) and falls short of top 10. The last two months have not been good for the equity markets and the bear market started in 2008 is continuing. The banks in the developed countries are most hit with many of them falling more than 20% in last two months.

	Bank	Mkt Cap 26 Feb '09	Mkt Cap 31 Dec '08	Change
	ICBC	169.6	173.9	-2.5%
	China Construction Bank	118.4	128.3	-7.7%
	Bank of China	103.2	98.2	5.1%
	HSBC	91.4	115.2	-20.7%
	JP Morgan Chase	90.0	117.7	-23.6%
	Wells Fargo	62.6	98.0	-36.1%
	Banco Santander	53.6	75.0	-28.6%
	Mitsubishi UFJ Financial	52.5	70.1	-25.2%
	Bank of Communications	34.6	34.6	0.1%
	Intesa Sanpaolo	31.8	44.1	-28.0%

The Chinese banks have been able to resist the fall and the China Construction Bank was the worst hit with a 7.7% decline in value.

Logos:

Time Value of Money (Part 2)

Earlier we discussed about compounding by which we found out the future value of an amount deposited now.
Similar is the concept of discounting where we calculate the present value of a cash that is going to come in future.

PV - Present Value of an amount that will be received in the future, calculated after discounting. FV - Future Value of an amount invested now at a given rate of interest.

The rate used for compounding is the interest rate offered by the instrument in which the money is invested.
For discounting rate generally the cost of capital rate is used. This can be the rate which your money can grow with you.

Till now we had considered cash flow at one point of time and discussed ways to find its value at some other point of time. This kind of cash flow is known as lump-sum. What if the cash flow is divided and keeps on coming at different times. Four new terms are introduced for these:

Annuity - It is a regular cash flow for a fixed period of time.
Annuity Due- Cash flow occurs at the start of the period.
Annuity Ordinary- Cash flow occurs at the end of the period.
Perpetuity - It is a regular cash flow for a infinite period of time.

Generally, Annuity and Perpetuity are used for equal cash flows in each period.
If the cash flows are unequal it is called mixed stream.

The formula for future value of an ordinary annuity (FV) is:
where FVA(due) is future value of annuity due, A is equal cash flow per period for n periods compounded at interest rate r.
Similar formulae for present value are:
Present Value of a growing stream of cash flow:
Gordon Growth Model
g is growth rate of cash flow and if g < onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh7awFDFtnkqy-wTbUDBR2FLJDdcQDpfcIUeReymZnyAO7IqGLC2X9YeJaksDZ10WIrby-Y9zs9Rgzpeg7r-_1rQL8uTAoG2Jl1GS2CeQb6KHWTQuO3Uzu3lf-6ACKTsRaLejJAnCV8Ez0k/s1600-h/AnnuityGrow.jpg">
Change in Compounding interval

Time Value of Money

Like most of the things money also loses its value if kept idle. Its mainly because of inflation, which increases the cost of goods and the purchasing power of money decreases.

Its better to invest money in something which can give an interest which is more than inflation. Generally the safest place to keep your money is the banks. They give an interest on your deposit. Most of the time the interest is compounded. Compounding makes a big difference in the long run. Compounding essentially means that you will get interest on 'interest earned' besides the usual interest on the initial amount (principal). It keeps on accumulating period after period. Generally the interest rates are compounded annually - meaning the interest you will earn after the end of a year will start fetching you more interest from year end onwards.

Power of Compounding
Compounding creates a big difference in long run. The table shows the the Future Value of Rs 100 after several years.
One may ask that who has seen 200 years and from the table it appears that it doesn't make that big a difference during a short span, say of 10 years. But what happens if you get 20% interest rate.
Now certainly the difference cannot be neglected.
The formula used for calculating Future Value (FV) is pretty simple.

where FV is Future Value, PV is Present Value, r is rate of interest compounded periodically (generally compounded annually), n is the number of periods (eg. number of years if interest rate is compounded annually)
Next article we will discuss about Annuities.