5. One insurance company, which is not listed on the stock market, purchases and takes over of a financial technology company that is highly anticipated in the future. The managers of the insurance company believe there is a great synergy with the operations of the acquired company and their insurance activities. The purchase price is five billion ISK, but the same company is one billion ISK more valuable than the insurance company was on its own, but before business takes place. In connection with the merger, the insurance company booked goodwill amounting to one billion ISK. What effect does this transaction have on a bank that has a 5% stake in the said insurance company? Assume that the book value of the bank's share capital is proportional to the book value of the insurance company's equity and counts 100% into the bank's risk base. How does this transaction affect...

a) the bank's risk-weighted CET1 capital ratio

b) The bank's leverage ratio? does it increase or decrease answer qualitative

c) The capital requirement that the bank is subject to, in percentage terms?

Answer rating: 100% (QA)

a The banks riskweighted CET1 capital ratio The acquisition and the subsequent booking of goodwill by the insurance company will not directly impact t... View the full answer