Why wouldn’t you use a DCF for a bank or other financial institutions?
Answer
Banks use debt differently than other businesses as they use it to create products, instead of investing directly into the business. Also, working capital takes up a massive portion of their Balance Sheet due to their business model, so the variance from Net Income or EBIAT to FCF would be insane.
It makes more sense to use a dividend discount model when valuing banks.
Why this matters to bankers
Knowing the limitations of methods is key to ascribing accurate valuations.