Universal banking: a shareholder value perspective (Financial markets. Institutions and Instruments)
Author: Walter, Ingo INSEAD Area: FinanceIn: Financial Markets. Institutions and Instruments, vol. 6, no. 5, 1997 Language: EnglishDescription: p. 85-113.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: In their historical development, organizational structure, and strategic direction, universal banks in essence constitute multi-product firms that are active in the financial services sector. Certainly within their home environments, universal banks effectively target most or all client-segments, and make an effort to provide each with a full range of the appropriate financial services. Outside the home market, they usually adopt a narrower competitive profile, in the majority of cases focusing on wholesale banking and securities activities as well as international private banking - occasionally building a retail presence in foreign environments as well. This stylized profile of universal banks presents shareholders with an amalgam of more or less distinct businesses that are linked-together in an unusually complex network which draws on a set of centralized financial, information, human and organizational resources - a profile that tends to be extraordinarily difficult to manage in a way that achieves an optimum use of invested capital. The key issue for the investor is whether shares in a universal bank represent an attractive asset-allocation alternative from a perspective of both risk adjusted total-return and portfolio-efficiency. The answers to this question, in turn, have an important bearing on the universal bank's cost of capital and therefore its performance against rivals with a narrower business focus in increasingly competitive markets. This paper considers these issues within a straightforward conceptual framework. It begins by adding to the adjusted book value of a universal bank's equity a number of building blocks that ultimately determine the market value of its equity. It then asks whether that market value of equity is in fact the maximum value attainable from the perspective of the shareholder. Finally, the paper outlines some of the strategic and tactical alternatives, inside and outside the bank, that are open to management in order to achieve a hypothetical maximum value of shareholder equity. Whatever empirical evidence is available in the literature is brought to bear in the course of the discussion.| Item type | Current location | Call number | Status | Date due | Barcode | Item holds |
|---|---|---|---|---|---|---|
|
Europe Campus | Available | BC008413 |
Ask Qualtrics
In their historical development, organizational structure, and strategic direction, universal banks in essence constitute multi-product firms that are active in the financial services sector. Certainly within their home environments, universal banks effectively target most or all client-segments, and make an effort to provide each with a full range of the appropriate financial services. Outside the home market, they usually adopt a narrower competitive profile, in the majority of cases focusing on wholesale banking and securities activities as well as international private banking - occasionally building a retail presence in foreign environments as well. This stylized profile of universal banks presents shareholders with an amalgam of more or less distinct businesses that are linked-together in an unusually complex network which draws on a set of centralized financial, information, human and organizational resources - a profile that tends to be extraordinarily difficult to manage in a way that achieves an optimum use of invested capital. The key issue for the investor is whether shares in a universal bank represent an attractive asset-allocation alternative from a perspective of both risk adjusted total-return and portfolio-efficiency. The answers to this question, in turn, have an important bearing on the universal bank's cost of capital and therefore its performance against rivals with a narrower business focus in increasingly competitive markets. This paper considers these issues within a straightforward conceptual framework. It begins by adding to the adjusted book value of a universal bank's equity a number of building blocks that ultimately determine the market value of its equity. It then asks whether that market value of equity is in fact the maximum value attainable from the perspective of the shareholder. Finally, the paper outlines some of the strategic and tactical alternatives, inside and outside the bank, that are open to management in order to achieve a hypothetical maximum value of shareholder equity. Whatever empirical evidence is available in the literature is brought to bear in the course of the discussion.
Digitized
There are no comments for this item.