Edited by Andrew W. Mullineux and Victor Murinde
Chapter 9: Universal Banking and Shareholder Value: A Contradiction?
* Ingo Walter 1 INTRODUCTION In their historical development, organizational structure and strategic direction, universal banks constitute multi-product ﬁrms within 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 a 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 chapter considers these issues within a straightforward conceptual framework. I begin by adding to presumptive adjusted book value of a universal bank’s equity a number of building-blocks that ultimately...
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