Handbook of International Banking
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Handbook of International Banking

Edited by Andrew W. Mullineux and Victor Murinde

The Handbook of International Banking provides a clearly accessible source of reference material, covering the main developments that reveal how the internationalization and globalization of banking have developed over recent decades to the present, and analyses the creation of a new global financial architecture.
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Chapter 9: Universal Banking and Shareholder Value: A Contradiction?

Ingo Walter


* 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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