Risk Management and Value Creation in ... - Arabictrader.com

18 RISK MANAGEMENT AND VALUE CREATION IN FINANCIAL INSTITUTIONS
900%
800%
700%
600%
DJ EURO STOXX 50
500%
400%
DJ EURO STOXX BANK
300%
200%
100%
0%
0 5 10 15 20 25 30 35 40 45 50
Number of Banks (sorted by relative performance)
Figure 2.2 Deviations in bank performance.
Source: Datastream and author’s analysis.
relative level vis-à-vis the broad market. The best and worst performers are
depicted in Figures 2.3 and 2.4.
It is worthwhile to note the sharp decrease in value for all banks following
the Russian and Southeast Asian crises in the fall of 1998, reflecting the
extreme sensitivity of the market capitalization of banks to financial crisis
situations.
Of course these results are only a snapshot and will deviate for different
time windows. But, despite the influence of numerous merger and acquisition
(M&A) activities 48 and the broad consolidation in the banking industry,
49 which do also influence these results, 50 we can observe a general trend
that banks tend to underperform compared to the overall market. 51
What are the reasons for this phenomenon and how can the differences
in performance between various banks be explained? Given the preceding
results, one could ask the provocative question: “Is value maximization really
48 For instance, The Securities Data Company, Inc., reports 744 completed (no selftendered)
merger & acquisition deals exceeding $100 million in the financial services
sector worldwide for the time period from January 1, 1993 to January 18, 1999.
49 The Journal of Banking & Finance devotes an entire issue to this topic: February
1999, Volume 23, Numbers 2–4, pp. 135–700.
50 Practically all of the banks in the final sample were influenced by one or the other
event.
51 Matten (1996), p. xiii, and Dermine (1998), p. 21, make the same observation.