Shareholder Value: Changing the Face of the European Financial Industry

Abstract

In the last few years the executives of European financial institutions have increasingly stressed shareholder value as their primary business goal and performance target — take Lloyds TSB Group for example: ‘Our aim is to concentrate our resources only on the best opportunities, i.e., where we have competitive advantage and greatest opportunity to create economic value’.¹ In search of increasing financial returns management is forced to identify value-enhancing business and financial restructuring opportunities. New buzz words in the context of managing shareholder value are shareholder value added (SVA), economic value added (EVA), total shareholder return (TSR), and relative total shareholder return (RTSR). On the business side many financial institutions try their luck by trimming business portfolios and re-designing value chains. On the financial side some apply asset and liability management tools such as the securitization of commercial loans and life-insurance policies. In a few cases share buy-backs are conducted to increase capital productivity. All in all the imperative is to allocate resources into such areas where (risk-adjusted) returns are highest and that cover the cost of capital. Whether highest returns can be found inside or outside a financial institution does not matter in this logic.