Value Creation and Structure of Financial Services Industry - PowerPoint PPT Presentation

libitha
value creation and structure of financial services industry n.
Skip this Video
Loading SlideShow in 5 Seconds..
Value Creation and Structure of Financial Services Industry PowerPoint Presentation
Download Presentation
Value Creation and Structure of Financial Services Industry

play fullscreen
1 / 22
Download Presentation
Value Creation and Structure of Financial Services Industry
349 Views
Download Presentation

Value Creation and Structure of Financial Services Industry

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Value Creation and Structure of Financial Services Industry Week 1

  2. Target market for this course • Managers of financial service firms • Investment bankers doing deals • Strategic planners and researchers • Consultants and other business services • Users of financial services

  3. Course goals and requirements • Readings • Class participation • Case analysis and discussion • Group project • Individual parts of project • Current periodicals

  4. Financial service firms • Mergers and acquisitions • Banks and thrifts consolidate • e.g. Citibank and CalFed • Financial firms form conglomerates • Citigroup out of Travellers and Citicorp • Multinational financial firms • Aegon (Holland) acquires Transamerica • International events • Chile, South Korea, Poland

  5. Driving forces • Technology • Cheap telephony/satellites • Telephone service centers • Cheap computing • Internet • Regulation/taxation • Roth accounts, 401Ks • Bank holding company/Glass-Steagall • Demographics

  6. Key questions for management • Where are synergies, revenues or costs? • Economies of scale • Economies of scope • Cross-selling • Cost of inputs • More important: What are we good at? • Requires a rigorous framework for analysis

  7. Approach taken in this course • Financial economics • Hands-on applications • Healthy skepticism • Examine the basics • Ask simple questions

  8. Objective function for financial service firms • Maximize shareholders’ wealth • Stock-owned corporations • Commercial banks • Diversified financials • Mutual organizations • Thrifts • Insurance • Problem with mutuals

  9. Value Added and Value Creation • Value added subtracts all costs of inputs from all revenues • Value added must cover any value added by the firm from use of labor and capital, and used to cover payments to tax authorities • In many countries, value added used as basis for taxes (e.g European Union)

  10. Value Added in 2004:Amex and Lehman Brothers

  11. Performance Assessments

  12. Value Creation inFinancial Services • Financial services • Activities required to provide services • Allocate resources to highest returns • Determinants of returns:

  13. Financial Services • Credit (lending) • Securities • Transaction processing (payments) • Insurance • Asset management • Information

  14. Activities to Provide Services • Setting Terms/Pricing • Communicating/Marketing • Producing/Delivering • Controlling/Monitoring • Funding/Investing • Risk Bearing/Risk Shifting

  15. Value Creation Matrix • Columns = Services • Rows = Activities • Strategies = Concentration of activities • How to choose best strategies?

  16. Value Matrix (Table 2.5)

  17. Possible Strategiesto Increase ROI

  18. Traditional Financial Services • Result of • Business specialization • Taxation • Regulation • Main types of firm • Deposit-taking • Insurance type • Investment companies • Securities firms

  19. The Financial Services Industry • Basic types of institutions • Deposit-taking • Insurance type • Asset management • Securities • Representation in Flow of Funds • Institutional investors

  20. Flow of Funds • Strategic overview • Primary sectors • Total wealth • Nature of real wealth • Role of financial intermediation • Major financial service sectors • Tracing changes in the Flow of Funds

  21. Strategic challenges and the Flow of Funds • Baby boomers • Third world development • Differential savings rates • Trade flows and trading blocs • Domestic issues • Low-income customers • Community redevelopment

  22. For Next Week • Review Chapter 2 discussed this week • Read Chapter 5 and Copeland et al “Valuation” chapters on banks and insurance companies for next week • Review example of FSI valuation • Choose firms for members of the group • Obtain basic financial data, Value Line Investment Survey, and other analyses