International Bank Case Study

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3. Performance of international banks in foreign markets to maximize shareholder value. The main strategic objective of a profit-oriented bank is to generate shareholder value for its owners (shareholders). A bank can create shareholder value by pursuing a strategy that maximizes the return on capital invested relative to the (opportunity) cost of capital (the cost of keeping equity shareholders and bondholders happy). In other words if a bank invests in a project that generates greater returns than the cost to shareholders of financing the project then this should boost returns to holders of the banks’ shares (in terms of capital appreciation of stock and higher dividends. For international banks that want to maximize the shareholder value,…show more content…
This theory states that the investment decisions of banks stem from a conscious effort by managers to diversify earnings and therefore reduce risk. By expanding into different markets, banks expose their operations to the risk and return profile of specific business areas. Diversification of bank earnings and risk reduction can be brought about by expansion into foreign markets and risk will be reduced the less correlated earnings in the foreign country are to those in the home market. Cost of capital: Banks can raise their finance in financial markets because they can borrow relatively cheaply and invest their proceeds in markets where currencies are weak. At any one time, some currencies are relatively strong whereas others are weak. Investors require a lower return or interest rate for securities issued in the stronger currency. Restructuring: Restructuring banks with foreign ownership with controlling power and enterprise restructuring enhances commercial bank efficiency. An extensive privatization program has been undertaken in the majority of transition economies, this involved restructuring the banks to make them attractive potential acquisitions and this included the removal of bad loans from their balance…show more content…
Much of this has been to the flow of private, not official or private flows into the 1970s sovereigns Even then, many of them are not experienced the same level of international financial integration to say the presence of foreign banks as some emerging markets today. At the same time, many developing countries face major difficulties: while they need to build institutional capacity quickly, they lack the financial resources and human. (Table

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