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ESMT European School of Management and Technology
This paper investigates whether, and if so, to what extent, Level 3 fair values disclosed by European banks provide useful information to investors and are reflected in firm value changes. Using a unique sample of 416 hand-collected firm-year observations from European banks reporting under IFRS, in contrast to previous research conducted in the US, we find no overall evidence that changes in Level 3 fair values are associated with changes in firm value. However, the value relevance of Level 3 fair values depends on the category assigned to financial instruments. Level 3 fair values that are held for trading are reflected in firm value. Further analyses suggest that this effect is driven predominantly by banks that operate in market-based economies and hire audit firms with deep industry expertise.
Die Teilnehmer des BTN-Seminars sind auf ihrem Gebiet anerkannte Experten. Wenn es aber darum geht, das Unternehmen gemeinsam mit der kaufmännischen Leitung oder Controllern auf Erfolgskurs zu bringen, haben viele Manager ohne kaufmännische Ausbildung das Gefühl, mit ihren Kollegen nicht die gleiche Sprache zu sprechen. Diese Lücke sollte geschlossen werden, sodass auch Nicht-Betriebswirte erfahren, warum beispielsweise für operative Entscheidungen mal Deckungsbeiträge, mal Vollkosten die richtigen Beurteilungsgrößen sind, welchen Einfluss das Working Capital auf die Liquiditätsversorgung des Unternehmens hat und wie Entscheidungen in ihrem Bereich auf die Unternehmenszahlen rückwirken. Um diese und ähnliche Fragen beantworten zu können, reicht es nicht aus, einen Crashkurs zu belegen oder sich mit einem Glossar auszustatten. Vielmehr benötigt man ein umfassendes Grundverständnis über betriebswirtschaftliche Methoden und Zusammenhänge, um so den eigenen Verantwortungsbereich gemeinsam mit Kaufleuten professionell planen, steuern und kontrollieren zu können.
Why has private investment been so weak in recent years? This key question will be discussed by Daniel Leigh, Deputy Division Chief at the Research Department of the IMF, in his presentation of the International Monetary Fund’s April 2015 World Economic Outlook (WEO). The WEO is a survey analyzing global economic developments. Daniel Leigh’s research interests are in international macroeconomics, with a focus on fiscal and monetary policy. He holds a PhD in economics from Johns Hopkins University and an MSc in economics from the London School of Economics. Leigh has numerous publications in journals such as the Journal of the European Economic Association and the American Economic Review. Furthermore, he has written several chapters of the IMF’s World Economic Outlook.
We examine the relative weights hedge fund investors attach to past information in the fund selection process. The weighting scheme appears inconsistent with econometric forecasting models that predict fund returns, alphas or Sharpe ratios. In particular, investor flows are highly sensitive to performance streaks despite their limited predictive power regarding fund performance. Further, allocations based on forecast models’ out-of-sample predictions beat investor allocations by a significant margin, which suggests that the latter are suboptimal and reflect overreaction to certain types of information. Our findings do not support the notion that sophisticated investors have superior information or superior information processing abilities.
This paper analyzes the effect of the removal of government guarantees on bank risk taking. We exploit the removal of guarantees for German Landesbanken which results in lower credit ratings, higher funding costs, and a loss in franchise value. This removal was announced in 2001, but Landesbanken were allowed to issue guaranteed bonds until 2005. We find that Landesbanken lend to riskier borrowers after 2001. This effect is most pronounced for Landesbanken with the highest expected decrease in franchise value. Landesbanken also significantly increased their off-balance sheet exposure to the global ABCP market. Our results provide implications for the debate on how to remove guarantees.
About Sidharth Birla: Sidharth Birla, President of the Federation of Indian Chambers of Commerce and Industry (FICCI) – India’s apex business organization – will be leading a delegation comprising about 10 CEOs heading organizations in diverse industry sectors in India. This visit will be held on the eve of the Indo-German Investment Summit in Berlin. It is a great opportunity for business leaders from both India and Germany to explore ways of collaborating in order to realize the tremendous business potential between the two nations. Unlike other emerging economies that are being hit more severely by diminished growth prospects in the developed world, the Indian economy is poised to be an investment destination of choice for Foreign Direct Investment (FDI), with favorable demographics, a large and diversified domestic market, and competitive cost structures. Against this backdrop, Sidharth Birla will address the audience with a keynote speech highlighting the prospects, as well as challenges, for FDI in India. The keynote will be followed by a panel discussion, in which Sidharth Birla will be joined by three other CEOs from Indian and German bodies. This discussion will provide the opportunity to discuss specific campaigns and reform initiatives like Make in India, Digital India, Smart Cities, and so forth, in greater detail. It will also set the stage for a Q&A session with the audience.
Dr. Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank spoke about Europe’s way towards a banking union. Fifteen years after the Euro was launched, Europe has taken another major step towards financial integration. By taking banking supervision from the national to the European level it has established the first pillar of a banking union. Since November 2014, Europe’s largest banks are directly controlled by the European Central Bank. This step was preceded by an assessment of the largest banks in the Euro area, including a thorough analysis of their balance sheets and a strict stress test. Based on the results of this exercise, Dr. Andreas Dombret discussed the current state of the European banking system. Looking to the future, he analyzed the impact of the banking union and the remaining structural challenges for banks. https://www.esmt.org/open-lectures
The Euro crisis is not over. The post-election government in Germany will have to deal with a likely third Greek bailout, flagging support in France and Italy for labor and product market reforms, and an increasingly unfriendly domestic reception for further bailouts and debt relief. In particular, German public frustration has been growing with the European Central Bank (ECB), which has intervened massively to stabilize the financial system in the Euro area and has conducted a number of unusual measures in this role. The ECB's controversial commitment to purchase public debt on the open market (the OMT Program) was even challenged in the Constitutional Court. However, the ECB has yet to buy a single bond since the OMT program was implemented, and the decline in interest rates has given crisis countries additional breathing room to adjust and reform. Many critics believe this time is being squandered. Panelists - Prof. Michael Burda, Humboldt-University of Berlin - Prof. Jörg Rocholl, President, ESMT - Prof. Hans-Werner Sinn, President, Ifo Institute Moderator: Paul Heidhues, Professor, Lufthansa Chair in Competition and Regulation, and Director of PhD Studies, ESMT
At this ESMT Open Lecture, experienced banker and member of the Deutsche Bundesbank executive board Andreas Dombret will take a closer look at the ongoing European sovereign debt crisis. How does it really look for Europe four years into the crisis? What does the future hold for the Euro and the countries making up the financial union? What steps must be taken to overcome the crisis? In other words, where do we go from here?
We study the effects of competition on loan rates and portfolio-at-risk in microcredit markets using a new database from rating agencies, covering 379 microbanks located in 67 countries between 2002 and 2008. Our study reveals different competitive effects in nonprofit and for-profit microbanks. We find that for-profit microbanks charge significantly lower rates and exhibit improved portfolio-at-risk in less concentrated markets. In particular, the effect of concentration on loan rates is nearly three times the one reported in previous studies in banking. In contrast, nonprofit microbanks are relatively insensitive to changes in concentration. We control for interest rate ceilings, which very significantly reduce rates in for-profit microbanks. However, our study also uncovers a competitive interplay between for-profit and nonprofit microbanks. In particular, the PAR of nonprofit microbanks deteriorates when the proportion of profit-oriented microbanks increases. Finally, we find evidence consistent with dispersion of borrower-specific information among competing microbanks in the for-profit sector, even after controlling for the presence of credit registries.
In this ESMTcast "Learning for Leading...Sustainable Business Models for European Banks", ESMT faculty member Jan U. Hagen presents the results of his latest research on sustainability in European banking. Looking at business models employed by 65 EU banks, the study aims to pinpoint key drivers for resilient long-term return on equity, while taking into account a broad spectrum of risk factors.
Catalina joined ESMT European School of Management and Technology in November 2009 as an associate professor. In November of 2012 she was appointed as the dean of faculty, thereby ending her directorship of the research area, which she took over in September 2010. Previously she was an assistant professor of Decision Sciences at London Business School. Catalina received her PhD and MS in Operations Research from Cornell University, in 2002 and 2000 respectively. She also holds a BS in Mathematics from the University of Bucharest. Catalina's research focuses on the design, analysis, and application of statistical models and methods for managerial decision making. She has worked on three different areas: demand modeling and forecasting for revenue management, statistical models for credit risk, and methodologies for correlated binary and survival data with biostatistical applications. She teaches MBA and EMBA courses on Managerial Statistics and Operations Management, and PhD seminars on introductory and advanced Statistical Research Methods.
The ongoing world financial crisis, now in phase two mainly affecting the loan books of banks, is forcing financial institutions to reflect or modify their business models. A review of the last full credit cycle shows opportunities to identify the relevant drivers of value that are measured in terms of both return on equity and risk. On this basis we analyzed the balance sheets and P&L accounts of about 65 European banking groups over the last cycle (2000 to 1H 2008). Five drivers define the long-term success of a bank's business model: the dynamics of growth, the asset mix, the size, the cost-to-income ratio and the relative market share compared to the banks top three country peers. As we show in detail, based on these five drivers managers are able to define their management agenda inside a consistent empirical framework. The key to success in defining a strategy is to knowing one's relative position within the competitive risk-return arena.
In this ESMTcast "Learning for Leading with Avinash D. Persaud," Prof. Persaud, chairman of financial consultancy Intelligence Capital and member of the UN Commission of Experts on International Financial Reform, gives insights into topics surrounding the current financial crisis. He touches upon what better regulation could be, boom and bust cycles and managing risk. He himself takes a risk by looking into the future by addressing the role of free markets in the world economy.
Part 1 with ESMT professor Jörg Rocholl, and Elizabeth Corley, CEO Allianz Global Investors Europe. In an open discussion, Jörg Rocholl, and Elizabeth Corley cover the challenges and risks facing banks today? Part 1 of two delves into; 1) Risk and recapitalization, 2)Challenges facing investors, 3)Bank regulation.
Jan U. Hagen introduces the benefits of the case method and ESMT's Faculty Professionals in this video.
Jörg Rocholl expounds upon interaction in the classroom and his current research, the link between political connections and firm value.
Simon Wakeman describes his twofold role as a researcher and teacher in business strategy. He explains why he likes teaching and how his research can profit from interaction with students.
Dr. Joachim Faber, CEO of Allianz Global Investors, speaks out on current topics after a press breakfast on Sovereign Wealth Funds at ESMT. He gives insights into risk management, opportunities for young MBAs and his view of ESMT as a business school.
Die Finanzmarktkrise zwingt alle Banken zur Überprüfung ihrer bisherigen Geschäftsmodelle. Dabei ist für die Entscheidung der künftigen Positionierung die Kenntnis der Treiber für den Erfolg (gemessen an Rendite/Volatilität) entscheidend. Vor diesem Hintergrund haben die Autoren eine empirische Analyse der Jahresabschlüsse 65 europäischer Banken über den Zeitraum der Jahre 2000 bis 2008 durchgeführt. Dabei wurden fünf Treiber für den Geschäftserfolg identifiziert: Wachstums-Dynamik, Portfolio-Mix, Unternehmensgröße, Kostenposition und relativer Marktanteil. Langfristig bedeutsam sind dabei nur Wachstums-Dynamik und Portfolio-Mix. Die drei übrigen Faktoren haben zwar einen bedeutenden, aber insgesamt ‚überschätzten' Einfluss. Auf der Basis dieser Analyse wird anschließend aufgezeigt, wie eine Umsetzung in die jeweilige Management-Agenda aussehen kann. Entscheidend ist hier die Kenntnis und Bewertung der eigenen Ausgangslage im Markowitz-Portfolio.
A growing share of inward investment into the European Union, including but not limited to sovereign wealth funds (SWFs), will come from countries with diverse political regimes with which Europeans may not always see eye-to-eye. The current crisis may increase both Europe's need for such investment and its sensitivity to the non-economic implications. New investor countries have incentives to refrain from political use of their assets, as illustrated by the recently published 'Santiago principles' for transparency and accountability of SWFs. But these incentives are not powerful enough to spare Europe its own assessment of security risks linked to new trends in foreign investment.
Following the merger of Commerzbank with Dresdner Bank and the subsequent takeover of a 30% share in Deutsche Postbank by Deutsche Bank the German banking market seems to enter the long awaited consolidation. The Business Brief analyses the consequences of these transactions and shows that they are merely first steps. Only the reform of the public sector banking system - with the dominant savings banks and the Landesbanken - will provide Germany's banks with a chance to remain market driving generalists in a consolidating European market.
Auf den ersten Blick erscheint es paradox: Kreditausfälle im US-Immobilienmarkt führen zur Existenzkrise von zwei deutschen, im nationalen Geschäft verwurzelten Instituten. Selbst wenn noch nicht sämtliche Einzelheiten der aktuellen Krise im Bankgeschäft bekannt sind, können erste Ansätze zur notwendigen Aufarbeitung und Ableitung eines künftigen Marktszenarios vorgenommen werden.
At first glance it seems paradoxical: Loan defaults in the U.S. real estate market threaten the viability of two major German financial institutions-both with deep national roots. But although the full extent of the current banking crisis remains yet unknown, the first steps toward a critical reappraisal of future market scenarios can begin now.
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