Echelon Magazine - June 2019Add to Favorites

Get Echelon Magazine along with 5,000+ other magazines & newspapers

Try FREE for 7 days

bookLatest and past issues of 5,000+ magazines & newspapersphoneDigital Access. Cancel Anytime.familyShare with 4 family members.

1 Year$99.99

bookLatest and past issues of 5,000+ magazines & newspapersphoneDigital Access. Cancel Anytime.familyShare with 4 family members.
(Or)

Get Echelon Magazine

Gift Echelon Magazine

  • Magazine Details
  • In this issue

Magazine Description

In this issue

Shareholders will agree that long term value creation is the primary responsibility of a senior management team in a business. Often, however, incentives are misaligned. Nowhere else is this mismatch more apparent than in the baking sector. That misalignment is the short term focus on return on equity (ROE). It’s also significant because of the creeping crisis on banks following the shocks from rising dud loans, higher capital ratios, fierce new regulations and the economic slowdown. A question for boards is, does short term ROE focus equate to medium term profitability and long term shareholder wealth creation? No. Because ROE, as a headline measure, does not adjust for risk. The returns may come in the short term, but risks usually come much later. Second, a prospective investor should be more interested in risk-adjusted returns than the promise of short term ROE. Some capital will prefer higher long term returns for high risks, while other investors may prefer the opposite. Consider that banks with little equity are riskier than ones with a lot of it. As the fallout of the Easter Sunday attacks spread, banks will realise that keeping medium to long term return goals aligned will be impossible if unexpected losses have eroded their capital base. If ever the ROE obsession was misplaced it would be so in the current crisis.

  • cancel anytimeCancel Anytime [ No Commitments ]
  • digital onlyDigital Only