A time of great uncertainty

Citation

(2000), "A time of great uncertainty", Balance Sheet, Vol. 8 No. 6. https://doi.org/10.1108/bs.2000.26508faa.001

A time of great uncertainty

A time of great uncertainty

Anyone tracking banking shares on the global stock exchanges could be excused for suffering from a neck injury. The share prices have been rising and falling like a roller coaster, though the overall trend has been on a sadly downward path. The bad news is that this is likely to continue. The good news is that insights and analysis help you understand the reasons behind the ups and downs. In this issue of Balance Sheet we try and provide exactly that.

Howard Davies is what the English would call a wily old bird. He is head of the UK's main regulatory body and has cast himself in the role of the wise observer of European banking. In this issue he takes an overview. He advises on how difficult it has proved to manage the different cultures required in one single banking operation. He talks of how UK banks have found universal banking organisations difficult, to put it mildly. He looks at the significant erosion of banking margins. He warns of the dangers of outsourcing. He ponders the question of whether the success of US banking is down to the existence of a cultural willingness to embrace change. Whatever you think of his conclusions you will be bound to agree with at least one of his predictions ­ the next two or three years will be a very exciting time in European banking.

Richard Cookson, our columnist from The Economist, adds more wise words for the banks. In this case, on what he sees as the worrying reliance on value-at-risk models. He wonders whether all these risk models are simply making the problems worse. "The evidence suggests that the tools that banks and academics have developed to try and control risks that they run in financial markets, might actually be making them riskier", is the heart of his argument.

For a second opinion on the matter of outsourcing we turned to Andy Winterton of Barclays Capital. He fills in the gaps and weighs the alternatives in the business of outsourcing corporate treasury, looks at the value of currency overlay and looks at the distinct possibility of banks enhancing earnings as a result.

Bill Robinson, our resident columnist from the world of economic strategy, has been taking a look at where property companies fit into the equation. And he has constructed an elegant theory which suggests that with the economy changing several of its features on what looks like a permanent basis and with banks prepared to use securitisation sensibly property companies are a fit for anyone's future strategy.

Meanwhile Jim Byrne draws on a course that he recently ran for members of the UK Asset and Liability Management Association, the UK ALMA, on risk measurement and management. He explains the methodology which underpins his work and helps to explain why banks with significant activities in both traditional balance sheet banking and in trading frequently have difficulty in implementing integrated asset and liability management.

That word integrated bulks large in the thinking of anyone in the risk management and the asset and liability management world. This month, Duncan Galloway and Rick Funston draw on their work in the enterprise risk management practice of Deloitte & Touche. What they want to show is how the use of enterprise risk management techniques can both lower risk management costs and achieve competitive advantage. An integrated approach is the answer.

Another answer is increasingly the appointment of a Chief Risk Officer. Ten years ago no one had any of these people on their payroll. Now they are everywhere and Igor Lamser and Erik Helland provide an explanation of both the rise and rise of the CRO and also guidance on how to make the best use of them.

On the technical side, Peter van Amson of Sungard guides us through the murky and shark-infested waters of option adjusted transfer pricing. Turning to the world of the insurance companies, Chris Mundy provides us with an extensive sampling of the latest survey of the use of alternative risk transfer which Marsh Risk Finance has carried out. He examines the issues into which the research provided insights and in particular he looks at how alternative risk transfer can be of great practical value to the world of insurance companies.

Finally we bring you another exclusive extract from a new book, freshly off the publishers' shelf. The mammoth work: Valuation: Measuring and Managing the Value of Companies has just appeared in its third edition, newly updated and packed with new insights and information. Our extract gives you the authors' views on the valuation of insurance companies, never an easy or uncontroversial task. Like so much in the world of Balance Sheet it provides guidance in a time of great uncertainty.