Question: If a bank attracts new equity to increase its Tier
If a bank attracts new equity to increase its Tier 1 capital ratio, what happens to its cost of equity and its intrinsic value if it invests the new equity capital in (1) deposits with the central bank, or (2) a broad equity market index?
Answer to relevant QuestionsWhat are some of the common features of the 2007–2009 stock market crash and previous market crashes—for example, Japan’s in the 1990s or the Internet bubble around the turn of the millennium? How should a company decide which risks to hold and which to hedge? Given that TRS is not a clean measure of management performance and is therefore a flawed basis for management compensation, how should a company gauge management performance? What measures should it use? Why are competitive advantages based on brands, as in the consumer goods industry, often more important for long-term value creation than advantages based on product quality or innovation? Consider a large banking group with businesses in retail banking, equity trading, and mergers and acquisitions (M&A) advisory. Discuss its potential for creating value based on the possible underlying sources of competitive ...
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