Value and Capital Management - A Handbook for the Finance and Risk Functions of Financial Institutions

The role of the Chief Financial Officer (CFO) and Chief Risk Officer (CRO) in financial services firms has changed dramatically over the past decade, affording the position greater potential to influence both strategy and operations. Exercising these roles requires both "hard" quantitative skills and "soft" qualitative skills. This Handbook outlines a practical framework for measuring and, more importantly, influencing the value of banks, insurance companies and asset management companies from the viewpoint of the CFO and CRO. The Handbook consists of three sections: Section 1 -- Better information: What gets measured, gets managed. Accurately measuring value is a necessary precondition for managing it. Unfortunately, measuring value in financial services is challenging given the unique role that risk and capital play in the economics of the business. This section develops a quantitative, risk-adjusted value management framework tailored to financial services and reconciled with the way that our shares are actually valued by the market. The framework can be used as the foundation for internal value based management initiatives and evaluate growth opportunities. Section 2 -- Better insights: Better information may be a necessary condition, but it is not a sufficient condition: ultimately, the "right" strategic decisions have to be taken. Becoming a professional sparring partner to CEOs requires insights beyond risk and capital; it also requires an in-depth understanding of the competitive market place and the drivers of operating profitability and where profitable growth is going to come from. This section presents specific "value trees" tailored to banking, insurance and asset management businesses and presents examples of value enhancing business initiatives. It is designed to give business unit CEOs, CFOs and CROs concrete ideas for increasing the value of their firm. Section 3 -- Better decisions: In addition to being a sparring partner and challenging business strategies, the finance and risk functions also have manage their own areas of responsibility, especially in the areas of risk management, balance sheet and capital management and strategic planning. This section develops the quantitative and qualitative management frameworks for CFOs and CROs to move from measurement to management in these areas.