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What does it mean to be a well-managed bank?
Financial results, are of course, paramount. A well-run bank is profitable and (hopefully) generates a return on equity well above the cost of that equity. Other metrics are also clearly important. For example, a bank with a growing credit portfolio is demonstrating that it has the ability to originate new loans – in other words, it has attractive products and a distribution network – a core requirement for banks wherever they are.
Other data points will be of greater or lesser importance depending on the specific business model. How do you compare the relative attractiveness of a bank that targets corporate business against another that has more of a fee-based revenue model? How to compare a retail-orientated lender against an investment bank? And a bank reporting double-digit growth in an upturn today is only a great investment if its management can be trusted to manage credit risk and avoid a blow-up in delinquency when the economic cycle turns.
Even if you put aside questions over the accuracy of accounting and assume that the data being reported is completely bona fide, results are still not 100% correlated with a bank’s quality.
