Financial Management

Executive summery

I conduct this report under the name of “Financial Management” for the purpose of finding
out how investment decision of Standard Chartered Bank to acquire Union Bank will bring
success or failure to the organisation.

Investment decision can bring success or failure to an organisation. Standard Chartered Bank
takes the investment decision to acquire 81% share of Union bank Pakistan at a cost of $511
million. But the investment decision goes wrong for the organisation. All the profitability
ratio and earnings ratio which discussed are above shows negative result. That means that the
investment that was made by the organisation was a fail investment decision. After the
organisation acquire Union Bank the profit, ROI and ROE show tremendous decreasing
trend. It is obvious that investment is not the only reason behind but it a huge factor. After
doing this it is cleared that the organisation taking this decision of acquiring Union bank only
to comply with State Bank of Pakistan branch requirements.
Table of Contents
Introduction................................................................................................................................4

Standard Chartered Bank...........................................................................................................5

Investment details.......................................................................................................................5

Reason for investment............................................................................................................5

Cost........................................................................................................................................6

Type........................................................................................................................................6

Location..................................................................................................................................7

Success or failure of the investment.......................................................................................7

Conclusion................................................................................................................................11

Reference..................................................................................................................................12

Individual contribution.............................................................................................................13

Summary of important recent development of finance............................................................14

Introduction
Investment decision is one of the most important decision for an organisation which
determines whether an organisation will meet with success or not. Proper investment decision
leads an organisation to the path of success or otherwise than failure. That is why
organisation needs to take investment decision carefully. For this report Standard Chartered
Bank is taken as the base organisation to discuss in detail about investment. To do this this
report this report discuss about reason for the investment, investment cost, types of
investment, its location and finally the investment impact on Standard Chartered Bank. This
report also gives a personal reflection and discuss about a recent development in finance.
Standard Chartered Bank
Standard Chartered Bank is a UK based multinational baking and financial service provider.
It is founded in 1969. This is a public limited company which predecessor was Standard Bank
and Chartered Bank. The banks run its operation in more than 70 countries and have more
than 1700 branch across the world. There are more than 89000 employee’s works in this bank
around the world. Standard Chartered Bank operation includes consumer, institutional and
corporate banking, and also treasury service. The organisation based in UK but the
organisation do not provide retail survive in UK. 90% of the organisation profit came from
Asia, Middle East and Africa. The company is listed to London Stock Exchange and the
organisation is the constituent of FTSE 100. In April 4 2017 the organisation market
capitalisation amounted £24.4b. The organisation also listed in Hong Kong Stock Exchange
and India’s National Stock Exchange. In 2000 the bank merges with ANZ Grindlays and in
2006 the organisation acquires Union Bank in Pakistan. The present chairman of the
organisation is Jose Vinals and CEO Bill Winters.
Investment details
Taking proper investment decision is one of the key element for an organisation as it will
determine whether an organisation will achieve its investment objectives or not (Hafenstein
and Bassen, 2016). That is why when an organisation take the decision of making an
investment the organisation need to know why the organisation invest on that project, how
much cost the investment will incur, in which region the organisation want to invest and
outcome of the investment.

Reason for investment

Standard Chartered Bank takes the investment decision to acquire Union Bank of Pakistan in
2006. Union bank is the 6th largest bank of Pakistan. Union bank has 65 domestic branches as
well 23 foreign branch. In August 2006 the bank take the decision of investing to Union bank
and reason behind it is discussed below:

Scale: Union Bank is the 6th largest bank of Pakistan with 65 domestic and 2 foreign
branches. It means that the organisation has huge number of customer in Pakistan. If Standard
Chartered Bank invest in this bank than the organisation will achieve the bank existing
customer as well as new customer will also come to the bank because of the bank reputation
(Khawsaad, 2014).

Efficiency: This investment of Standard Chartered Bank scale up the bank number of
customer as well as efficiency. As Union bank is the 6 th largest bank of Pakistan the bank
surely have its own infrastructure for compliance, managing risk and managing accounting
and operation. That is why once the bank acquires this bank that means that the organisation
also acquires those and it will increase the bank service efficiency.

Fill business gap: 90% of Standard Chartered Bank profit came from Asia, Middle East and
Africa. Every region has its own types of product and technology. If the bank wants to open it
new operation in that region then the bank has to achieve those. But if the bank acquire bank
which already running on that region then it will help the organisation to fill product gap and
technology gap (KUMARI, 2012).

Team upgrade: When Standard Chartered Bank acquire Union bank that means that the
organisation also acquire the bank employee which are skilled and talented to provide service
on that region. It will help the bank to upgrade its team.
These are the reason for what Standard Chartered Bank takes the decision on acquiring Union
Bank.

Cost
Cost related to the investment is very important. Because if the cost exceeds the benefit what
the organisation will get form the investment then the investment will resulted in failure. The
cost which the organisation incurs for this investment is $511 million and acquired 81% share
of the bank.

Type
The type of this investment is acquisition. There are slight difference between merger and
acquisition. Merger is the process in which two company agreed to form a new company. On
the other hand the process in which an organisation purchases other organisation and gain
control over the organisation is known as acquisition (Mehta, 2012). Standard Chartered
Bank purchase 81% of Union Bank share at a price of $511. That is why type of this
investment is acquisition.

Location
Union bank is the 6th largest bank of Pakistan with 65 domestic and 2 foreign branch.
Standard Chartered Bank purchase 81% of it share. That is why location of the investment is
in Pakistan, Asia form where the organisation made most of its profit.

Success or failure of the investment

When an organisation made an investment then organisation will either meet with success or
failure. This part of the report try to evaluate whether investment in Union bank bring success
of failure to Standard Chartered Bank. For doing this, this part will take into consideration of
Standard Chartered Bank worldwide performance after investing in Union bank
(PRASANNA CHANDRA., 2011).

Net profit: Standard Chartered Bank profit was increasing at a rate of 25% before investing
in Union bank but after investing in Union bank the organisation worldwide profit decrease at
a huge rate.
 Years 2005 2006 2007 2008 2009
Profit 4507 5709 2767 630 669
(Million)

Profi t
Profit
6000

5000

4000

3000

2000

1000

0
2005 2006 2007 2008 2009

This graph clearly shows that after investing in Union Bank Standard Chartered Bank profit
decreased tremendously. In the year in which the organisation made the investment the profit
was 5709 million but in 2007 the profit dropped more than half which is amounted 2767 and
in following year the trend continuous and profit in 2008 was 630 million and 669 in 2009.
That means that in terms of profit the organisation investment is a huge disaster for the
organisation.

Non-performing loan: Because of recession and other reason the amount of non-performing
loan of the organisation increased gradually after investing in Union Bank.

Years 2005 2006 2007 2008 2009

NPL 8421 10493 1534 21389 21389
(Million)
 NPL
2009 21389

2008 21389

2007 1534

2006 10493

2005 8421

0 5000 10000 15000 20000 25000

NPL

Non-performing loan is very bad for an organisation. This graph clearly shows that the
amount of NPL increased after the organisation investment in Union Bank. In 2006 Standard
Chartered Bank NPL was 10493 million which increased to 21389 in 2008 and the trend is
continued in the next year. Inn term this factor the result is negative for the organisation
(Pandey, 2015).

Return on assets: Like other ratio the return on asset also decreased after the investment of
Union Bank. The return on asset of 2005-2009 shown in the table:

Years 2005 2006 2007 2008 2009

ROI (%) 3.9 3.2 1.23 0.27 0.25
 ROI (%)
4.5

3.5

2.5

1.5

0.5

0
2005 2006 2007 2008 2009

ROI (%)

Return on asset shows an organisation ability to use or invest its asset properly to achieve
organisational objectives or not. The graph above clearly shows that the ROI of the
organisation decreased significantly after the organisation made investment in Union Bank.
The organisation ROI in 2006 was 3.2% but in 2009 it was 0.25%. This also indicates
negative result.

Return on equity: The return on equity of the bank also decreased considerably after the
investment on Union Bank, which is shown in the table:

Years 2005 2006 2007 2008 2009

ROE (%) 53 30 17.79 3.75 3.49
 ROE(%)

2009

2008

2007

2006

2005

0 10 20 30 40 50 60

ROE(%)

ROI also shows that the investment in Union Bank bring negative result for the organisation.
In the year 2005 Standard Chartered Bank ROE was 53%, in 2006 30% but in 2007 it was
dropped to 17.79% and in the later year it was 3.75% and 3.49%. That means that the
organisation investment brings negative result to this ratio (Madura, 2018).
Conclusion
Investment decision can bring success or failure to an organisation. Standard Chartered Bank
takes the investment decision to acquire 81% share of Union bank Pakistan at a cost of $511
million. But the investment decision goes wrong for the organisation. All the profitability
ratio and earnings ratio which discussed are above shows negative result. That means that the
investment that was made by the organisation was a fail investment decision. After the
organisation acquire Union Bank the profit, ROI and ROE show tremendous decreasing
trend. It is obvious that investment is not the only reason behind but it a huge factor. After
doing this it is cleared that the organisation taking this decision of acquiring Union bank only
to comply with State Bank of Pakistan branch requirements.
Reference
Correia, C., Flynn, D., Uliana, E., Wormald, M. and Dillon, J. (2015). Financial management.
Lansdowne: Juta.

Hafenstein, A. and Bassen, A. (2016). Influences for using sustainability information in the
investment decision-making of non-professional investors. Journal of Sustainable Finance &
Investment, 6(3), pp.186-210.

Khawsaad, P. (2014). Individual Investment and Training Investment Decision. SSRN

Electronic Journal.

KUMARI, I. (2012). A Study on The Basics of Investment – “With Special Reference to

Investment Risks and Investment Alternatives. Global Journal For Research Analysis, 3(4),
pp.1-2.

Madura, J. (2018). International financial management. Boston, MA: Cengage Learning.

Mehta, P. (2012). Investment Decision Using Behavioural Finance. Paripex - Indian Journal

Of Research, 2(2), pp.146-147.

Northington, S. and Gerard, G. (2011). Finance. New York: Ferguson's.

Pandey, I. (2015). Financial management. New Delhi: Vikas Publishing House PVT LTD.

Phylaktis, K. (2014). Finance. Elsevier Science.

PRASANNA CHANDRA. (2011). Financial Management. Tata McGraw Hill Education Pvt.

Ltd.
Individual contribution
This report was assigned to us by our teacher so that we can understand how investment
decision of an organisation can affect an organisation success or failure. For this group
consisting of 3 members was selected by our teacher. To do this report at first we arranged a
meeting to discuss how to do this. In this meeting I was selected as the group leader. Our first
task was to select to organisation about which this report will be make. Out teacher specified
the sector from which we select Standard chartered bank as our base organisation. Now we
have to decide the organisation which investment decision we analyse to do this report. We
have come to the agreement that we prepare the report on organisation acquisition of Union
Bank of Pakistan (Correia et al., 2015).

After deciding this we divided our work. Our first group member was given the responsibility
of retrieving information about the organisation investment decision. The second group
member was given the responsibility to analyse those information and show whether the
investment bring success or failure to the organisation. And I as a group leader co-ordinate all
this activity and will make the presentation about the report.

Figure: Gantt chart

Summary of important recent development of finance
I think the most important recent development in finance is digital finance. We are living in
an era of digital technology. In this era it will be difficult for the organisation to do business
without using digital technology (Northington and Gerard, 2011). In the case of finance it is
also true. Now a day’s organisation like bank uses digital finance. Digital finance helps to
develop finance by:

Investment in digital banks: A number of banks now a days operate landing digitally then
traditional bank lending, for example BBVA of Spain acquired digital only atom bank in UK.

Block chain: This technology predicted a shared database which will underpin
cryptocurrency bitcoin, now a days adopted for banking sector. It helps the organisation to
speed transaction.

Collaborating with market place lenders: Banks are now collaborating with the lender who
operates in the marketplace like Metro Bank which make partnership with P2P lender Zopa in
UK.

Digital payments: Apple pay herald launching move payment system to traditional to digital.
Many number of bank in UK and USA singed up to the Apple Pay (Phylaktis, 2014).

Video links: Banks are now more and more concerned on how to provide better customer
service by using digital technology. For this banks use video links for providing customer
service.