How Does Financial Market Evaluate Business Models? Evidence From European Banks

This paper investigates the way in which the financial market defines and evaluates different business models/business mix, using a sample of listed European banking groups, with a total asset value greater than 50 billion US$, for the period 2006-2015. The main results suggest that non-interest components foster market valuation and that financial market seems to associate a better risk-return trade-off to non-banking fees compared to the banking ones. This evidence enables us to identify 3 clusters of European banking groups based on the main components of income. These findings have strategic implications both for bank managers, regulators and supervisors due to the impact of the crisis on banking business, bank profitability and riskiness and the new challenges they entail.