APPENDIX

APPENDIX 1 – INSTITUTIONS INCLUDED IN THE BANKING

SECTOR

The following list details all and building societies who have permission to accept

deposits in the UK. The list is broken down by nationality of the insitutions and is updated

on the day of the Bankstats publication. This list relates to those Bankstats tables where

nationality breakdowns are provided. Until 31st March 2013 this list was sourced from

information provided by the Authority (FSA), who previously published

an alternative list, showing banks by type. From 1st April 2013 the list is provided by the

Prudential Regulation Authority. To access this list, please follow the link provided within

related links on the right hand side of this page.

A H O Adam & Company plc Hampden & Co Plc OakNorth Limited Airdrie Savings Hanley Economic Building Bank Society OneSavings Bank Plc Alliance Trust Harpenden Building Savings Ltd Society P Hinckley & Rugby & Co Ltd Building Society Paragon Bank Plc Holmesdale Building Bank plc Society Penrithe Building Society plc HSBC Bank plc Principality Building Society plc HSBC Bank USA NA Progressive Building Society HSBC (UK) Ltd R HSBC Trust Company Rathbone Investment Ltd (UK) Ltd Management Ltd plc Hampshire Trust Bank plc Ltd Bank plc Harrods Bank Ltd T Barclays Bank Trust The Hongkong & Shanghai Company Ltd Banking Corporation Ltd Tandem Bank Limited Bath Investment & The Building Society I plc Beverley Building The Royal Bank of Scotland Society Investec Bank plc NV BIRA Bank Ltd Ipswich Building Society TSB Bank Plc Buckinghamshire Building Society J S C Julian Ltd Saffron Building Society CAF Bank Ltd K Sainsbury’s Bank plc Cambridge Building Society Kingdom Bank Ltd Schroder & Co Ltd Cambridge & Counties Bank Ltd L Scottish Building Society The Charity Bank Ltd Leeds Building Society Scottish Widows Bank plc Charter Court Financial Services Leek Building Society plc C Hoare & Co Plc Ltd The Chorley & District Lloyds Bank Private Building Society Banking Ltd Skipton Building Society City of Derry Loughborugh Building Smith & Williamson Building Society Society Investment Services Ltd Southsea Mortgage & Close Brothers Ltd M Investment Co Ltd Manchester Building The Stafford Railway plc Society Building Society Consolidated Credits The Mansfield Building Bank Ltd Society Bank The Co-operative Market Harborough Bank plc Building Society Swansea Building Society Marks and Spencer Financial & Co Services plc T Coventry Building Society Marsden Building Society Teachers' Building Society Crown Agents Bank Ltd Masthaven Bank Limited Tesco Personal Finance Ltd Cumberland Melton Mowbray Building Tipton and Coseley Building Building Society Society Society D Methodist Chapel Aid Ltd U Darlington Building Society Metro Bank Plc Ltd Dudley Building Monmouthsire Building Society Society Ulster Bank Ireland Ltd Dunfermline BSSP N United Trust Bank Ltd Dunfermline National Counties Building Society Building Society plc Earl Shilton National Westminster Building Society Bank plc V Ecology Building Nationwide Building Society Society Vanquis Bank Ltd

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Nedbank Private Wealth F Ltd Vernon Building Society First Global Trust Bank Plc Newbury Building Society Virgin Money plc Furness Building N M Rothschild & Sons Society Ltd W Nottingham Building Society Weatherbys Bank Ltd Wesleyan Bank Ltd West Bromwich Building Society Y Yorkshire Building Society Source: http://www.bankofengland.co.uk/statistics/Pages/reporters/institutions/default.aspx#

APPENDIX 2 – RETURN ON ASSETS

Return on assets (ROA) is the ratio of net income plus interest expense to the total book value of the firm’s assets. This measure of ROA includes the benefit of the interest tax shield associated with leverage. As a benchmark, ROA is most comparable to the firm’s unlevered cost of capital.

푁푒푡 퐼푛푐표푚푒 + 퐼푛푡푒푟푒푠푡 퐸푥푝푒푛푠푒 푅푂퐴 = 퐵표표푘 푉푎푙푢푒 표푓 퐴푠푠푒푡푠

ROA is sometimes calculated as Net Income/Assets, inappropriately ignoring the returns generated by the assets that are being used to support the firm’s debt obligations (…). Also, the interest expense that is added back is sometimes done on an after-tax basis in order to eliminate the benefit of the tax savings provided by debt. (Source: Berk, J., & DeMarzo, P.

CORPORATE FINANCE (3rd ed.). Pearson.)

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APPENDIX 3 – NET WORKING CAPITAL DEFINITION

The difference between a firm’s current assets and current liabilities that represents the capital available in the short-term to run the business.

∆푁푊퐶 = 퐶푢푟푟푒푛푡 퐴푠푠푒푡푠 − 퐶푢푟푟푒푛푡 퐿𝑖푎푏𝑖푙𝑖푡𝑖푒푠 =

= ∆퐴푐푐표푢푛푡 푅푒푐푒𝑖푣푎푏푙푒푠 + ∆퐶푎푠ℎ + ∆퐼푛푣푒푛푡표푟𝑖푒푠 − ∆퐴푐푐표푢푛푡 푃푎푦푎푏푙푒푠

(Source: Berk, J., & DeMarzo, P. CORPORATE FINANCE (3rd ed.). Pearson.)

Bearing in mind the formula presented above, one can conclude that:

 Banks do not produce physical goods, its income comes primarily from the spreads

between the cost of capital and interest income that is earned through lending activity;

 Banks do not hold significant Fixed Assets, so they rely on borrowing as primary source

of capital.

Therefore, banks do not hold neither inventories, neither account receivables, as well as account payables, which lead one to the conclusion that, the Working Capital for the banking industry is not materially relevant.

APPENDIX 4 – RETURN ON EQUITY (ROE) DEFINITION

Return on equity (ROE) is the ratio of a firm’s net income to the book value of its equity. As a benchmark, ROE is most comparable to the firm’s required return on equity.

푁푒푡 퐼푛푐표푚푒 푅푂퐸 = 퐵표표푘 푉푎푙푢푒 표푓 퐸푞푢𝑖푡푦

Source: Berk, J., & DeMarzo, P. CORPORATE FINANCE (3rd ed.). Pearson.

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APPENDIX 5 – SUMMARY OF THE ADVANTAGES AND DISADVANTAGES OF

CULTURAL DIVERSITY

Advantages Disadvantages

1. Diverse groups of directors, gather varied 1. Being members different, frictions might knowledge and perspectives. (Nederveen take place. In the case it happens, it might Pieterse et al, 2013) generate that even tough different, people

feel associated with a certain group, leading

to biased opinions and favouring the group

composed by more people. (Van

Knippenberg et al, 2004)

2. Information about operations in specific 2.aCommunication: slower, difficult, markets can exist, helping the firm managing confusing and a source of misunderstandings. its operations. (Maznevski, 1994) (Doney et al, 1998).

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APPENDIX 6 – SUMMARY OF THE ADVANTAGES AND DISADVANTAGES OF CULTURAL DIVERSITY

Average_Age Background_ Assets Average_Fees Coverage Cultural_Diversity Liabilities Net_Income Nr_of_Members Nr_of_Women Profit_Before_Tax ROA ROE _Years Diversity 1,000000 Assets 0,178027 1,000000 Average_Age_Years 0,388022 0,222148 1,000000 Average_Fees 0,049569 0,079269 0,027635 1,000000 Background_Diversity 0,225781 0,001862 0,281885 -0,226633 1,000000 Coverage 0,310139 0,150826 0,299935 -0,222585 0,424607 1,000000 Cultural_Diversity 0,999891 0,177355 0,387344 0,050542 0,224702 0,308345 1,000000 Liabilities 0,255595 0,087994 0,135193 0,052799 -0,075161 0,100126 0,250597 1,000000 Net_Income 0,455343 0,048960 0,330426 0,283695 0,069355 0,171168 0,454453 0,326953 1,000000 Nr_of_Members 0,407866 -0,189729 0,167408 0,081098 -0,039372 0,064275 0,404175 0,391821 0,586978 1,000000 Nr_of_Women 0,386311 0,110398 0,152897 0,059722 -0,043370 0,135286 0,381922 0,982073 0,370350 0,427747 1,000000 Profit_Before_Tax -0,040808 0,106808 0,073765 0,037470 0,075731 0,011742 -0,040737 0,152806 0,145948 -0,003501 0,156509 1,000000 ROA -0,033993 0,111368 0,015646 0,032845 0,011598 -0,035202 -0,033839 0,166425 0,076451 -0,008793 0,177468 0,915288 1,000000 ROE

APPENDIX 7 – DESCRIPTIVE STATISTICS

ROA ROE Assets Average_Age_Years Average_Fees Coverage Cultural_Diversity Net_Income Nr_of_Members Nr_of_Women Profit_Before_Tax Mean 0,0381 0,6349 61583,1300 57,2035 261,4978 0,2414 0,4253 159,7282 9,3716 1,7923 230,7955 Median 0,0040 0,0625 986,2800 57,1429 89,6570 0,0000 0,0000 2,9160 9,0000 2,0000 3,7660 Maximum 2,6269 62,8487 1357906,0000 66,7500 2282,7000 1,0000 1,0000 10092,1000 18,0000 8,0000 11319,9200 Minimum -0,2580 -1,3177 20,0355 44,0000 3,0700 0,0000 0,0000 -7674,0000 4,0000 0,0000 -7367,0000 Std. Dev. 0,2613 5,2207 209266,5000 2,9157 377,4411 0,4287 0,4953 1207,8100 2,6202 1,3046 1397,7140 Skewness 8,3414 9,8686 4,0618 -0,2450 2,7844 1,2087 0,3022 2,1508 0,7638 1,0158 3,6568 Kurtosis 74,7090 105,1884 19,7289 4,6604 11,7851 2,4610 1,0914 41,2254 4,0111 5,4033 36,5947 APPENDIX 8 – SUMMARY OF COEFFICIENTS INTERPRETATION

Variable Interpretation

Log(Assets) – Model 1 A 1% increase in the Assets value, generates an increase of 0.6671 increase in the firm’s ROE.

Average_Age_Years – Model 1 The increase of 1 year in the arithmetic average of the ages of directors, will generate a decrease of 0.1112 in the firm’s ROE.

Coverage – Model 1 The fact that a company is a multinational bank presents -5.5656 ROE.

Nr_of_Members – Model 1 A unitary increase of one member in the board of directors will generate an increase of 0.7201 in firm’s ROE.

Nr_of_Women – Model 1 A unitary increase on one woman in the board of directors will generate a decrease of 4.6367 in firm’s ROE.

Profit_Before_Tax – Model 1 A unitary increase of 1$ in the PBF, generates an increase of 0.0171 in the firm’s ROE.

Cultural Diversity – Model 1 Firms which boards are culturally diverse present a positive increment of 1.3455 on its ROE.

Log(Average_Fees) – Model 2 A 1% increase in the arithmetic average of the fees paid to directors, generates an increase of 0.0231 increase in the firm’s ROA.

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