Today’s fraud charges by the State of New York against former Bank of America
CEO Ken Lewis prompted me to think about how people have tolerated the last
three years of crisis, particularly risk management experts. That’s the
subject of today’s post.
One of the great things about the 2007-2010 credit crisis, if there are any
great things about it, is that blame is being laid squarely on the desks (or
former desks) of those responsible: the chief executive officers of the
institutions who got in trouble and the Board Members who let it happen.
Ken Lewis, former CEO of Bank of America, was accused of fraud today by the
State of New York. Details are contained in this story from Reuters:
http://uk.reuters.com/article/idUKTRE6134ES20100204
Thanks to the internet, it’s easy to track how various former CEOs of
troubled institutions are faring in the aftermath of the crisis. One of my
favorite tools for measuring the “ex post” assessment of CEOs is the legal
website justia.com, in particular this link. In this particular case,
we’re searching for the number of lawsuits naming former Countrywide CEO Angelo
R. Mozilo:
http://dockets.justia.com/search?q=Angelo+R+Mozilo
We use the results to rank three prominent former CEOs who lost their jobs in
the credit crisis.
Kenneth D. Lewis, Bank of
America:
192 lawsuits
Angelo R. Mozilo, Countrywide
Financial:
56 lawsuits
Stanley E. O’Neal, Merrill Lynch:
41 lawsuits
Kerry K. Killinger, Washington
Mutual:
33 lawsuits
Charles O. Prince,
Citigroup:
33 lawsuits
The number of lawsuits given is the number of lawsuits filed in the federal
courts between April 1, 2004 and February 4, 2010 against persons with the names
given above. We haven’t scanned the results to determine if each and every
lawsuit against “Kenneth D. Lewis” is in fact a suit involving the Kenneth D.
Lewis of Bank of America. If the justia.com totals are accurate, clearly
Kenneth D. Lewis has fewer reasons to be happy “post crisis” than Charles O’
Prince, formerly of Citigroup. Apparently, not as many investors believe
it’s worthy of a lawsuit simply because, as the New York Times reported, Mr.
Prince “didn’t know the difference between a CDO and a grocery list.”
How are risk managers doing as we emerge from the credit crisis? I’ve
talked to many of them over the last few months and the “happiness survey” of
risk managers shows that there is a wide diversity of experience. Like all
surveys, I’ll keep the identities of the respondents anonymous while hitting the
highlights of what I’ve heard.
Risk Managers at Institutions that Performed Well in the Crisis
For the most part, risk managers at firms that fared relatively well
throughout the credit crisis have ranked high on the happiness survey. The
very best ones have been hired away because of their firm’s excellent
performance. One individual in particular went from one outstanding
firm to a firm even more outstanding because the latter firm felt it could make
even greater strides in controlling risk. Most important, at all levels of
the institution the CEO had made it clear that getting better at risk management
was mission critical even though this financial institution was heads and
shoulders above its peers.
At another institution that has emerged unscathed in the crisis, the head of
risk management has taken advantage of institutional relationships to spend many
months at the head office of one of the largest banks in the United
States. Before the crisis, the view was that this big U.S. bank should be
one of the world’s best in risk management. The crisis itself, however,
made it clear that this was not the case. I asked the visiting head of
risk what he thought. He answered, “Well, they have 500 people working in risk
management.” I persisted, “Well, what did you think about how well they
were doing their job?” He looked at me, shrugged, and rolled his
eyes. That was his only answer. I told him that in 1-2 years his own
firm, one of the largest in the world, would be ranked as one of the most
skillful risk managers in the industry because of their on-going commitment to
continuous improvement, a commitment long lacking among many of the largest
Western financial institutions. He scored very high on the happiness
quotient.
At the other end of the spectrum, at a few firms that emerged in good shape
from the crisis, the movement of senior risk people to other firms has created a
vacuum that has put more junior players on the field. They’re happy for
the opportunity, but to many, they’d simply won a lottery. Many lack the
fear of risk that can trigger the drive to continually improve. Some of
they are complacent and have an aging risk infrastructure. These risk
managers are happy now, but I fear for their future. If they’re not
afraid, they should be afraid for both their firms and themselves.
Risk Managers at Institutions that Performed Poorly in the Crisis
The risk managers who worked at firms that performed poorly in the crisis
span the full range of abilities. At the low end of the spectrum, there
are some who argue “No risk managers and no risk system could have prevented
this from happening to my institution.” This group of people is bitter and
unhappy, and many of them feel simply unlucky instead of feeling that they’d
missed something important and could learn something from it. The lucky
ones are still employed, typically in more junior roles than before at other
institutions that are less sophisticated than the firms they worked at
previously. The unlucky ones are victims of Charles
