Banks Expanding Risk Management Teams
In the wake of the credit crisis, the role of Chief Risk Officer at large financial institutions has come under increased scrutiny. Wall Street firms have traditionally viewed risk managers as advisers, not decision makers. Today, that is changing. Bloomberg quotes CEO of New York-based Bear Stearns, as saying, ”It’s not just risk management but the whole risk culture. We have to make sure our risk management and trading management are working together.” As a result, banks are handing more power to their Chief Risk Officers.
Risk management has evolved into an offensive field in which risk-adjusted information is used to determine corporate strategies, business initiatives and asset allocation. According to executive search firm, A.E. Feldman, looking ahead, risk management opportunities will grow significantly as banks seek to expand and reorganize their risk management teams.
Leading up to the credit crisis, it seems the warnings of risk managers were either overlooked or risk managers were not given enough power or data to do their jobs effectively. A recent MarketWatch report quotes Larry White, professor of economics at New York University’s Leonard N. Stern School of Business as saying, “Over the past few years, risk management has been an oxymoron. Banks haven’t been doing it. They thought that all the extra return they were getting was because they were the smartest, not because they were taking a lot of risk and were just being lucky.” Well, today things are changing.
The list is long and growing
Merrill Lynch has named Noel Donohoe its Co-Chief Risk Officer. After taking the bank’s helm back in December, John Thain, created two chief risk officer positions that report directly to him. Thain told the WSJ that decision would emphasize the importance of risk management in the organization. Risk management responsibilities will now be split between Donohoe and Edmond Moriarty as the investment bank tries to rebound from consecutive quarterly losses totaling about $12 billion. Bloomberg also reports that Thain says he’s creating a new global head of trading position that reports directly to him, and will be hiring talent and emphasizing risk management in the future.
Merrill Lynch is not the only bank appointing new Chief Risk Officers. As of November, Barry Zubrow overseas all risk management for JPMorgan Chase. Bloomberg reports that Vikram Pandit, the new CEO at Citigroup, which reported a record $9.8 billion fourth-quarter loss, says he will be a “hands-on participant” in risk management. ”I have had some experience in this area and am actively involved in enhancing and reshaping our risk philosophy, along with the goal of having the best risk management in the business,” said Pandit during a conference call with analysts. Pandit appointed Jorge Bermudez as Chief Risk Officer, with responsibility for global market, credit, and operational risk and compliance. Upon taking over in December, MarketWatch reports that Pandit also said the company must intensify risk management, cut costs and do what it can to retain and recruit talent.
In November, Lehman Brothers said its CFO, Chris O’Meara, will become the Global Head of Risk Management, reporting to the CEO. And Morgan Stanley, which has written down $9.4 billion, says Chief Risk Officer, Thomas Daula, will also answer to the bank’s CFO, rather than the head of trading.
Rising influence
Risk professionals are being handed more power. MarketWatch quotes NYU’s Economics Professor Larry White as saying, “It comes down to resources, organizational structure and giving authority to someone who can say, ‘Hey guys, the party’s over.” That person has to be given lots of authority, but that’s hard to do when returns look so good.”
