Banks on the Hunt for Senior-Level Risk Managers
Societe Generale, France’s second biggest bank, announced it plans to sell $8 billion of shares at a whopping 40% discount to shore up its balance sheet after huge trading losses, according to BBC News. The financial behemoth is in the process of rebuilding its balance sheet to offset losses from unauthorized trades, which cost the bank $7.1 billion. Societe Generale must also cover $4 billion in losses linked to the U.S. sub-prime meltdown.
Experts say the scandal shows just how lax risk management in the industry got during the recent market boom. Leading up to the credit crisis, it seems the warnings of risk managers were either overlooked or risk managers were simply not given enough power or data to do their jobs effectively. In fact, risk managers have traditionally been viewed as advisors, not decision makers. Well, things are rapidly changing.
A senior-level industry veteran and recruiter working with executive search firm, A.E. Feldman, says demand for senior-level risk managers is surging. ”The emphasis on risk is growing. It is more important now than ever before.”
Societe Generale junior trader, Jerome Kerviel, started building up large positions in 2007. As his losses accumulated, he covered up his positions by hacking into the bank’s risk management system, reports the WSJ.
French Finance Minister, Christine Lagarde, has since called for banks to better manage risk, saying that Societe Generale controls “clearly” failed to prevent the losses stemming from a rogue trader, according to a Bloomberg report. The report states that Lagard also called upon banks to audit individual transactions to verify that they occurred, improve the separation of their trading and accounting divisions and limit the scope of employees to trade. Bloomberg quotes Lagarde as saying, “Very clearly some internal mechanisms at Societe Generale did not work and those that worked were not followed-up with appropriate actions.”
A.E. Feldman’s recruiter concludes that in the wake of the subprime crisis, the risk office must absolutely be more aware of where the risks are and where the value is. Risk managers must be able to determine how deep the problem is, who is being paid out first and what is the risk for the investor. These professionals must be able to detect warning signs long before a ratings agency.
As a result, firms are on the hunt for risk managers who have been tested by previous market cycles. Models alone do not tell the whole story. What is needed is accurate trend analysis and peer group analysis. Counterparty risk which was pushed aside for years, is also now in vogue. The industry has realized just how important it is to look at underlying risk.
Amid the growing demand, risk professionals are also 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.”
Risk management is evolving into an offensive field in which risk-adjusted information is used to determine corporate strategies, business initiatives and asset allocation. According to A.E. Feldman, risk management opportunities will continue to grow significantly as banks seek to expand and reorganize their risk management teams
The trend is global. Europe and parts of Asia have not escaped the effects of the U.S. subprime meltdown. Candidates seeking risk manager jobs overseas must adapt and improve their skill sets along with their American counterparts.
