Risk Management Opportunities Continue to Expand
Societe Generale just had its debt downgraded by Standard & Poor’s. This comes as the bank announced that bets by a rogue trader led to a $7.2 billion trading loss. 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.
S&P says that France’s second-biggest bank had its long-term counterparty credit rating cut one level because of failings in how it managed risk. In a statement, S&P concludes, “While SocGen’s loss was caused by the fraudulent behavior of one of its traders, we [S&P] consider that significant deficiencies in the bank’s risk management framework made possible the magnitude of the loss. Risk control was too oriented toward market risk, at the expense of operational risk and fraud risk in trading activities.”
Executive search firm, A.E. Feldman, says risk management is what it’s all about right now. The industry has realized just how important it is to look at underlying risk. Demand for senior-level risk managers with the experience to detect early warning signs and deliver accurate trend analysis is soaring. Looking ahead, risk management opportunities will grow significantly as firms seek to expand and reorganize their risk management teams.
Societe Generale isn’t the only bank that’s had its lax risk-management practices exposed. In fact, many of the largest banks and brokerages have already begun to overhaul their risk-management systems. The latest announcement came from Ambac Financial Group.
Ambac has named David Wallis to the newly created position of Chief Risk Officer, or CRO. In a press release, Ambac states that in this newly created role, Wallis will add Capital and Risk Analysis, Portfolio Risk Management and Credit Risk Management to his responsibilities. Ambac says this greater focus on capital will enhance the firm’s ability to strengthen its underwriting process while retaining its focus on risk-return driven capital management.
Morgan Stanley has hired several new risk managers - some sitting on the trading floor, according to the WSJ. The report indicates that the firm now holds a weekly risk-management meeting, which includes the heads of every key trading unit.
Merrill Lynch, CEO, John Thain, also says he is fundamentally changing the firm’s risk management process. He has already created two Chief Risk Officer positions that report directly to him and reduced the company’s trading positions, according to Bloomberg. Thain also says he will be hiring talent and emphasizing risk management in the future.
Vikram Pandit, the new CEO at Citigroup, which reported a record $9.8 billion fourth-quarter loss, says the company must intensify risk management, cut costs and do what it can to retain and recruit talent. Citi named Jorge A. Bermudez as Chief Risk Officer, with responsibility for global market, credit, and operational risk and compliance. Bermudez reports directly to the CEO. Citi also has formed an advisory committee of senior leaders from across the company that will provide input on ways to strengthen risk management processes.
