Banks Aggressively Seeking Senior Risk Managers, Senior Operations Professionals
Following its first-ever fourth quarter loss last year, Morgan Stanley recently hired a Managing Director to overhaul the firm’s risk strategy, according to Bloomberg. The report states that Morgan Stanley Chairman and Chief Executive Officer, John Mack, is currently ramping up efforts to closely monitor risk-taking after bad bets on securities tied to subprime mortgages led to a $9.4 billion writedown and a quarterly loss he described as “embarrassing.”
As demonstrated by a recent slew of billion-dollar writedowns, the failure to identify and manage strategic risk can weigh heavily on a company’s bottom line. As a result, understanding and managing risk has become and remains a top priority for corporate boards. Executive recruiting firm, A.E. Feldman, reports that this is just one reason why significant opportunities are opening up for senior level risk managers and operations risk professionals.
John Mack, named Kenneth deRegt to the newly created position. DeRegt, who worked alongside Mack at Morgan Stanley for 20 years before leaving in 2000, will join the CEO’s newly created Office of the Chairman and serve on the firm’s management committee. DeRegt will work directly with Morgan Stanley’s CFO, Colm Kelleher, in assessing the firm’s risk profile. He’ll also collaborate with Co-Presidents, James Gorman and Walid Chammah, on strategy, internal controls and use of the firm’s balance sheet.Bloomberg also reports that Morgan Stanley is searching for a successor to the firm’s Chief Risk Officer, Tom Daula, who recently announced he will be leaving Morgan Stanley once a replacement is found.
John Mack says deRegt will be a valuable addition to Morgan Stanley’s senior management team as the firm looks “to navigate challenging market conditions and bolster the firm’s risk management function.” In order to do that, however, Risk Center reports that a recent analysis of risk management practices among major global financial services organizations, finds that firms must focus on enterprise risk management. Specifically, they must demonstrate a comprehensive approach to viewing firm-wide exposures and risk, sharing quantitative and qualitative information more effectively across the entire firm.
Morgan Stanley has joined the long and growing list of banks and brokerages that are taking aggressive action to restore confidence and overhaul effective risk-management systems. Following a record $9.83 billion fourth quarter loss, Citigroup replaced its Chief Risk Officer (CRO) for the second time in less than four months and named four new senior risk managers. Ambac has named David Wallis to the newly created position of Chief Risk Officer. Merrill Lynch, CEO, John Thain, has said he’s fundamentally changing the firm’s risk management process. He has already created two Chief Risk Officer positions that report directly to him. Thain also says he will be hiring talent and emphasizing risk management in the future.
But experts contend that enterprise risk management extends beyond the Chief Risk Officer. Steven Minsky, Chief Executive of LogicManager, commends the move by Morgan Stanley to hire a risk manager to work in a centralized role, but says banks still need to do more to improve risk management, according to Dow Jones Financial News. The report quotes Minsky as saying, “Banks have been notoriously bad at managing risk. They tend to segment risk into silos.”
Insurance News Net also quotes Neill Currie, CEO of RenaissanceRe Holdings as saying, “You say enterprise risk management. You think chief risk officer. For us to have ERM work, it’s a corporate culture where every employee feels like they are a part of enterprise risk management If every employee feels like they have a vested interest in raising their hand when they see something that is out of whack, that is a large part of enterprise risk management. If you get things siloed and people only look after their own area, then good things don’t happen.”
Enterprise risk management (ERM) can be described as a risk-based approach to managing an enterprise. ERM involves the integration of strategic planning, operations management, and internal controls - a framework to safeguard a firm against losses, earnings surprises, and other financial risks. It can also provide protection against fraud, systems failure and compliance violations.
A recent analysis of risk management practices issued by senior financial supervisors from five countries, including the SEC and the Fed, finds that firms that have averted problems stemming from the recent market turbulence problems demonstrated a comprehensive approach to viewing firm-wide exposures and risk, reports Risk Center. The report also states that shared quantitative and qualitative information more effectively across the firm and engaged in more effective dialogue across the management team.
The analysis goes on to say that senior managers in firms with effective risk management strategies also exercised critical judgment and discipline in how they valued the firm’s holdings of complex or potentially illiquid securities both before and after the onset of the market turmoil. They also had more adaptive (rather than static) risk measurement processes and systems that could rapidly alter underlying assumptions to reflect current circumstances. Furthermore, management relied on a wide range of risk measures to gather more information and different perspectives on the same risk exposures and employed more effective stress testing with more use of scenario analysis.
Today, corporate boards are facing unparalleled levels of business complexity, a constantly changing political landscape, new regulations and mounting shareholder demands. In an attempt to tackle these challenges, business leaders are gravitating towards enterprise risk management in assessing a firm’s strategic objectives and risk management. Ultimately, the goal of these initiatives is to ensure that business objectives are met, losses are minimizes, business processes are improved and greater accountability is achieved.
A.E. Feldman adds that candidates seeking senior operations risk jobs must have industry-specific expertise in financial and operational risk implications. These candidates must also possess strategic ability, excellent analytical skills as well as an understanding of technology.
