Risk Management Watch: Hires and Promotions of Risk Professionals Soaring
UBS has written off more bad debt from the subprime crisis than any other bank – a whopping $37 billion. In the wake of these writedowns… and just two days before a shareholders’ meeting where the bank sought permission to once again shore up its balance sheet… UBS published a 50-page report on its writedowns aimed at activist shareholders. The paper places much of the blame for the bank’s string of losses on ineffective risk management.
Executive recruiting firm, A.E. Feldman, says now more than ever, firms are realizing the strategic importance of effective risk management and risk management jobs are opening up. The firm reports that demand for senior-level risk managers is surging as financial institutions expand and reorganize their risk teams in an effort restore confidence. Experience however is essential. Firms are on the hunt for risk professionals who have been tested by previous market cycles. Looking ahead, A.E. Feldman adds that senior communications and marketing professionals will also become hot commodities as firms reposition and rebrand themselves.
UBS Report on Writedowns
UBS has acknowledged that the pursuit of revenue caused it to assume more risk than it should have. Its culture had been focused on boosting revenue, while sacrificing effective risk management. The UBS report calls the bank’s overall risk control framework “insufficiently robust.” It also states that management of its investment banking division “lacked effectiveness” and “focused too much on the maximization of revenue growth.” The report also laid responsibility for the bank’s losses on “inappropriate risk metrics used in strategic planning and assessment” and a “lack of reaction to changing markets.”
UBS also reveals that management didn’t raise concerns about whether the bank’s systems and staff could cope with the rate of growth of the business. And the banks says when problems emerged in the subprime business, significant action wasn’t taken until the third quarter of 2007.
Meanwhile, UBS Chairman, Marcel Ospel announced he will be stepping down following the latest round of writedowns this month. Leading up to his departure, Ospel had already replaced UBS’s CEO, Peter Wuffli, along with its Finance Chief and Risk Officers.
Ospel’s successor, Peter Kurer, laid out his plan for reversing the bank’s downward spiral at UBS’s annual shareholder meeting in Basel, Switzerland. Kurer says he plans to scale back the bank’s investment operations, reshuffle the board of directors… and create a risk committee to better tackle future threats to the company’s business.
Risk Takes Center Stage
In the wake of the subprime crisis, risk management has become a priority. Investors are keeping a close watch on what steps firms are taking to reduce their exposure to risky assets in the future.
Data compiled by Liberum Research, an independent firm that tracks executive turnover at public companies, indicates that 25 individuals at public companies were hired as or promoted to CRO last year, a 25% jump from the year before, according to Financial Week. The report goes on to say that hires and promotions in 2008 are on track to outpace last year’s big bump by a staggering 140%.
Currently leading the pack are financial services firms. The list of companies scrambling to add Chief Risk Officers (CROs) to their top management ranks is long and growing:
- Commonwealth Bank recently appointed Alden Toevs to the position of Chief Risk Officer and Group Executive of Risk Management. Toevs will join the bank’s leadership team, reporting directly to CEO, Ralph Norris. Commonwealth says the newly created position of Group Executive of Risk Management in an attempt to ensure that risk practices are transformed to global best practice in such areas as credit, operational, technology, compliance and market risks.
- 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. In January, Noel Donohoe was named Co-Chief Risk Officer. Thain also says he will be hiring talent and emphasizing risk management in the future.
- Following a record $9.83 billion fourth quarter loss, Citigroup named Brian Leach to the role of Chief Risk Officer back in February. Leach who reports to Citi’s CEO, Vikram Pandit, is also Acting Chief Risk Officer for the Institutional Clients Group. In addition, Citi named four new senior managers to the Risk organization.
- In November 2007, Lehman Brothers said its CFO, Chris O’Meara, will become the Global Head of Risk Management, reporting to the CEO.
- Following its first-ever fourth quarter loss last year, Morgan Stanley Chairman and Chief Executive Officer, John Mack, hired Kenneth deRegt as Managing Director to overhaul the firm’s risk strategy. 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. 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.”
- State Street appointed Maureen Miskovic to the newly created position of Chief Risk Officer. Miskovic, who is to report to State Street Chairman and CEO, Ronald Logue, will lead a global team of more than 250 multi-disciplinary enterprise risk professionals. She will also sit on State Street’s strategy and policy-making team.
- Ambac also named David Wallis to the newly created position of Chief Risk Officer. 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.
- PrivateBancorp has named Kevin Van Solkema to the position of Chief Risk Officer. Solkema is responsible for the firm’s overall risk management encompassing credit, operational and enterprise risk and loan review.
- Bank of Montreal is also recruiting talent to improve the bank’s risk management culture. The bank has appointed Don Wilson III, former Chief Risk Officer at JPMorgan Chase, to its board of directors. Downe says he plans to overhaul BMO’s risk management profile, following a series of foul-ups, including last years’ $850-million natural gas trading scandal.
- CIFG Holding, the holding company for CIFG’s financial guaranty subsidiaries, has named David Rockwell to the position of Chief Risk Officer. Rockwell will assume overall responsibility for the company’s risk management activities and surveillance functions.
Boards’ oversight of risk management has also been building. A full 70% of financial institutions place such oversight responsibilities with the board, up from 57% in 2002, reports Financial Week citing a recent survey by Deloitte Global Risk Management.
