Risk Management Watch: Firms Push to Hire Compliance and Risk Executives
Reeling from the credit crunch, Washington Mutual has appointed John P. McMurray as the bank’s new Chief Enterprise Risk Officer. Formerly the bank’s Chief Credit Officer, McMurray is now responsible for overseeing the company’s risk management functions, including credit risk, interest rate risk, market risk, operational risk and audit. McMurray will become a member of WaMu’s Executive Committee and report directly to the bank’s CEO, Kerry Killinger.
WaMu joins the chorus of banks calling for a renewed focus on risk management. In the wake of the subprime crisis, top firms continue to shore up their risk management teams. Executive recruiting firm, A.E. Feldman, says that firms continue to add risk management jobs. Banks are on the hunt for senior-level risk managers who have been tested be previous market cycles. Now more than ever, executives are emphasizing the strategic importance of effective risk management. Looking ahead, A.E. Feldman also notes that senior communications and marketing professionals will also become hot commodities as firms reposition and rebrand themselves.
Mounting costs associated with delinquencies and mortgage defaults have taken a toll on Washington Mutual. WaMu posted a net loss of $1.14 billion in the first quarter, compared with a fourth quarter net loss of $1.87 billion. The bank also recently announced a $7 billion cash issuance from a private equity group and other institutional investors.
“The completion of this offering demonstrates the confidence these major investors have expressed in WaMu’s underlying value and its growth potential,” said WaMu Chairman and Chief Executive Officer Kerry Killinger. “This substantial new capital will position us for a return to profitability as elevated credit costs subside. With the support of these investors, we have every confidence in our ability to deal with today’s market conditions and restore shareholder value.”
Focus on IT
IT will play a critical role in the current effort by bank management and boards to reassess their risk management functions, according to CIO.com. The report states that 2008 promises to be a year of continued change for the industry as financial services firms recognize the need to broaden the scope of risk governance and management to include IT. Doing so may provide high-quality assurance around data integrity, availability and confidentiality. The report also contends that as programs continue to mature, organizations will be able to identify the truly significant risk areas that can impact the organization.
ERM: A Unified Approach to Risk
Implementing an enterprise-wide risk strategy, however, remains critical. Most companies do have the essential components in place to identify and manage risk, but many continue to suffer from significant gaps and overlaps in their overall risk coverage, according to Ernst & Young. The firm says that enterprise risk management (ERM) is about better alignment and usage of existing practices, and getting prioritized, action-oriented risk information to executives.
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. ERM is currently evolving to address the demands of shareholders who are demanding a clearer view of the risks facing companies and the processes in place to manage those risks.
The key to success is taking a holistic rather than siloed approach to important risks and vital IT processes and controls, according to CIO.com. A.E. Feldman says boards are pushing senior management to pursue enterprise risk management initiatives. As a result, demand is growing for high-level candidates with a top-down view of governance issues, including risk management and compliance, from an enterprise perspective.
