Posts Tagged ‘Goldman Sachs’
Revenge of the Organic Carbon Units?
Wednesday, September 7th, 2011
Emerging news that the US Federal Housing Finance Agency is suing various banks caught our eye. The cases allege that the banks systematically failed to follow both market regulations and their own procedures in approving mortgages in the run up to the credit crunch. The resulting ‘bad’ loans were then guaranteed by Fannie Mae and Freddie Mac, quasi-government agencies, and the FHFA is seeking to recover the billions the US tax payer lost.
The case has been rumbling for a while, with attention initially on how the banks foreclosed using the same inadequate approach, which we mentioned back in October 2010. At that time we asked what was the purpose of management in such organisations? Machines would be simpler to employ, less troublesome to manage.
Now it would seem that the malaise was deeper, perhaps revealing a cynical disregard for the customer in the chase for short term advantage? If so the cynicism would seem to have been less than smart on the part of the banks’ Boards, as one of the customers they ‘turned over’ was a powerful government agency. Such customers, backed with legal as well as market power, tend to hit back hard.
Our premise still stands – management matters, and it is the Board that ultimately sets the standard. Was this a sin of commission rather than omission? It will be interesting to see the resolution of these cases, and the resulting impact on the regulation of financial markets and the banks.
Talk to us, in confidence and without obligation about helping your managers develop the competence and confidence to manage effectively. Solutions that engage, motivate and fit around, rather than disrupt the business.
(from October 2010) So, why use people?
The news that Wells Fargo management used ‘robo’ signers to approve mortgage foreclosures caught our eye*. Also in the frame for similar practices are JP Morgan Chase and GMAC Mortgage (Ally Bank). The Wells Fargo VP of Loan Documentation giving evidence in a Florida lawsuit said she only checked if her name and title were correct on the documents. She also signed affadavits stating she had “personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo”. These were used in foreclosure proceeding. This is gold for the lawyers who are challenging the bank foreclosures.
This information raises intriguing questions, not least what is the purpose of managers in such institutions? Does the process manage the manager or does the manager add some value by managing? And even if the (automated?) process worked as designed (aka those affavdavits), then the fact that the lawyers are able to make hay with it, shows a management failure. Was the organisational effort to deal with the historically challenging volume of foreclosures such that sight was lost of treating customers (and thus the market) with proper respect? Where were the supervisory and audit functions in the organisations?
What we find most confusing of all is that if all that was required from management was a signature, why didn’t they use an automatic signature machine? After all why pay people, and put up with all that unpredictability and emotion?
Talk to us, in confidence and without obligation about helping your managers develop the competence and confidence to manage effectively. Solutions that engage, motivate and fit around, rather than disrupt the business.
* See www.ft.com 14/10/10
Attracted by Super Heroes?
Tuesday, September 21st, 2010
In these uncertain times, substantial comfort is possible from a belief in Super Heroes, not least from the possibility of rescue. High achieving staff and managers are at particular risk of believing their own PR simply because it is easier. Confronting difficult markets and working on those challenging influencing skills is not so easy.
When an entire management team subscribe to the belief, then it often leads to significant trouble. ‘Star’ cultures often make organisations vulnerable.
If the team believe themselves Super Heroes, the resultant loss of contact with the real world leads to significant reputational and other market risk. Goldman’s and Lehmans may be recent examples. Worse is when the customers have bought your ‘Star’ PR taking their business away when the star leaves.
Cultural consequences may include difficulties with motivation and engagement as Super Heroes, (being marvellous), tend not to see the talents of other functions, or to be able to communicate with them. Effective team working will probably prove impossible as the organisation evidently values the Super Hero income earners only. Depending on the tax advice, the result is an atomised group of service companies/consultants with greater or lesser commitment to ‘customer’ satisfaction.
Yet it need not be like this; Super Heroes are capable of and may be encouraged to learn how to both respect and talk to their ‘mortal’ colleagues. Talk to us, in confidence and without obligation about ensuring your Super Heroes develop the competence and confidence to manage in uncertain times.
Quinn & Goldman Sachs – the case for management competence
Tuesday, June 1st, 2010
The extent of the failed insurance company Quinn’s loss leader pricing in the UK is revealed with the branch contributing £44m of the 2009 loss, £28m of that from commercial insurance.
Quinn’s largest creditor, Anglo Irish Bank (AIB) is amongst those expressing an interest in buying the remaining assets and is looking for a JV partner that would be both regulator credible, and could manage the business to recoup some of AIB’s losses.
This smacks of desperation. The business is stopped. In addition to a new investor approval is needed from both Irish and UK regulators for any commencement. Meanwhile staff are queuing up to take redundancy, and competitors are sweeping up the renewals and new business. It is difficult to understand what could be left to salvage – particularly in a market where competition is more than competent and reputation matters.
For AIB this surely underlines its difficulties in understanding the risks it was taking in lending to Quinn. Like RBS and its Goldman Sachs Abacus 2007-AC1 losses, the consequences are significant. The risk assessment was clearly not adequate to protect the interests of the investors. Demonstrating again, that without competent interpretation, data is just numbers.
From the outside it is not possible to differentiate between commission or omission. And what, after all, is the end result difference between the caveat emptor/competent entity justification of Goldman Sachs, and Quinn’s determination to grow its business using other people’s money? Were these investors merely ‘unlucky’ in their timing of their ‘me too’ participation in the Bubble? Did they confuse investment with the CDO/churning and slicing/repackaging of risk activities that others were conducting? Were bonuses paid for the decisions that have broken these banks?
As businesses go forward into the post crunch world, risk can no longer be palmed off onto others or its management delegated to a piece of software. The bottom line is that Management Competence matters, particularly those ‘soft’ skills that enable a business to navigate through uncharted strategic territory.
What are you doing to ensure your teams are competent and confident to deal with the ‘not business as usual’, high uncertainty post credit crunch world?
Next Steps
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Credit Crunch Fall Out – why competence matters
Wednesday, May 12th, 2010
What are we to make of the news that Anglo Irish Bank is looking for an insurer to take a 50% share in its indebted client Quinn? The reason is that the bank fears that without an insurance company leading the business, it will not recoup €2.8bn of loans made to the privately held company. The Quinn family has said simply that it will not be able to pay them back. AIB are looking for a company that does not yet have interests in the UK and Ireland – who are presumably willing to take the risk in order to buy into the market.
Quinn are in trouble with the Irish and British regulators because of their lack of capital, and the fact that they have allegedly been growing business by loss leader pricing. Their business methods have raised concern for some time with UK competitors allerting the FSA about unfair competition. Meanwhile the administrators are preparing a prospectus for the sale of the company.
What a heady mix of developing consequences of competence issues – bank and business. And a clear demonstration of the limits of oversight – both regulatory and risk management systems. This particular nightmare has added political colour as communities North and South of the UK/Irish border fight to maintain their jobs, and the Irish State must be groaning at the extent of the outstanding loan.
It begins to put the Goldman Sachs fraud allegations into perspective.
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