David Wildermuth is swapping a mid-level risk management job at Goldman Sachs for an executive board position at Credit Suisse.
It looks like a great personal trade, especially as much of the work of reforming Credit Suisse is likely to be done by the time Wildermuth takes up his new role in February.
The bank, under its new chairman António Horta-Osório, is racing to tackle its risk-management deficiencies as fast as possible, to revive its share price and stem a flow of experienced staff to rival firms.
So, Wildermuth may find that he inherits a much-improved risk-management function when he arrives at Credit Suisse after serving contractual gardening leave from his previous job.
Wildermuth is a highly experienced risk manager who spent 24 years at Goldman, becoming a partner in 2010 before being appointed deputy chief risk officer in 2015.
Most of his career has been in New York, except for a four-year stint in London that started in August 2008 just before the collapse of Lehman precipitated the global financial crisis.
Dodging losses
Goldman has a long track record of excellence in financial risk management, as demonstrated by the firm dodging losses when Archegos Capital collapsed in March.
It is virtually inconceivable that Goldman would fall victim to the type of margin arbitrage that Credit Suisse suffered at the hands of Archegos – as detailed by the special committee appointed by the Swiss bank to examine how it managed to lose $5.5 billion on a single account that generated only around $40 million of revenue.
It is also difficult to picture Goldman sending $2.4 billion of variation margin to a low-return client such as Archegos when its concentrated trades were suffering and it was stalling on changes to its risk-management terms, as the special committee report also highlighted.
As well as demanding an attractive personal compensation package for his shift to Credit Suisse, Wildermuth is likely to have insisted on funding for the risk-management function that will avoid the juniorization of roles that was one cause of the Archegos catastrophe.
It could even be argued that Wildermuth brings a minor element of political risk to his new role
This is another area where Goldman has traditionally outperformed many of its competitors, by ensuring risk managers are experienced staff with the ability to push back against demands by business heads who are chasing revenue opportunities.
But if Goldman has a weakness, it is in reputational risk management, as its own 1MDB scandal demonstrated.
Wildermuth and other risk specialists at Goldman were probably not to blame for this or comparable lapses, such as hedging some of the bank’s credit exposure before the 2008 financial crisis while continuing to sell deals that increased similar risk for its own clients.
The episodes nevertheless highlight that hiring an experienced risk-management professional such as Wildermuth can only get you so far – the reform of culture at a bank has to start at the top.
Evolution
And risk for modern banks is evolving in ways that specialists in financial management may struggle to anticipate.
It could even be argued that Wildermuth brings a minor element of political risk to his new role.
He has a track record of financial contributions to individual Republican politicians in the US, as well as to the political action committee at Goldman Sachs that the bank recently decided to suspend.
Wildermuth’s donations to Republican politicians such as senators Pat Toomey and Roy Blunt were unexceptional when he was at Goldman, where there is a long tradition of managers becoming actively engaged in supporting one of the two main US political parties.
And he is not linked to public support for politicians on the wilder fringes of the Republican party.
But risk changes in unexpected ways, as Wildermuth should know.
