Global financial crisis: Did they get their house in order?

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Front End looks back 10 years, on the views of the chief executives of 11 big banks interviewed in the wake of the banking crisis.

Euromoney-OFC-2008

Ten years ago, as Euromoney was writing its 2008 jumbo issue for the World Bank/IMF meetings, it was clear that the global banking industry was in crisis. Lehman Brothers had collapsed, Merrill Lynch was rescued at the last minute. What could the industry do to get its house in order, we wondered, before outside influences did the job for them?

We spoke to the chief executives of 11 big international banks, from a mixture of Europe, North America and Asia – and it is intriguing to revisit the articles a decade later.

Strangely enough, the chief executives of the likes of UBS, RBS and Bank of America were unavailable to talk to us at the time. 

Vikram Pandit, who had just taken on a poisoned chalice at Citi, was available. As was Josef Ackermann, not just in his role as chief executive of Deutsche Bank, but also as head of the Institute of International Finance, which was leading the industry response to the crisis. 

Of the 11 CEOs interviewed, only one is still in office – Frédéric Oudéa. He had taken the reins at Société Générale just three months earlier, after the Kerviel rogue trader losses had brought down Daniel Bouton. We forget now it was a time of multiple crises. Oudéa’s simple response to our opening question about what they had learned from the crisis perhaps did not point to his longevity: “This crisis involves the ratings agencies. Sometimes too much reliance was placed on their ratings.” True, of course, as far as it goes. Which was not far enough.

Liquidity

It is interesting to note now that by far the biggest issue on the minds of the bank chiefs was liquidity. One of the chief executives interviewed was Herman Verwilst of Fortis Bank – who had just taken a large chunk of the bits of ABN Amro that RBS and Santander did not want. He said: “[Liquidity] wasn’t a problem, so why spend much time on it? Having seen banks go under for lack of liquidity brings it right into your forefront of thinking. And this is something we will now seek to strengthen further with the acquisition of the ABN Amro retail deposit base in the Netherlands.” So right, yet so wrong Herman. Fortis, of course, ended up in state ownership not long afterwards and has only slowly recovered.

Regulation was of course on their minds, and the chief executives were all hoping for a level global playing field. How did that work out?

The bank that has fallen furthest from grace in the 10 years since is Deutsche. And perhaps, in our article, Ackermann has some prophetic words about the bank’s future. “You may have a Picasso on your wall, but if for whatever reason there are no buyers when you want or need to sell it, you won’t get much money for it. You should assume there will not always be buyers for a Picasso!” he said. He didn’t mention what you should do if the Picasso turns out to be fake.