Banks: poor Management abounds © 2024 by Mark McWiggins

I have dealt with various banks over the years; one stands out as the best (if annoying) one: Chase.

I have a couple of Chase cards. It seems that every time I log into Chase, it says “we locked your account due to unusual activity” that I don’t see, but they see, and they’re the experts. I have less of a concern with this mild annoyance than with some of the other banks I’ve been working with recently.

Chase was the winner in 2008 when it scooped up failing banks like falling daisies: the first was Washington Mutual (right in my back yard)

The second was Bear Stearns, run by a guy named Richard Fuld:

“Fuld was deeply worried,” bank president Gregory thought, and not without reason. But they had lived through crises before. They’d survive, he told himself. They always did.

Fuld kept up his happy face through the first few hours of the crisis he told Treasury Secretary Hank Paulson “We’re going to be fine”. … “Keep me updated” Paulson said.

Then later, as reality set in: CNBC was running a “Who is Next” crawl and Fuld said “Goddamit” as they listened incredulously to one talking head after another give their firm’s eulogy.

Also there was David Einhorn the short seller, he who tries to figure out which companies are overvalued and sell them high and buy them back lower: the opposite of a long-term investor but a necessary way to keep financial bubbles from getting unbearably frothy.

Einhorn: “This is crazy accounting. I don’t know why they put it in,” Einhorn told his staff. “It means that the day before you go bankrupt is the most profitable day the history of your company, because you’ll say all the debt was worthless.”

Merrill Lynch was run by Stan O’Neal:

“Several weeks after Merrill’s Board had named Thain CEO, he was faced with an especially delicate task ..’’ … calling former CEO Stan O’Neal to ask what had gone wrong on Wall Street in 2008 … O’Neal’s reply: “I don’t think I’m the right guy to answer that question.”

“O’Neal was cut out of a different mold than most of Merrill’s top executives, not least of all because he was African American …”

He had grown up on a farm in eastern Alabama with no indoor plumbing. He got a job in Atlanta after his family moved to a housing project at a nearby GM plant. “There he enrolled after high school at the General Motors Institute (now known as Kettering University)” he later went to Harvard Business School from where he jumped to Lehman’s junk bond desk.

“Merrill Lynch was ‘Bullish on America’ and America was just as bullish on Merrill Lynch”

O’Neal was “tasked with shrinking Merrill down to a manageble size” … he cut the workforce by 15,000, also forcing out several executives he didn’t trust. “‘Ruthless,’ O’Neal would tell associates, “isn’t always that bad.”

“Some employees began referring to O’Neal’s top-management team as ‘The Taliban’ and calling O’Neal ‘Mullah Omar’.

He also went into riskier, higher leverages including in … mortgage securities … he was also a pioneer in the crazily and fradulently structured CDO’s Merrill made $7.5 billion trading its own money in 2006.

As the wheels came off, he tried to enlist Wachovia for a bailout, and with that he lost his job.

The worst: Citi Bank. I lost my wallet recently and didn’t have the card in question. Also I was temporarily locked out of the bill pay system where I could have (and eventually did) get the right account number.

But when I called them, the phone operator said “uh, we don’t have any cards on file for you.”

Actually, I have 2 … Now, there’s no point in getting mad at the operator. It’s the management who’ve apparently shorted the training budget on the (probably) 50 year old green screen terminals they’re using, or forgot to train them on the hot new web-based interface (possibly with a substandard UI designed by a programmer) … variations on this management problem abound.

Citi used to be run by a guy named Wriston, who apparently was more or less competent.

Current Citi owners include Vanguard, BlackRock, State Street Corporation, and Berkshire Hathaway. (source: The Motley Fool)

All I can think is that they’ve relentlessly cut training budgets and that’s all they could do to destroy a good bank.

The final annoyance on a bank is a local one, BECU. I’ve had an account there for some years and generally they’ve been OK … but they have the same backend computer problems that the others seem to have … I’ve called them given them my debit card number, and they say: we don’t have that. Sheesh.

This is probably another story of a bank that had competent management earlier on … it was Boeing Employees Credit Union, after all, a local legendary company.

But they must have the same backend problems as Citi … likely in BECU’s case security upgrades that were improperly trained to the employees.

But they do get credit for saving me from HappyMoney.

That’s all for this story. Sources for the section on the Wall street banks are credited to Andrew Ross Sorkin’s Too Big to Fail