Flat battery

*/By Stephen McPhie, CA
Partner, RSD Solutions Inc./*

*/Follow us on Twitter/* [1]

I have an old second car that has not been used for quite some time sitting
in the garage.  My main car sits outside and was covered with a thick layer
of ice this morning.  Faced with the school run, I decided to use the
relatively warm and ice free old car in the garage, kept just for such
situations.  Inserting the key in the ignition I heard the dreaded click and
nothing more.  So it was a lot of scraping, frozen hands and a cold drive to
my daughter's school in the outside car.  I had been comfortable with the
fact that I had a back up system, and ignorant to the fact that it was not
working due to neglect.

In your business, do you feel comfortable that you have adequate back up
plans and systems for when unexpected events occur?  Do you constantly
review and test such plans and systems to ensure they are fit for purpose?


[1] https://twitter.com/rsdsolutions

Risk management begins with common sense

*/By Stephen McPhie, CA
Partner, RSD Solutions Inc./*

www.RSDsolutions.com [1]

info@RSDsolutions.com [2]

*/Follow us on Twitter/* [3]

*/Repost from blog dated January 11, 2011/*

Andrew Bailey of the Bank of England and designated deputy of the new UK
Prudential Regulation Authority, which will supervise banks, has made some
scathing comments in the Herald newspaper [1] [4] about how RBS and HBOS were
managed in the years leading up to their massive government rescues that
required tens of billions of pounds of taxpayer funds.

His comments are extensive but summed up by his comment:  "… people who
ran those two institutions just lost sight of what I would call sound
principles of banking."

I was working in the investment banking sphere in the City of London in the
early 2000's and observed RBS in the wake of its acquisition of NatWest in
early 2000.  At the time, the acquisition and integration was arguably the
best executed and most successful of any large bank merger worldwide. 
However, the bank then appeared to aggressively pursue a strategy of buying
market share.  I saw it commit large amounts to many syndicated leveraged
transactions for inadequate remuneration in terms of the risk.  Some
borderline loans led by other banks only succeeded because of this.

Fred Goodwin, the aggressive head of RBS, seemed to want to make his
institution the largest bank in the world and he almost succeeded before the
pile of cards came crashing down.  From 2001 to 2007, RBS's assets
doubled, mainly through a string of acquisitions.  This culminated in the
disastrous acquisition of ABN Amro, a complete basket case at the time. 
Shortly thereafter, RBS required a government rescue.

In my time in the City, I wondered what RBS's balance sheet would look like
if there were a recession.  Many people attributed RBS's downfall to the
ABN acquisition.  This may have been the straw that broke the camel's
back, but it seems that RBS's balance sheet had been weakening
significantly beforehand.  It seems that Andrew Bailey agrees.  He said,
talking about the pre-ABN era:  "I think there was very rapid expansion of
the investment bank.  I think the controls around the expansion of that
investment banking activity were clearly not adequate."

At the same time, Andy Hornby was running HBOS – at least he was supposed
to be.  He had been a great success at ASDA (Wal Mart's UK subsidiary) in
running the clothing retail business.  He seemed to take the large volume,
low margin mentality into the property lending business at HBOS with
disastrous consequences.  (HBOS was easily Britain's largest mortgage
lender and also had very large exposures to property developers.)  Many
people blame Peter Cummings, the head of the corporate bank, as being the
main culprit for the debacle but it is questionable whether or not his boss
had any ability to exercise any sort of oversight on his activities. 

At HBOS in 2005, Paul Moore, HBOS's Head of Regulatory Risk, warned that
the bank was becoming too risky.  Shortly after that he was forced out of
the bank and was replaced by someone he claims had a sales background.

In the cases of both RBS and HBOS, effective and prudent risk management
seemed to go by the wayside in the interests of growth and, perhaps, feeding
giant egos.  In fact, never mind sophisticated risk management set ups,
simple common sense seemed to be absent.  (The applicability of the term
common sense to the Financial Services Authority at this time is another
topic.)

Interestingly, Andy Hornby has returned to his retail roots as Chief
Executive of Alliance Boots, Britain's largest drug store chain.

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[1] [5] See
http://www.heraldscotland.com/business/corporate-sme/damning-verdict-delivered-on-former-rbs-and-hbos-chiefs-1.1079137
[6]

 


[1] http://www.RSDsolutions.com
[2] mailto:info@RSDsolutions.com
[3] https://twitter.com/rsdsolutions
[4] #_ftn1
[5] #_ftnref1
[6]
http://www.heraldscotland.com/business/corporate-sme/damning-verdict-delivered-on-former-rbs-and-hbos-chiefs-1.1079137