equity release

New horizons

It’s a brave new world out there but we still need to see a move away from short-term gains and big bonuses to more sustainability, ethical/green action

by

Alison Beeston,

group

compliance & risk manager, Bridgewater Equity Release

The General Election was perhaps one

of the most defining moments since the financial crisis began. So where are we now in terms of the

after-affects of the financial crisis? Is the financial industry now fit for purpose and do we have tighter regulation which will not mean a re-run of the last few years? Clearly, given what has happened, there is now a growing crescendo of calls for banks in particular to retrace their steps and return to their roots. Lord Myners, the City Minister, has been particularly vocal in his calls to bring back old-style banking, i.e. a focus on deposits and banks only lending what is available on their balance sheets. In essence this is an austerity approach and it is clear the Government, particularly after the billions of taxpayers’ money that was used to shelter our biggest banks, does not want to be placed in this situation again. It is also interesting that figures seem to be revealing the UK consumer as much more austere themselves. Whereas the assumption pre-credit crunch seemed to be that debt could be mitigated against ever-increasing house prices, now we seem to be seeing much

28 mortgage iNtroducer MAY 2010

more focus from borrowers on getting their debt down.

SignS were there

However, the financial crisis’ impact may well be most keenly felt by those companies and institutions who were at the centre of the trouble. Research into the causes of the implosion strongly suggest that the signs were all there to warn senior executives of the potential problems, but they largely chose to ignore them. The culture of businesses and their governance are highlighted as key components that meant action was not taken and we are all aware of what lay in store for these businesses because of this inaction.

The true risk of senior executives not acting as true agents of their firms but more in their own interests perhaps cannot be more keenly demonstrated than by examples such as the ex-RBS CEO Sir Fred Goodwin. Perhaps we truly should be focusing on the egos of those who helmed the banking organisations as they surely played their own distinct part in the downfall of many firms?

In looking at the behaviour of senior executives pre-crisis it is important to ascertain whether their predilection for huge, risky decisions was driven by the stock market itself which seems to focus purely on short-term results delivering large remuneration packages based on

this. Banks during this period seemed to lose sight of who their customers actually were and I fully agree that we do need a shift to long-term sustainable growth rather than the ‘quick buck’ mentality which can be a company’s ultimate undoing. And in this I’m not just referring to banks; all businesses need to look long-term if they are to survive and thrive.

riSk

Banks have borne the brunt of most criticism and, while this is fair, we must remember that, with most banks, their problem areas have been their investment arms. These are the operations which on the whole took too much risk and were not policed strongly enough. They had great opportunities to make huge profits but of course the flip side was they could also cause phenomenal losses and duly did, thrusting the entire organisation into the mire. Again, we should consider those individuals who headed up these operations – yes, they may have been responsible for significant income when the ‘boom times’ were happening, but ultimately history has shown the risks were simply too great.

One wonders if these bankers who picked up huge bonuses pre-crisis ever had to pay any of this money back when their firms went bust? One doubts it very much. Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48