Bankbossesmuststepin to curtail ‘greedisgood’ culture I

f business schools of the post- pandemicworld runclasseson the art of leadership, the Credit Suisse scandals of the early 2020s will prove a particularly

intriguing case study. Students will weighuprelative roles of agencyand structure as they learn the intricacies ofmoral decision-making. The default of a $500mplusmargin

loan toLuckinCoffee, a Chinese rival to Starbucks, in early 2020 sets the scene.A$5bnmargin default at Archegos Capital andthe politically- sensitive Greensill packagedloans affair further tipped the scales towards bankinginfamy. Market commentators have been


The integrated ‘one bank’ model which links investment banking and wealth management has certainly helped cultivate an aggressive sales culture within the industry, but if things are to change it is up to those at the top to take charge

quick to point out this combination of mis-selling complex products andinappropriate lending against supposedly safe securities that sowed the seeds for the 2007-2009 global financial crisis. They have also blamedthe ‘one bank’ structure. Swiss banks quickly embraced

the cross-selling possibilities of combining investment banking, private banking and portfolio management. “Enforcers”would base the Zurich private banking floors tomake sure relationship managers were selling enough investment bank-sourced products to wealthy clients. As these firms have evolved,wealth

management became the central forceand“elite squads” of private bankerswere created.Many of these were former investment bankers, able to mix institutional disciplines with softer-focus ethical andmulti- generational themes, into a heady

Wealth Tech Awards 2021 Many thanks to all the banks that enteredPWM’s fourth annual Wealth Tech Awards. The virtual awards ceremony and webinar on digitalisation trends will be held on 24 June. See pwmnet for more details. For sponsorship opportunities, please contact

4 APRIL/MAY 2021

cocktail sold to the fastest growing and most lucrative client base–the globalfamily. Witheachclient investingmore

than$250m, this“bigmoney”and howtosourceandserviceit,became themajorpre-occupationofbanking bosses.Manyofthese high-flying families,suchasthat offormertrader BillHwang, setuptheirownhedge fundor privateequityoperation to investbusinessprofits.The$4.7bn lossannouncedbyCreditSuisse, from financingMrHwang’s familyoffice, ArchegosCapitalManagement,shows howsuchventurescanquicklyderail.

TIGHTENINGCOMPLIANCE Traditionamong leading banks has been to accommodate “mega clients”, at the cost of increased risk exposure, sometimes without sound collateral. Compliance isnowlikely to be tightened along the street, but the “greed is good” culture prevails. Leveragingarrangementsgosouth

whencollateral is insufficient tocover loans,withprimebrokeragedesks winningnewbusinessbyoffering aggressivelendingterms.“Atthe height of the last financial crisis,RBS hadleverageditsbalancesheet40:1 andtheloanbookwasaslargeasUK GDP,” recallsKimCornwall,aformer seniorbanker atMerrillLynchand SocGen,nowtrainingrelationship managers todeal withwealthyclients. “Smallmovementsinthevalueof

theunderlyingcollateralcanquickly wipeoutthe client’s equityandleave thebankwithanunsecureddebit.” TheArchegosCapitalcaseshows “elite”bankersmustbemademore

Global Private Banking Awards 2021 The application process for the 13th annual Global Private Banking Awards is now open. To receive an entry form, please contact

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