Why the World Bank is hiring Lehman’s ex risk boss
By Antony Currie
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The World Bank is hiring Lehman Brothers’ former head of risk management. It might sound like a bad joke. After all, the Wall Street firm collapsed precisely because it placed too many bad bets. But Madelyn Antoncic, who is now joining the international lending institution as treasurer, was one of the few senior Lehmanites who consistently warned top brass they were playing too fast and loose.
Better than her resume, take a quick dive into the report on Lehman’s collapse by bankruptcy court-appointed examiner Anton Valukas. He notes that Antoncic argued against raising the firm’s risk limit by almost 50 percent at the end of 2006. That new ceiling was quickly breached in 2007 in any event, as Chief Executive Dick Fuld, President Joe Gregory and head of investment banking Skip McGee routinely waved risk limits on individual deals.
Antoncic protested that, too, especially for leveraged loan transactions that demanded Lehman stuff its balance sheet with both debt and so-called bridge equity positions. But she was overruled. Of course, one such deal later became the lightning rod for criticism of Lehman’s outsized risk-taking: the Archstone real-estate buyout left the firm holding $2.4 billion of equity and $3 billion of debt that it couldn’t sell when markets tanked.
By then, Antoncic had been removed. She was shunted over to run financial market policy relations in the same September 2007 reshuffle that promoted Erin Callan to chief financial officer — an ominous sign, in hindsight, as it was the first time in years the firm promoted someone without an accounting background to the role.
Antoncic’s first-hand experience of financial crises, and her ability to spot problems early and speak up, should serve the World Bank well. She deserves a second chance.