Banks get mixed reviews from institutional shareholders
- Brendan Wood is Chairman of Brendan Wood International, a global intelligence advisory firm. Recently, BWI published the World’s TopGun CEOs as ranked by 2500 institutional investors, which provides insight into the executives in whom shareholders feel the greatest confidence. The opinions expressed are his own. -
Brendan Wood International tracks the competitive position of investment bankers in global and regional markets. It also compiles the confidence rankings of hundreds of global shareholders in corporate investments, including those in the world’s leading banks. As of mid-2009, the Brendan Wood Investor Panel found a mixture of sharp criticism, but also some occasional strong praise for these “newly refurbished” financial behemoths.
First, the bad news: while all the banks have by now somewhat improved their situation from what it was earlier in the year – repaying $68 billion in government assistance, raising new equity, and carrying out a number of boardroom shuffles – their improving news and modest profit reports have not led to any total absolution from the Brendan Wood Panel for the worst falls from grace when the credit crisis exploded.
Citigroup still draws some harsh judgements, and not just for the hangover consequences of the Sandy Weill and Chuck Prince eras, but for its more recent direction by present CEO, Vikram Pandit.
Responses from the Brendan Wood Panel were taken before Pandit’s recent new top management shuffle (Edward “Ned” Kelly previous CFO is now Strategy and M&A leader becoming Vice-Chairman, John Gerspach, previous controller and Chief Accounting Officer is now CFO, and ex Merrill Lynch Vice Chairman Eugene McQuade is now CEO of Citibank NA, not to mention the stepping down of Chairman and CEO Bill Rhodes), but it appeared unlikely that any such changes would be greeted with great enthusiasm from shareholders.
The unhappiness of Bank of America shareholders with the costs and immediate consequences of the Merrill acquisition are now a matter of public record. It showed up in the shareholder commentary from the Brendan Wood Panel, but there was also recognition that the Bank actually did very well on investment banking performance rankings, leaping up to the same kind of level as JP Morgan Chase in the second quarter.
Again in the case of Citigroup, some shareholders expressed discontent that went beyond the specific issue of the expensive Merrill acquisition, fearing ‘a disharmonious culture’. But there was also recognition from shareholders that the large Merrill distribution network can still be a gradual source of increasing strength.
Much more positive assessments were offered for JP Morgan Chase, and of the specific contributions made by Jamie Dimon. He was cited for ‘doing a pretty good job of keeping a balance’ between wholesale banking and the recently increased retail component, and of working with a good risk management team, finding areas to “counterbalance” those risks his bank has been taking.
HSBC and Wells Fargo were two other major banks with CEOs who won plaudits from shareholders. HSBC may be recalled by some as once having been one of the largest early bank acquirers of an American company loaded with subprime mortgage debt, an acquisition that the bank’s Chairman, Stephen Green, later admitted with disarming frankness was one they wish they never had made. Nonetheless, they came through the whole crisis with much less visible damage than other global banks, and the Brendan Wood Panel’s comments included one that CEO Michel Geoghegan was “one of the best CEOs out there,” who has “guided the bank through the crisis much more effectively than his peers, and has a wealth of experience.”
John Stumpf of Wells Fargo drew similar enthusiasm, for “consistency and principles,” and for skill in executing deals: ‘He is one of the best in the business of the cross-sell.’ Wells Fargo also drew remarks that ‘management had considerable influence on who sat on its board, but that this was no bad thing’, thus making the board an active participant rather than a passive and uninvolved group.
Goldman Sachs, unsurprisingly, also continued to receive some strong recommendations from the Brendan Wood Investor Panel, especially for “strong risk management skills.”
There were not too many kind words from shareholders about other commercial and investment banks. But there also appeared to be, for the most part, a stoic acceptance of their existing structures, with some likely new regulatory controls coming in any case. It was noted that British banking regulation required much greater board independence than found in American practice, but that this had not made any apparent difference in the impact of the credit crunch on either side of the Atlantic.
Overall, shareholders can scarcely be regarded as taking entirely “public interest” views on the great risks into which most banks entered over the last decade. After all, many enjoyed a rather long run of 20 percent annual returns, and it appears that many of the losses now coming home to roost will be at least partially laid off on taxpayers.
However, the comments from the Brendan Wood Investor Panel are a useful realistic source about investment perception, and of general attitudes in the business community. Shareholders have been chastened by their recent experience, but not entirely persuaded that government has found the right answers to restoring a healthy and well-capitalized financial sector.