Why are they jumping ship?
Friday, 10 August 2007
Why are they jumping ship?
My apologies in advance for a piece without a punchline, but recent events only strengthen my view that a turn in the economy cannot be too far away.
I’m not talking about the sharemarket tanking or the interest rate announcements. The courage of my convictions springs from the number of “old-time” bankers scrambling to change jobs.
Relentless sales led many old timers to move into credit roles, vetting the loan proposals put up by the Relationship Managers. (This term, which of itself appears to involve a slant on the word “relationship” arguably more frequently associated with, say, the denizens of Kings Cross, is used by the bank to describe the members of its sales force.)
That relentless sales pressure has likewise changed the very nature of the sort of deals that our Relationship Managers will ask the Credit Managers to approve.
In days of yore, a banker was taught to lend money only to those borrowers with the capacity to repay the loan. In the world of modern banking, that principle would now be re-stated as “only lend money to customers who can keep up the payments for long enough for you to claim that it was someone else’s fault when the loan goes bad”.
In the world of modern banking, fundamentally bad deals are routinely submitted to the credit department for approval. And because a single declined deal will lead to intense pressure and criticism, a process of domestication has conditioned most of our credit managers into saying yes to bad deals.
(It’s probably worth pointing out that market pressure means that the position is roughly the same for all lenders, by the way, which is confirmed by my discussions with my peers elsewhere.)
Back to my theme: several of our smartest and most experienced bankers have decided to move to new roles. Those familiar with large corporates will understand that career side-steps are evacuation manoeuvres undertaken by those who see problems ahead. They are best undertaken before anyone else can see the problems, and sufficiently in advance that one is able to blame one’s replacement’s poor management for the mistakes.
Taken altogether, my conclusion is that several of our oldest and wisest anticipate a downturn in the next six to 12 months, and they’re moving now to make sure that they won’t be blamed for the bad debts that will follow.
I don’t trust economists. I do believe in experience and instincts. Watch out!
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