On the money with Gavin Hinks
Here’s a little insight into a boardroom exchange that may have happened between any number of chief executive officers and finance directors in financial institutions across the globe
CEO: ‘So, we’re how exposed to sub-prime lending?’
The only thing I can’t add there is the rising sense of panic in the CEO’s
voice as the full extent of his organisation’s vulnerability to sub-prime
products begins to dawn.
It’s a horror story. But if you’re going to indulge in financial instruments
without first ascertaining that they are based on mortgage lending to people who
largely had no visible means of repaying the debt, then you will end up in
trouble.
It’s a lesson that any good accountant should know already: do the due
diligence, dig out the detail and know what your money’s really going into.
Apart from the credit crunch that has followed, think of the carnage in the
boardrooms.
Northern Rock’s chairman Dr Matt Ridley has stepped down after the bank’s
troubles
with sub-prime, Merrill Lynch’s CFO is under pressure after the investment bank
was forced to write down $8bn (£3.8bn). And the CEO of Citigroup, the world’s
biggest bank, resigned this week after making it clear that the write down’s
there would amount to much the same figure or more.
How many other CEOs and FDs are hurriedly doing their calculations wondering
whether they will be out of a job by Christmas? It could be quite a number
because right now no one appears to have a clear idea just how big the losses
connected to sub-prime are.
While it’s not a great time to be a high flying FD in banking, it might be
the right time to get in. The storm has passed, you would be part of the clean
up operation. As long you do that right no blame can be attached to you. You
might even want to call your local headhunter now.
Gavin Hinks is the editor of Accountancy Age