Banks Seek Street Savvy for Board Seats
09/04/08 - 06:59 AM EDT
Laurie Kulikowski
Editor's note: Our new "On the Brink" series will provide daily insight into the financial firms facing capital shortfalls and the growing pressure from short sellers in the market.
As the credit crisis drags on into its second year, many experts are saying financial companies need to beef up the level of relevant experience on their boards to help steer clear of such pitfalls down the road.
Over the past year, numerous banks have taken writedowns on underwater securities and provisions for soured mortgages and other assets, while capital-raising initiatives have become the norm.
Investors in these firms -- once seen as attractive because of their once substantial earnings growth and attractive dividends -- are now left with stocks that haven't seen comparable lows in more than two decades.
"Many investors are asking what added level of monitoring do they have to do on these boards to ensure that these problems don't occur in the future," says Pat McGurn, special counsel at RiskMetrics Group. "There were plenty of radar maps to see this problem emerging on the horizon, and yet most boards failed to recognize the depth of problems."
Critics like McGurn charge that risk controls at firms like Citigroup (C Quote - Cramer on C - Stock Picks), UBS (UBS Quote - Cramer on UBS - Stock Picks) and Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) seemed to be an afterthought, even as the housing market began its descent. The result at these companies was writedowns and management shake-ups from pushing too far into risky securities backed by subprime and other residential mortgages.
McGurn says he believes more bank board vacancies will be filled with "individuals who at least understand the [banking] industry" and are "much more financially savvy" in the coming months and years.
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