The executive guillotine has been exceptionally active on Wall Street and in the City of London. Yet, among provincial banks, the swish of its blade is not being heard much. The bosses of investment banks, including Citigroup, Merrill Lynch and UBS—along with many of their lieutenants—were decapitated as subprime and leveraged loan losses mounted, and their shareholders diluted by massive capital raisings.
Despite suffering similar balance-sheet plagues, the bosses of provincial financial organizations such as Washington Mutual, National City and Countrywide Financial still occupy their corner offices. Across the Atlantic, so do the bosses of the Royal Bank of Scotland (RBS)—despite launching a deeply discounted $24 billion (Rs96,480 crore) rights issue.
These commercial banks have destroyed as much or more wealth on a relative basis as their Wall Street and City brethren. California’s Countrywide Financial is a prime example. Despite a pending takeover by Bank of America, the stock has fallen more than 80% over the past year—and the mortgage lender still retains the perma-tanned Angelo Mozilo as its chairman and chief executive.
And, out in Ohio, there stands troubled regional lender National City. The Cleveland-based bank has also seen its shares slide more than 80% over the past year. Last week, it resorted to a punishing $7 billion sale of stock to investors led by a private equity firm at a 40% discount. Even so, the man who has been president of the bank for the past couple years, Peter Raskind, remains in charge.
Yet, Raskind, who became CEO last year, can’t hold a candle to Kerry Killinger. He has been CEO of Washington Mutual since 1990. As such, Killinger was the primary architect of its build-up of funky mortgages that have since resulted in billions of dollars of write-downs, a two-thirds decline in its stock price and a $7 billion emergency capital injection led by buyout shop TPG that will cost shareholders dearly.
Similarly, way across the Atlantic on the mount overlooking Edinburgh, Fred Goodwin’s job as CEO was reconfirmed by RBS’ board of directors earlier this week. So was that of his chairman, Tom McKillop.
How can the chiefs of these banks still be at the helm when leaders such as Chuck Prince, Stan O’Neal and Marcel Ospel were shoved out of Citi, Merrill and UBS, respectively? Sure, all three firms have lost about half their value over the past year. That’s bad. But so has RBS. And the losses inflicted by Washington Mutual and National City on their investors are far more horrific.
There are probably a few reasons for the discrepancy over which bosses get the axe. The main reason may be the composition of their respective boards of directors. Unlike the big Wall Street banks, regional institutions tend to draw local executives, who may be more forgiving when it comes to a neighbour’s shortcomings. After all, it would be quite uncomfortable to bump into somebody you’ve just sacked on the local golf course.
National City may be a case in point. Its board mainly consists not of global financial heavyweights, but of local worthies. There’s the president of a hometown community college, the boss of a paint company headquartered down the street and the head of a restaurant group with the saccharinely Midwestern name of Eat’n Park. The situation is a bit better at RBS. But for an institution that has global pretension, its board is still stuffed with a lot of Scots.
But it is not just weak boards that have saved the scalps of provincial bank bosses. It’s up to shareholders to hold directors accountable. Because investment banks tend to pay their employees giant bonuses loaded with restricted stock, they often make up the largest block of shareholders. So when the stock buckles, the blade gets sharpened fast.