Hall of shame

Aug 7th 2008
BANKING sells itself as a cut-throat industry, lavish in its rewards but steadfast in its treatment
of underperformers. A year into the credit crisis, it has too often been steadfast in its rewards
and lavish in its approach to failure.

The three banks that have suffered the heftiest losses since credit first crunched—Citigroup,
Merrill Lynch and UBS—have all swept out the old management since their problems surfaced. But of
the ten banks to have spilt the most red ink over the past year (see table), five have the same
chief executives in place.

Some can muster decent arguments for continuity. HSBC, which reported its first-half results on
August 4th, has taken heavy losses but is strongly capitalised and well diversified; its shares
have been a rare haven for bank investors. Bank of America can justifiably claim to have stood back
from the worst excesses of America’s mortgage-lending boom.

Other bosses have fewer hiding-places. Royal Bank of Scotland, which was expected to unveil further
losses on August 8th, finalised the costly acquisition of ABN AMRO, a Dutch bank, after the crunch
had started. Its boss, Sir Fred Goodwin, is widely thought to be living on borrowed time.
Washington Mutual, a Seattle-based thrift, has suffered the largest share-price decline of the ten.
Kerry Killinger did enough damage to lose his role as chairman in June but not, apparently, enough
to lose his position as chief executive. John Mack retains both roles at Morgan Stanley despite
some sloppy risk management.

Stories of survival spread far beyond the top ten. It appears particularly hard to get the sack
from British banks. The bosses of Fannie Mae and Freddie Mac, America’s limping mortgage giants,
continue to draw handsome salaries. Firing people does not guarantee success: signs of impatience
with new brooms like John Thain at Merrill are now visible. But it ought to be the price of
failure.

      Copyright © 2008 The Economist Newspaper and The Economist Group. All rights reserved.