Brian McGinley spent 10 years as a senior executive at Wachovia, and 20 years at Citi, with responsibilities that ranged from director of deposit, control and loss operations at Wachovia to director of risk management and control at Citi. He oversaw 2,200 Wachovia employees; now, as principal of BMG Risk Consultancy, he’s his own master. It’s a paradigm shift, but has opened up a “smorgasboard” of opportunities.
BTN: You spent your banking career worrying about risk. What do you think are the most serious risk management issues facing US banks today?
BM: If I had to say one thing, probably trust and mutual trust. With the various scandals and interactions that have been in the media and going on, I believe the bond of trust between financial services companies and clients, and perhaps the public at large, has been strained if not broken, and I think we’re in somewhat of a confidence crisis here.
If you look back on it, I think some of the basic banking propositions have changed over time, I think many institutions have become what I somewhat irreverently call “fee junkies” depending on consumers’ poor financial discipline to drive things like NSF and overdraft revenue when overlaying fees and the other “gotcha” fees. I think a lot of these [fees] fell on consumers who are probably living on the bubble and could afford it least and may have had some influence in the subprime [crisis]. … I do think there’s a point where we lost sight of delivering long-term value for the businesses, the shareholders and the employees, and probably walked to the drumbeat of Wall Street, which demanded high quarterly returns. We got on the treadmill, couldn’t get off, or didn’t have the courage or integrity to get off, or it just wasn’t possible.
BTN: Let’s key in on two things: the confidence issue and addiction to fees. Those are really challenging to solve. Are there any easy answers to those?
BM: Maybe not in the short term, but in the long term. Let me talk to the fees,. I think if you get your institutions back on a path of organic growth with service and product offerings that truly add value to the consumer and deliver a solid and reasonable profit to the business provider, there are things out there that can be done. If you look at various areas where I think we’ve turned banking into a commodity, we really haven’t used creativity or innovation to start working at how do you expand [banking] beyond those few offerings. So if you’re talking about security maybe look at things like delivering strategic alliances for repairs, so people don’t get taken by chimney sweepers and things of that nature.
BTN: You used on of our favorite words, innovation. Is that a code word for technology, or is it bigger than that?
BM: It’s a lot bigger than that. I have not seen much innovation—with possible exceptions of CDOs and SPVs—not seen much innovation in core banking. Checking accounts are pretty vanilla, CDs are pretty vanilla, IRAs are vanilla, and I think while some of those can be applied, banks get a lot of the bottom-dwelling fee income…there’s fee income to be made, but let’s look at what the value is that’s delivered. An NSF delivered at $50 an occasion, or $49 or $39 an occasion is not a value proposition to the consumer. But you deliver something else that could potentially be a value to the consumer, that adds to their wallet, that adds to their transactions, or adds to other needs they have. Those are things banks ought to be looking at beyond the framework of a very limited set of product offerings. I think our charters give us some wherewithal to do that, I just don’t think people have done it and have taken a little bit of foresight to go after it.
BTN: What do you think about the risk management career path in the bank? Has that changed as a result of the crisis?
BM: I think it’s a very good career path, but I think from the standpoint of the liability folks have got to understand that they’re going to be accountable and that they have to have the courage and integrity to stand up. They can’t stand in front of the train, but they darn sure better make sure they’re helping to build the station. And based on some regulatory expectations as well as maybe some things coming out of the US attorneys office these days, there are expectations that somebody’s going to have to stop that train and if you’re wearing that risk hat it may very well be you. I do think that has changed, an its going to require another layer of courage and another layer of support from the top on down. Otherwise we tend to have short institutional memories and we’ll be back in the same boat.
I also think the complexity of the risk jobs have become greater there’s a lot of very complex financial products that are out there and understanding what these products are, how they work, and what the downside consequences are from both a credit/liquidity/operational and a fraud risk standpoint, it takes a fairly broad vision and it can sometimes be tough to get the business case to take the appropriate level of risk, and there always is an appropriate level of risk.
BTN: We keep hearing that the financial services industry landscape will be completely different on the other side of the recession. What does that look like to you?
BM: I think from the standpoint of what you’re going to see I think you’re going to find a lot of consumer centricity, number one. If the business proposition is harmful, or non beneficial to the consumer, you’re bound to draw a lot of scrutiny…. I think [the regulators], and the US attorneys will play a role as well. …Some of the fallout of this will be indictments that will come down. …I don’t think we really had a holistic view of the business, and that’s everything from the products to the channels. I don’t think we really had a hands-on view and there were probably points of dissension that were ignored, [with dissenters] being called “risk averse” or non team players. …There’s going to have to be a forum and a seat at the table for these players and they’re going to have to be valued, and its going to be an interesting business proposition and they’re going to have to be compensated. Compensation has typically come to rainmakers who are driving the revenue, [and] I think you’re going to have to look at that for those individuals who are able to look around corners; who are able to look over tall hedges and see a greater vision out there and perhaps see the downstream consequences of some of your tactical and perhaps strategic decisions.
BTN: What’s your new gig and what’s life like after being a corporation for so long?
BM: Well I’m pleased to report that there is life after corporate America. It’s an interesting change in that you suddenly realize where you’ve taken information and or activities for granted, like proposals. I’m finding there’s a heck of a lot more work that goes on behind the scenes, much of which is not revenue generating or secure assignments. I think you see a move from a direct action model, `Gee this makes sense, let’s go do it,’ to an influence model that you’ve got to be assisting in the sale of the various and sundry programs that are there, and you’ve got a constituency that you need to be able to show a clear vision to. .I’ve been fortunate, I’ve picked up a number of good consulting assignments in the risk area—the dark arts as I’m apt to call them.
BTN: What’s the future look like for you, from a career perspective?
BM: I kid and I say, If you asked me in July of 2008 I’d say I was a retired banker. Now, now with the market and financial meltdown and turmoil, I’m simply an unemployed banker. …There’s a huge smorgasboard of opportunity out there, and I think the risk area, there’s a tremendous opportunity. I never say never, there could be re-entry to corporate life again, but at this point I’m happy with the smorgasboard that’s out there.”