Continental Bank Corp. ballooned its trading and risk management unit a few years back, but it failed to show strong profits. Now the unit is shrinking, and it is up to Kenneth Cunningham to improve earnings - a tough assignment in the present business environment.
Mr. Cunningham recently was named managing director of Continental's global trading and finance operations in Chicago, taking over a remnant of the kingdom erected by S. Waite Rawls 3d. Mr. Rawls stepped down last September, Continental surrendered its primary dealership in U.S. government securities, and the work force was slashed to 600 workers from a peak of 2,600.
The mission before Mr. Cunningham is to muster the profitability Mr. Rawls never achieved - and do so with a shrinking staff amid a shrinking market.
As interest rates have fallen, so too has the urgency of many corporate clients to hedge transactions. What's more, the Federal Reserve is sending warning signals about financial derivative products, creating an aura of risk that might repulse some customers.
But Mr. Cunningham 45, says he is ready to dispel some of the myths that surround derivative products. "Part of the difficulty of selling these products is that there are a set of things that, as financial people, we believe can't be done," he said in an interview. "But they can."
Having worked for Mitsubishi Finance International in London, he has overseen the use of products such as stock index funds, common in Europe but seldom used in the United States. He hopes to increase the use of such products here. "These techniques have created new possibilities for what can be accomplished in finance."
As the managing director of financial risk management and trading products, Mr. Cunningham will oversee a staff of 90 in Chicago, Tokyo, and London. The unit will manage and market interest-rate and currency swaps and over-the-counter options portfolios for Continental's customers.
The Oklahoma-born Mr. Cunningham, who has spent the last 21 years in London, comes to Continental's global derivatives operations when it most needs help.
His arrival emphasizes the burgeoning importance of the risk management and derivatives business for Continental. He was hired in 1988 to beef up Continental's capital markets divisions as part of chairman Thomas Theobald's focus on commercial banking.
That ambitious plan, however, faded as the bank attempted to reduce costs by shedding unprofitable divisions and cutting staff. Mr. Cunningham has received a morsel of that legacy.
"The most important thing I want to do is to be more effective than we have been in making the use of the power of derivative products to create solutions to customers' problems," said Mr. Cunningham, who worked for Continental Illinois Ltd. in London from 1972 to 1984.
He hopes to shift products associated with the liability sides of balance sheets to the asset side. "I think there is more business for our customers to do than merely borrow money," he said.
Mr. Cunningham needs to focus on Continental's customer base by providing customized risk-management products, say analysts. "His job has to be to get Continental's midmarket customers to use the risk management services," said Felice Gelman, an analyst at Dillon Read & Co. Inc, New York.
To do that, Mr. Cunningham plans to provide clients with tailor-made investment and risk-management vehicles. "Sometimes you have to help them decide," said Mr. Cunningham of his unit's aggressive approach.
Mr. Cunningham hopes to apply the management style he saw practiced at Mitsubishi to the division he heads in Chicago. "I think the wonder of Japanese management is their consistency - they are rational, fair, and supportive," said Mr. Cunningham. "I think those are all things we can try to apply to this group."
Nevertheless, Mr. Cunningham knows that the path before him may be fraught with unforeseen obstacles.
"The essence of this is what we don't know what is going to happen," he said with knowing smile. "That's what makes it so exciting."