The World Economic Forum in Davos week before last was full of conversation about risk and risk management. How could it not be, after months when supposedly safe financial instruments turned out be full of risky surprises—like the old snake-in-a-can practical joke, only these were no joke?
Jamie Dimon, CEO of JP Morgan, brought the issue down to earth. Looking at the sub-prime and the SocGen messes, he said, “There’s a management issue.”
All public companies face a constant pressure to grow, grow, grow. “In a risk business,” he said, “the easiest way to grow is to leverage up. I’m not sure how you deal with that.” Of course, all growth entails risk, and often involves leverage in the form of debt. But financial companies—risk companies, in Dimon’s phrase—have the special opportunity, and temptation, to leverage up five- and ten-fold, and to do it fast, something that’s true of no other kind of business except start-ups and commercial real estate. (And to think, there was a time when bank stocks were boring.)
See full Article.
Posts
