Paul Calello, CEO, Global Investment Bank, Credit Suisse
Moderator Paul Calello kicked off this session by briefly summarizing the troubled financial environment, and the picture he painted wasn't pretty. He called special attention to the ballooning credit swap market leading up to the crisis.
A veteran of Wall Street since 1961, Jim Robinson III of RRE Ventures expressed strong assurance it will survive as the seat of global capital. He suggested market participants overlooked the importance of size and complexity, and never deployed the technology necessary to truly manage these risks. As a result, the business model may have been changed irrevocably. In terms of government policy, he suggested that the stimulus plan, coupled with "easy money," has helped to offset the contractionary impact of corporate deleveraging on the economy.
Robinson jokingly suggested that Congress represents the new risk, given that it may oppose regulatory reform. He further emphasized the importance of maintaining Federal Reserve independence, and suggested that the Fed is best suited to lead regulatory efforts.
Meredith Whitney of the Meredith Whitney Advisory Group reported being more worried by problems at IndyMac, Washington Mutual and Wachovia — since these "struck at consumer confidence directly" — than by failures at Bear Stearns and Lehman. Problems developed, she suggested, because trillions of dollars in loans were underwritten using poor math, while banks "bled reserves" and added leverage.
While Whitney felt government intervention was necessary, she believes that it came at a price. She also noted that U.S. regulatory agencies are "super-siloed" and that the SEC relies heavily on information provided by firms. Whitney forecast that roughly 10 banks, all nearly the same size, will survive. She suggests banked will not be permitted to repay TARP money, but instead will be expected to absorb other firms.
Leon Wagner of GoldenTree argued that the proportions of this crisis are unprecedented, and believes markets will be smaller as a result. He traced its origins back to the market′s failure to monitor leverage. His comments regarding the ambiguities associated with TARP (for example, is proprietary trading with TARP money permissible?) found strong resonance with the other panelists.
Global finance cannot survive without Wall Street, insisted Peter Weinberg of Perella Weinberg Partners. He attributes the survival of banks worldwide to intervention from global governments. Failing to permit banks to quickly repay TARP money would, in his view, harm market dynamics. He suggested that the continued presence of large firms is inevitable, noting that boutique industries rely upon large firms for their existence.
Like the other panelists, Weinberg vocalized several related questions regarding TARP (who is subject to its provisions?). Regarding failed banks, he suggested they could continue to operate in an open receivership rather than liquidate. Weinberg also cautioned against trying to "predict" the crisis in hindsight, on the basis of current knowledge. Any CEO who tried to reduce leverage four years ago would have, in his view, been sent into early retirement.
The panel discussion relating to bank accounting was particularly interactive, and no clear consensus was achieved. Panelists noted that IFRS in Europe permits banks to transfer assets to accrual accounting, and that recent FASB changes permit a more flexible accounting for illiquid assets. Robinson stated that he likes mark-to-market, but believes alternative methods that provide robust information on asset valuation may be more appropriate for banks. Weinberg warned of the potential dangers of altering language to benefit a particular institution(s). Meredith Whitney suggested that mark-to-market and accrual accounting, in the long run, are equivalent. Banks either take a hit immediately, or bleed ROA, such that accrual accounting is playing constant catch-up.
Global Conference 2013
Former Prime Minister Tony Blair, philanthropist Bill Gates and Strive Masiyiwa of Econet Wireless discuss advancing prosperity in Africa.
