Major Banks Are Too Big to Fail, But Not to Break Them Up



The time has come to break up the big banks. There are 5,000+ banks in the U.S. However, just a dozen of them dominate with 69 percent of the assets in the banking sector.

America grew strong as the result of a free-market system.

But the nation is barely surviving the Great Recession that was largely caused by the dysfunction of the big banks on Wall Street.

Enter pollster Scott Rasmussen. He’s one of the most-accurate, authoritative pollsters of the 21st century.

He wrote in a 2013 blog that “69 percent of Americans believe that large corporate executives are overpaid, but only 17 percent want the government to regulate their pay.”

On the other hand, Mr. Rasmussen wrote 50 percent of voters want to break up the big banks vis-à-vis 23 percent of voters who disagree.

“If a large bank reaches the point where it can no longer meet its obligations, just 25 percent support a bailout to keep it in business,” he says. “But federal policy is just the opposite.”

Too big to fail?

Wall Street and politicians of all stripes argue that the big companies must be saved no matter what. The companies’ failures would devastate the nation’s economy.

He cited the opinion of a wise Federal Reserve official: Richard W. Fisher, president of the Federal Reserve Bank of Dallas. He quotes Mr. Fisher who calls the bailouts “perverse market incentives.”

Mr. Rasmussen explained: “It lets big banks engage in risky behavior knowing they can’t lose because the federal government will have taxpayers pick up the tab.”

He pointed out that 66 percent of the voters are cognizant that the banks that got the windfall at taxpayers’ expense even though the banks were the root of the fiscal problem.

“That’s one reason why 75 percent expressed anger at the bailed-out banks in 2011; 49 percent were ‘very angry’.”

“If stupidity got us into this mess, then why can’t it get us out?”

-Will Rogers

So we got the Dodd-Frank Act in 2010, which was “a law that scored political points but didn’t address the biggest problem,” he wrote. “The limits of that law as far as the largest banks are concerned were highlighted in a recent Senate report showing the misbehavior of JP Morgan Chase while racking up record trading losses last year.

Cozy relationship

Another aggravating eye-opener for taxpayers:

“It’s hard to put much faith in regulatory answers given the revolving door between big banks and big government,” wrote Mr. Rasmussen. “For example, current Treasury Secretary Jack Lew received a $944,000 bonus for his work at Citigroup right after leaving the bank to join the Obama administration. Citigroup had the money because of a taxpayer bailout.”

But the Obama Administration isn’t the only culprit. Remember when President Bush named Henry Paulson of Goldman Sachs as Treasury Secretary? He was the culprit who launched the controversial bailouts, which also benefited his former employer.

Then, we had the Goldman Sachs’ scandal (see Will Goldman’s Scandal Prompt Cultural Changes on Wall Street?)

Ultimate solution

So, now we have the call to break up the megabanks. Again, citing the opinions of Mr. Fisher, Mr. Rasmussen advocates a halt to the subsidies to the big banks because the taxpayer handouts prop them up unfairly.

The Federal Reserve gives money to the big banks at lower rates than their smaller competitors. The megabanks also know they always have the government guarantee – a threat to taxpayers.

“Take it away, and the big banks would be forced to compete on the same terms as other banks,” asserts Mr. Rasmussen.

“Bloomberg News estimates that the 10 biggest banks receive subsidies of $83 billion,” he wrote. “Fisher and others agree that the size of the subsidies is roughly the same as the total profit reported by these banks.”

More Rasmussen data:

“Not surprisingly, in a nation where people hate crony capitalism, just 7 percent think these subsidies should continue,” he wrote. “Seventy-six percent want them to end.”

Agreed. Stop this fiscal nightmare, and the monopoly by dysfunctional bankers. Break them up.

From the Coach’s Corner, related reading:

“If stupidity got us into this mess, then why can’t it get us out?”

-Will Rogers

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Management — Big Banks Provide Lessons in Succession Planning



The worldwide global downturn exposed major management lessons starting in 2009. Firstly, it was Bank of America. Secondly, it was HSBC. Both showed dubious succession planning, and investor and customer relations, according to published reports.

You might recall HSBC CEO Michael Geoghegan threatened to quit  if he wasn’t named chairman. His widely publicized threat didn’t work. Instead, HSBC named Stuart Gulliver CEO, replacing Mr. Geoghegan, who retired at the end of 2010. Mr. Gulliver had been in charge of HSBC’s investment banking operations.

Bank of America’s situation was different.  From the stakeholders’ point-of-view, B of A took an exasperating long time to name a new CEO. The delay suggested that the B of A board and outgoing CEO Ken Lewis bungled by not succession planning.

It wasn’t surprising that critics pointed out the significance of the job and why it’s important for a new CEO to get a running start.

Brian Moynihan walked into his new position facing a barrage of problems: B of A’s acquisition of Merrill Lynch ended with the bank paying a $2.43 billion settle with investors, friction with regulators, opponents in Congress who have questioned his leadership, and cultural issues within the company.

Succession planning should be an ongoing strategic process. It’s vital for identifying talent and building a reserve bench for development. There’s a link between financial performance and succession planning.

Delays are costly

However, delays in succession planning result in a perceived lack of competence – image problems in the marketplace, among shareholders and internally with employees.

To empower shareholders as a policy matter, the Securities and Exchange Commission issued a nonbinding legal bulletin calling for transparency in management succession.

So it isn’t surprising that activist shareholders went after the likes of B of A, American Express and Whole Foods regarding their succession plans. That included the 500,000 member Laborers’ International Union of North America. The union targeted 14 companies and asked them to disclose their succession plans in detail.

More than 1,ooo executives admit their problems with succession planning, according to a study by search firm Egon Zehnder.

None of the responding executives believed they’re good at succession planning. Forty-seven percent admitted being mediocre in the process of succession planning and 53 percent disclosed their ineffectiveness.

“The global financial crisis has resulted in high CEO turnover. This fact combined with the recent SEC announcement that would allow shareholders to challenge the Board to disclose more information about plans for CEO succession, makes developing a succession plan even more critical,” says George L. Davis, Jr., an executive at Egon Zehnder.

Responding were 1,092 senior executives in every business sector from a total of nine nations.

While the situation was untenable in the U.S., it was worse overseas. Seventy-one percent of UK responders believed they’re just so-so in succession planning while 80 percent of French executives said they are unsuccessful.

But it isn’t bleak everywhere abroad. Fifty-seven percent in India believed they’re doing well and 70 percent in Germany said they were successful.

Small business complications

For small family businesses, succession planning is complicated by the federal estate tax. Also derisively called the death tax; 45 percent after a $3.5 million threshold on heirs of family estates.

Not to mention the time-consuming preparation for a business owner who is advanced in age, the estate tax is a nightmare for family businesses with considerable land, such as farms, or manufacturing equipment.

The tax jeopardizes the business. Because of cash flow, many heirs have to sell company assets to pay the tax.

Yes, some business owners incrementally transfer assets before their passing to avoid the harsh tax. But often some find they lose control of the business to their heirs while they’re still alive.

Will vs. succession planning

Some small business owners erroneously believe a will constitutes a succession plan. Not true. They’re not the same thing.

New businesses don’t need a succession plan. They should start thinking about a succession plan when the business starts to grow in value. Professional guidance should be obtained.

Every case is different but here some basic elements to consider:

  1. If children are involved, first learn if it’s feasible for them to be involved in the family business.
  2. Get a sense from every family member regarding the business’ future.
  3. Give summer jobs to children that will expose them to all areas of the business. Not all kids are interested in eventually taking over. That’s disappointing to parents, but the sooner they know the better.
  4. If you have a partnership, you’ll need to draft a buy/sell document that includes an agreement on the business’ value so one partner can buy from the other. A shareholder agreement is customary for corporations.
  5. A vision for the business will be needed in case of death. To be decided – what should happen to the business and who will own the firm whether it’s a family member or partner. If the heir is not a relative but there are family members involved, an instrument should be devised in case the partner will buy out the shares of the surviving family members.
  6. After developing an agreement on the succession plan, then decide on insurance matters for liquidity purposes.
  7. Review the succession plan on a regular basis and update it as needed.

Finally, a word of caution: More than 90 percent of family businesses typically don’t succeed past the second generation.

Weak management is often the reason why inherited businesses do not succeed. And unless the children invest or buy the business from their parents, it usually doesn’t work. It’s often better if they don’t receive the business as a gift.

Not to be cruel, but the heirs simply don’t have the passion or ability to manage a business founded by their parents.

From the Coach’s Corner, here are related resources on management:

21 Quick Tips to Avoid the Dark Side of Management — News headlines from Seattle to New York are cause for some serious head slapping. The U.S. Equal Employment Opportunity Commission (EEOC) continues to be inundated with worker complaints. Even the U.S. State Department issued a critical report of an ambassador, a Seattle businesswoman who was a prolific fundraiser for the first Obama election campaign.

Human Resources – Slow Motion Gets You There Faster — Hoagy Carmichael is credited with coining the phrase, “Slow motion gets you there faster.” He, of course, was a famous American composer, pianist, and actor. Born in Indiana in 1899, he composed hundreds of songs and is best known for his songs “Stardust,” “Georgia on My Mind,” and “Heart and Soul” – some of the most highly regarded American pop standards.

“Management must manage!”

-Harold S. Geneen

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Seattle business consultant Terry Corbell provides high-performance management services and strategies.