Tony Fell tears strip off banks
Barry Critchley, Financial Post
Wednesday, January 28, 2009
For a person who hasn't drawn a paycheque for more than a year, Tony Fell, former chief executive at RBC Capital Markets, sure works hard. At Monday's annual dinner of the Toronto Board of Trade, Fell gave his views on the global credit crisis. And he didn't hold back.
After castigating economists at central banks and at the IMF as well as those in the financial business for their failure to "pick up on this credit bubble," Fell weighed in on the lack-of-leadership roles played by all other market participants as well as the need to find a new order given that "the grand experiment of deregulation of financial markets and financial institutions which started with President Ronald Reagan's appointment of Alan Greenspan in 1987, is over."
He argued the "crisis clearly highlights a massive failure of corporate governance," specifically the failure of boards to oversee management and the failure of management to oversee the business. In short, where were the directors and why do so few of them "resign over matters of principle," he wondered. "Hard-hitting directors [must be] prepared to stand up and be counted."
The too-big-to-fail argument shouldn't apply, he argued, because "capitalism is the freedom to do outstandingly well and ... also the freedom to go bankrupt and that has to be demonstrated from time to time. There has to be at least some discipline in the marketplace."
He believes banks have become too big, too international and too complex. The result: Banks have become "too big to manage".
Now the big global banks should be broken up into smaller, more focused and more manageable institutions." Citigroup has started down that path.
The argument that Canadian banks should be globally competitive doesn't hold much sway with Fell. "It's all egos run amok," he said, noting Citigroup, Deutsche and UBS aren't role models. "What's wrong with being the 25th-or 50th-largest bank in the world and growing your business organically by offering good service? Canadian banks are plenty big enough to compete where they want to compete."
And he is no great fan of financial engineering and innovation -- a "disastrous" problem area. "The financial industry should get out of complex structured products," he declared, adding if a "security has more than two bells and one whistle, just say no." He railed against credit rating agencies -- whose model is "broken" --and said central banks should "target, and rein in, overheated and speculative industry and market bubbles even if it causes a slowdown or a recession."
Fell believes a "back-to-basics" model for the financial business is required:
running a more conservative business,
reining in growth expectations,
reducing leverage with much less financial innovation and engineering,
more focus on client business,
more organic growth and fewer grandstanding acquisitions.
In short, the world's biggest financial institutions should downsize and scrap their plans to rule the world.
While that approach leads to lower profitability "at least, over time, you will be in business."
But he is not optimistic even if he hopes the lessons of the past 18 months are "indelibly ingrained" on central banks, regulators, boards and corporate management so that the financial business will again become "an industry of choice" for investors.
If not, then "twenty years from now, this crisis will be ancient history and long forgotten, and the young people running the businesses at that time will set out to do the same thing all over again."
bcritchley@nationalpost.com(advocate comments........good words, well said. I still maintain that Tony and his style of ruling the financial world was "the" model that he now criticizes. He was the top dog at the top firm for as long (longer) as I have followed the shenanigans of this industry. If he was as professional and ethical back then, as he claims to be now, we would have far less damage than we do today. Get rich anyway you can, and then get ethics?)