Friday, December 14, 2012

Herding Cats - Bank Governance

A recurrent theme in this blog is the need for strong governance from the Board of Directors in the acquisition process. The banking industry has suffered from poor governance for years. Directors are chosen by senior management and are more like puppy dogs than guard dogs. That is one of the reasons why bank stocks, big banks in particular, lag in valuation post crisis. Their balance sheets are opaque and difficult to understand from the outside. If regulators cannot figure it out, then investors do not have a chance. In banking, you never have excess capital for too long. The question is how they will lose it-bad loans or bad acquisitions, and sometimes it is both e.g. Citi. One of the best ways to increase bank value is through better governance and transparency - just what the regulators want and just what shareholder need.  Barbara Rehm makes this point in an interesting article in yesterday's American Banker: Big Banks Flunk OCC Risk Tests.


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