The title says it all. How is it possible for VERY well paid, VERY senior people to sign off on a $150M loan which is provisioned only 5 weeks later? That’s what happened when CBA and NAB lent $150M to UK listed company Healthcare Locums.
A loan of this size written by banks as large as CBA and NAB would not require board approval, but it would almost certainly need approval from the executive committee, which would normally contain the head of credit and the chief risk officer. These people are on high six figure salaries, with big bonuses. In return, shareholders should quite reasonably expect competence in their specific area of alleged expertise.
Statistical credit risk models can only work well if the balance sheet and P & L information they are given is true. Competent humans need to look carefully over board minutes, audit reports and ongoing business activities of the counterparty to ensure the accounts are a correct representation of the state of the business.
Equally important in a credit assessment are criterion scored assessments of behavioural factors such as the quality and experience of management, budgeting and financial reporting and risk management strategies. Shareholders expect that for a $150M loan, these assessments would be overseen by senior credit and risk people.
There doesn’t appear to have been any such competent human oversight in this case. Healthcare Locums had recently spent $10 million buying a business whose auditors refused to sign off on its books. How could this not have been picked up?
How could the “aggressive accounting practices regarding revenue recognition and extremely poor levels of corporate governance” which surfaced barely one month after the loan was signed off not have been found by competent, senior credit staff?
One possible explanation is the corporate lending unit riding over the top of risk management in order to push the deal through. I’m not saying that happened in this case, but I’ve seen it before. It should be particularly alarming for shareholders if the lending areas of these banks have once again gotten the upper hand over risk management, given the current credit and economic climate.
It’s all very well to claim ''bank advisers crawled all over the transaction'' and “bank executives were shocked by what followed”. The first statement sounds like typical corporate, arse-covering bullshit and the second like damning evidence of gross incompetence.
But I’ll bet no-one loses their job over this. They should.
I'm not holding any CBA or NAB at the moment, but I often do. Were I a shareholder, I would expect the people who signed off on this transaction to be sacked.
The thing that really makes people angry when they read this is that many of the hopeless twats who signed off on the deal are paid huge salaries and bonuses compared to most: 5 to 10 times the average wage.
For this, they appear to have blown at least half of the $150M of shareholders’ money. The recovery rate won’t be great: what’s the collateral? That’s our super you clowns are pissing up against a wall.
Even worse is how conceited a lot of these people are; the air of entitlement they have. Entitlement to their excessive salaries, entitlement to bonuses utterly incommensurate with their true contribution to the business, entitlement to spend shareholders’ funds on expensive lunches and dinners with the corporate credit card, entitlement to lay off lower level staff in order to cut costs.
Most people don’t mind seeing someone get paid 500K or even over 1M a year if they have actually invented, created or manufactured something useful which generates a lot of revenue. Most don’t object to those salaries for wise investment or risk managers whose decisions genuinely make high returns or prevent significant losses in an economic downturn.
They don’t object to a string of executives on 200 – 300K if they actually have real talent and knowledge and work 60+ hours a week.
What they do object to is a cabal of corporate cunts with their snouts in the trough, walking around like they deserve their rewards, then producing results like this. Ordinary performers on three or four times the average income because they are good at networking and sucking the right cock does not make people on the average wage feel like putting in "a fair day's work for a fair day's pay".
Society is becoming more fractious. A significant element of the discontent stems from what is felt to be an unfair allocation of remuneration and hence access to resources such as quality housing in good locations. This will only get worse if the world economy struggles over the next few years, as I believe it will.
Very few things make people angrier than a sense of injustice. If we want society to be more cohesive, we need to ensure high salaries are earned rather than stolen in an organized senior executive racket.
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