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The middle office manifesto

Want to make the middle office more ferocious? Here’s how…

According to “senior bankers” who confided in the Financial Times, the pickle at Credit Suisse might have a little something to do with the fact that investment banks are places where there’s generally “a culture of deference by risk managers to successful traders”.

In the case of Credit Suisse, it seems risk professionals and product controllers tried to challenge its traders’ valuations for sparsely traded CDOs and CMBS products, but that the successful traders didn’t take an enormous amount of notice.

A doyen of the hedge fund and investment banking risk management realms describes the broader problem thus: “At the end of the day, banks aren’t willing to pay the extra 100k-200k to attract serious players into risk management. After all, what’s the point in paying someone serious cash when you have no intention of listening to their recommendation and all they are is a pretty face for investors?”

Our manifesto for a middle-office revolution is therefore as follows:

Pay them more money.

Pay them more money.

Pay them more money.

Higher pay might make the risk management profession a little less pretty in the eyes of senior management, but that’s no bad thing. It’s time for risk managers to get ugly.

Feel free to join the march for the middle office by adding your comment below. (Alternatively, let us know if you think risk managers and their ilk should be paid a pittance and forced to do the coffee run.)

Comments (11)

Comments
  1. 100-200k to do what? Just opine on price & valuation? How can they justify it when they dont bring money in?

    Revenue_Bringer Reply
     
  2. I guess to save your employers a few bio $ that is otherwise lost because of traders naming their own prices…I do work for bank with the same FO culture and i hope that we do not make a new entry into the Top Losers too.

  3. Used to work in Compliance at an investment bank…reasonable salary but no respect and no career development prospects. Sadly the truth is risk and compliance will never be the place to get ahead in investment banks

    Non-compliance Reply
     
  4. To Mr Revenue_Bringer
    200K is not even enough compared to the billions losses at the big players bottom line…

  5. The day risk managers start calling the shots will be the day traders decide there’s life elsewhere. You are talking about 2nd tier people with 2nd tier abilities. If they can be pretty that is at least one thing in their favour.

    Trader’s trader Reply
     
  6. The thing is, traders are supposed to be risk managers. That’s the whole point. Unfortunately, many have a profit maximising mentality which is meant to primarily reward them (i.e.: much short term risk) and not the firms they work for (who require better long term risk management). The question really is, how much do you limit the profit creating urge and replace it with a risk limiting culture? 200k does not seem much to try to create a balance in internal politics and better controls overall.

  7. Revenue_Bringer represents the classic incompetent trader mentality – the point of the risk manager is to prevent Mr Revenue Bringer from blowing up (and mismarking his book) which he is inclined to do given the asymetric risk /return profile of traders.

  8. Risk management people are perhaps underpaid but what they really need is a bit of respect. Not for the fact that the floor may consider them 2nd class but simply for them to be effective. Money does not fix this. Desk level risk managers should report (but not be compensated) in a dual line to the head of the relevant trading desk and sit on the desk. Risk managers then frame the questions and the reports to the desk head as well as the Head of Risk Management (who needs to dual-report to Head of Capital Markets). When there is a disagreement the following things will occur to both the desk risk manager and the desk head: Does the desk head understand what the team is doing and the risk/pl and basis of valuation. If not how is this addressed? The same thinking goes to head of CM. Does he know and trust his desk heads and how they handle serious questions. Traders will always say “go away” to problems and annoyances since the world, for them, is framed in the very short term. The more senior people on the hook day to day will add a healthy trend to dig a little deeper (if only as ass covering). If there is a major problem everyone is going to burn.

    Ex-Manager/Trader Reply
     
  9. Depending on the culture within the firm risk management function can vary significantly. I know of firms where the role is to limited to limit monitoring and general compliance issues – these roles do not pay big bucks (for obvious reasons). At the other end of the spectrum in some firms, risk managers have an active role in risk managing where they approve trades and opine on the direction in which the business proposes to grow, products they intend to sell (and warehouse) keeping in mind the limitations of the existing (or proposed) infrastructure. These are the roles where salaries in excess of >500k will become increasingly common at the senior level as banks realise the extend of losses they can incur without a sound and more importantly, independent, risk function.

  10. Banks write downs have been over 100 billion and growing. if a risk manager could have saved a firm just 1 bn in write downs that sounds like quite a contribution to me. write down reducers, revenue bringers- what’s the difference?

    Former risk manger Reply
     
  11. Dear Mr RsikMan, every bank has a risk department yet there has been lots of losses in the past year, does this mean Mr RiskMan has also performed poorly by not stiring th banks in the right direction…..

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