The Good Banker
Published: May 30, 2011
Not long ago, as I was leaving a business lunch, my luncheon companion
handed me a thin manila envelope. He didn’t tell me what was in it or
why he had given it to me, but as soon as I opened it up, I immediately
understood.
It contained a copy of the 2010 annual report to shareholders
by a bank executive I’d never met: Robert G. Wilmers. For nearly 30
years, Wilmers has run the M&T Bank, based in Buffalo. When he took
it over, M&T had $2 billion in assets; today, its assets exceed $68
billion, and it’s one of the most highly regarded regional bank holding
companies. It has also been one of the best performing stocks in the
Standard & Poor’s 500-stock index; indeed, M&T was one of only
two banks in the S.& P. 500 that didn’t cut its dividend during the financial crisis.
Wilmers’s report, however, was less about the company’s numbers than
about the dismal state of his beloved profession. Wilmers, it turns out,
is that rarest of birds: a banker willing to tell harsh truths about
banking. That, for instance, much of the money the big banks earn comes
from trading profits “rather than the prudent extension of credit that
furthers commerce.” That derivatives had helped bring about the crisis
and needed to be regulated. That bank executives were wildly overpaid.
That the biggest banks — the Too Big to Fail Banks — were operating, as
he put it, an “unsafe business model.”
My first thought upon finishing the report was: I need to meet this guy. So, a few weeks ago, I did.
In person, Wilmers does not immediately strike one as a rabble-rouser.
At 77, he is soft-spoken, a bit reticent, and almost excessively polite.
“I personally believe that there isn’t a more honorable profession than
the banking industry,” he began. “Most bankers are very involved in
their communities, and they can stand up and be counted. I saw a poll
recently,” he continued, “that showed we are now considered the third
worst profession. That bothers me.”
On the other hand, it didn’t exactly surprise him. In the run-up to the financial crisis, the giant national banks — which he viewed
as a distinct species from the typical American bank — had done things
that deserved condemnation. And, he added, “They are still doing things
that I don’t think are very good.”
Such as? “It has become a virtual casino,” he replied. “To me, banks
exist for people to keep their liquid income, and also to finance trade
and commerce.” Yet the six largest holding companies, which made a
combined $75 billion last year, had $56 billion in trading revenues. “If
you assume, as I do, that trading revenues go straight to the bottom
line, that means that trading, not lending, is how they make most of
their money,” he said.
This was a problem for several reasons. First, it meant that banks were
taking excessive risks that were never really envisioned when the
government began insuring deposits — and became, in effect, the backstop
for the banking industry. Second, bank C.E.O.’s were being compensated
in no small part on their trading profits — which gave them every
incentive to keep taking those excessive risks. Indeed, in 2007, the
chief executives of the Too Big to Fail Banks made, on average, $26
million, according to Wilmers — more than double the compensation of the
top nonbank Fortune 500 executives. (Wilmers made around $2 million
last year.)
Finally — and this is what particularly galled him — trading derivatives
and other securities really had nothing to do with the underlying
purpose of banking. He told me that he thought the Glass-Steagall Act —
the Depression-era law that separated commercial and investment banks —
should never have been abolished and that derivates need to be brought
under government control. “It doesn’t need to be studied for two years,”
he said. “I would put derivative trading in a subsidiary and tax it at a
higher rate. If they fail, they fail.”
As Wilmers continued on in this vein, I found myself nodding in
agreement. I also couldn’t help thinking back on remarks I’d heard Jamie
Dimon give at a recent Chamber of Commerce event.
Dimon, who made more than $20 million last year at JPMorgan Chase, is
widely viewed as the best of the big bank chief executives. But he’s
also become the most vocal defender of the status quo. “To people who
say the system would be safer with smaller banks doing traditional
banking, well, the system would be safer if we also went back to horse
and buggies,” he told the Chamber audience. “That is a quaint notion
that won’t work in the real world.”
At the M&T annual meeting earlier this year, Wilmers told the
company’s shareholders that the bank’s mission was to “find ways to
continue to attract deposits, make sound loans and grow in accordance
with our historic credit quality standards.”
How quaint, indeed. And how refreshing. |