Coping with the Crisis
Competition may force you to exit a market, but competition should
not be viewed as an excuse to take on excessive risk. Competition may
be fair or unfair, but a firm is never compelled to compete. A firm
chooses to compete and management should be held responsible for that
—ANDREW DAVIDSON, 2011
Leo Tolstoy opens his novel Anna Karenina with the observation that all happy families are alike and each unhappy family is unhappy in its own way. The financial crisis revealed the opposite truth: successful firms each found their own way to withstand the crisis; unsuccessful firms were alike in their inability to cope and in the mistakes they made.
There was a significant disparity in quality of governance and risk management practices among major financial firms in the crisis. Many firms operated with risk management systems and processes that fell far short of known best practices. Four firms in our review that survived the crisis were JPMorgan Chase, Goldman Sachs, Wells Fargo, and TD Bank.1 Those that essentially failed received massive government infusions of support (Citigroup, Bank of America, Fannie Mae, Freddie Mac, UBS, and AIG), were merged on disadvantageous terms (Bear, Countrywide), or simply went out of business (WaMu, Lehman, IndyMac).
Consider first the four successful firms. JPMorgan Chase and Goldman Sachs are treated at some length; Wells Fargo and TD Bank more briefly. Each of these firms distinguished itself in its operational competence and intelligent discipline, but with different approaches. JPMorgan Chase’s story is of preparing the company to be strong enough to take advantage of longterm opportunities. Goldman’s is of firm-wide systems and the capacity to react quickly to changes in the environment. Wells is a company with a strong culture of customer focus and restraint. And TD Bank provides the simple