(Bloomberg News) Bank of America Corp. Chief Risk Officer Bruce Thompson received $11.4 million in compensation in 2010, the most awarded to an executive at the bank and this year he was promoted to chief financial officer. His stature isn't an anomaly
Citigroup Inc., American International Group Inc. and UBS AG are among other companies raising the profile of risk executives. The derivatives meltdown that sparked the 2008 Lehman Brothers Holdings Inc. collapse and an 18-month recession catapulted the role from obscurity to contention for future chief executive officers.
"The person sitting in the risk chair now is reporting to the CEO so the caliber has to be higher," said Neil Hindle, who runs the CRO search practice at Egon Zehnder International in New York. "There has been a real increase in power over the last two years."
That's evident in the compensation, which can reach $10 million at large financial institutions now, compared with $500,000 as recently as 2001, Hindle said. Five years ago, a CRO typically reported no higher than the CFO, he said.
Citigroup Chief Risk Officer Brian Leach said it's expected he'll have a seat at the table when Chief Executive Officer Vikram Pandit makes key decisions. A decade ago, a bank risk executive often wasn't in the room, he said.
Risk Mindset
"It has to be embedded now from the top to the bottom of the company," said Leach, who helped with the rescue of hedge fund Long-Term Capital Management LP in 1998 when he was at Morgan Stanley. "The CEO has to have a risk mindset and really be able to live that foundational element of risk management."
Leach, like Thompson at Bank of America, and Barry Zubrow at JPMorgan Chase & Co., reports to the CEO. That was not the case at banks including Lehman Brothers and Bear Stearns Cos. that had the most serious problems in the economic crisis, Hindle said. Private equity and hedge funds are also seeking risk executives, Hindle said.
Pandit and Leach left Morgan Stanley in 2005 to form hedge fund company Old Lane LP, which Citigroup bought two years later. When Pandit was tapped to run Citigroup in December 2007, he brought Leach into the risk job because of their previous experience dealing with risk assessment, Leach said.
Old Habits