The Incredible Banker (10 page)

R
ONALD was shocked when he read the letter the RBI governor handed him. Never before had he seen such a letter from the RBI. He had worked across various countries with GB2 but the tone and contents of this letter were extremely serious and provoking.

Date: 17 December 2009

From

Governor,

Reserve Bank of India,

Mumbai

To

Shri Ronald McCain

Chief Executive Officer,

Greater Boston Global Bank 26,

Kalaghoda Mumbai

Dear Mr McCain,

This is further to our earlier letter dated 24 March 2007 wherein we had highlighted certain serious irregularities in
the manner in which Greater Boston Global Bank carries out its business in this country.

It has been brought to the undersigned's notice and as has been reported by the leading media of the country, there has been a severe compromise of processes and overlooking of regulatory norms in your bank. RBI guidelines on various subjects have been flaunted. Regulatory norms have not been respected, indiscriminate lending has been the order of the day, customer complaints have been on the rise and, to cap it all, the recent audit reports have been the worst in a long, long time. We have till date ignored most of these, assuming them to be the cost of doing business in a large and complex nation like India.

However, in the case reported by the press over the lastfew days, Greater Boston Global Bank can be severely held responsible for waging a war against the nation. Your bank is today being accused of colluding with the lawbreakers and conspiring with them to question the existence of the democratically elected government in India.

Mr CEO, I would like you to investigate the issues that have been raised in the media and give us a satisfactory response within two weeks (see Annexure 1).

In the absence of a satisfactory response, the RBI will take stringent steps that can also include withdrawal of license to conduct banking activities in the country.

I expect to get your response within two weeks from today, and hence this may be given adequate priority.

with regards

Governor Reserve Bank of India

Ronald was so lost absorbing the contents of the letter that he did not realise the governor was waiting for his reaction. When none was forthcoming, the governor took the lead.

"Thanks, Mr McCain, for coming at a short notice. You see, this couldn't wait. We had to move fast. The whole country is watching. We can't be seen as quietly allowing someone to come and screw our system.' If the letter didn't convey the message, the crass language and aggressive tone of the governor to the CEO of a large international bank surely did shock McCain. However, he didn't say much. What could he have? The governor and the entire polity of the country seemed to be up against them. Hadn't they screwed up, and that too big time!!

'I will get back to you,' was all he could muster as he got up to return to the bank.

'I will ask Vardarajan to fix a meeting where we will review the bank's response and decide further action. The meeting will be in or around the first week of January at a time convenient to you, Mr CEO,' and he walked towards his room while McCain dragged his feet towards the door leading to the corridor on his way out.

E
ARLYMarch was result time for most of the banks in the world.

Bank after bank started coming out with their 2007 yearly results. GB2, too, prepared to declare its results at a Asia-Pacific level. These would then get consolidated across various regions around the globe for their group results.

Standard Chartered Bank was the first one to declare the results on March 2. GB2 followed suit on 5 March 2008. The grand ballroom of the Raffles hotel in Singapore hosted a glittering ceremony where the Asia-Pacific CEO of GB2, Michael Smith, stood up to announce the results of the group in the region. At the ceremony, media persons from almost all the newspapers and magazines, hordes of analysts and a number of important stakeholders were present. An air of nervousness preceded Michael Smith's walk to the podium. He started his presentation in his usual flamboyant manner.

'Friends, we have had a fabulous year 2007. The results that we have delivered as a bank, and as a financial services conglomerate, have been brilliant to say the least. We have beaten all expectations. While I will share the details of the financials in a while, I would like to list down a few of our key achievements last year,' he began with confidence. His annual results presentations normally began in this fashion. They would be very self-praising, pompous and 'glorifying-the-bank' presentations. Irrespective of whether the bank had a good year or a bad one, the tone of the presentations would be the same. Only the degree of bravado displayed would vary depending on the profits reported by the bank in that year. Given his flair to speak to the media and to communicate a positive intent, invariably it would be Michael who made the presentation to the media and stakeholders. This had been the case at least for the last three years.

Michael spoke for about twenty minutes. Many in the audience were reminded of Steve Jobs when Michael spoke. He briefly mentioned the group's foray into new businesses in India and Indonesia, their leadership position in wealth management in Singapore and Hong Kong, their growth in the corporate banking business in developed markets like Australia, Hong Kong, Singapore and also the joint ventures they had formed with local banks in China. It was a fairly impressive presentation. He wrapped it up with the financial update for 2007.

GB2 had made a profit of $ 2.3 billion in the region as against $ 1.3 billion the year before. On the face of it, all the numbers and the ratios looked very good. GB2 seemed to have built a highly profitable business. The year 2007 seemed to have gone off very well for GB2.

When he finished his 'rockstar' presentation, all the stakeholders gave him a standing ovation. Hadn't he led the bank admirably and made it one of the hottest emerging market banks in the world? The numbers pleased almost everybody, or so it seemed going by the smiles all around.

Most of the analysts had predicted a profit of $1.9 billion for the region but Michael Smith's GB2 beat it to record over $400 million better than what the analysts had expected. There was celebration all over.

'We have thirty minutes for questions,' the moderator announced and the floor was thrown open to the audience.

Quite a few hands were raised.

"The gentleman in a pale yellow shirt on the far right,' the moderator pointed a finger towards the reporter and singled him out.

'Sir,' he began, 'the performance of GB2 in 2007 has been truly admirable. What's your oudook for 2008? Do you think this is a performance you would be able to repeat in the coming years, or is it a flash in the pan?'

'Interesting question, my friend. This growth in numbers has come as a result of a disciplined effort and cogent strategy backed by excellent execution at the grassroot level. In fact this year we have laid all the building blocks for growth in 2008/9. We don't need any significant investments in technology, infrastructure or new businesses. All that is done. We just need to sit back and reap the benefits.' And after a pause Smith added, 'I am reasonably confident that we will better these results in the next twelve months.'

'Thank you, sir.' The reporter sat down. The question seemed rigged considering the way the reporter was singled out to ask the question and Michael had probably rehearsed the answer well.

A few more questions were raised by the audience. All were answered with equal panache and ease. There were questions about strategy, resources, new businesses, possible obstacles to growth. Michael answered all of them brilliantly. He had fixed almost everything. Everything was going as planned.

The session was nearing the end. 'Next question, please. We have time for two more questions only, gentlemen,' the moderator boomed. Again a few hands were raised. "The gentleman in the third row from front...red tie.'

The reporter immediately got up.

'Sir. I represent....' Hardly had he begun speaking when he was cut short by a person sitting in the fifth row. He seemed to be an Indian reporter who had travelled all the way to Singapore to cover the AGM.

"This is absolutely ridiculous. Rubbish!' he screamed. The room fell silent.

'I have been for the last twenty-five minutes diligently trying to follow the procedure and protocol to ask my question but every time the gentleman on the podium picks out someone who has already been identified. In fact I have seen the moderator nod at the reporter in the crowd at least thirty seconds before the call for next question, and invariably the question is asked by the person at whom the moderator nodded. If this is not nonsense, what is ?'

Fearing that this might cause collateral damage to the brand GB2, the moderator quickly stepped in. 'I am sorry, sir. There was no such intent. May I request you to go ahead and ask your question to Mr Michael Smith?' And then he looked at the reporter who had just begun his question and apologised, 'My apologies, sir. Will it be fine if you ask your question after this gentleman?' He just nodded and sat down.

'Honourable CEO,' began the Indian reporter. Indians were still very respectful when it came to dealing with white skin. 'My name is Chaitanya Kumar and I represent the leading financial daily in India. I have a query on your strategy in the emerging markets, particularly with reference to your strategy in India. Why is it that in India, your retail bank continues to make a loss? This year your bank in India made a loss of over $245 million in their retail banking business.The results have been camouflaged by the excellent performance in Singapore and Hong Kong. The losses in your credit cards and personal loans business have just begun to impact you. In 2008 the impact of these losses will be significant.'

He continued, 'Now look at the Standard Chartered Bank. They have reported significantly higher profits in their retail business not only in India but across the globe. How do you explain that, sir? How can one foreign bank operating in a market like India deliver results year after year, and another makes significant losses every year ? Something seems to be going wrong. What is it? Our information shows there is a fair bit of confusion in your leadership team in India. Your bank today has double the headcount that Standard Chartered has in India while they have twice your number of branches. Despite your having double staff strength, they generate more business than you across all product lines. Doesn't it point to a warped and confused way of running the business, Mr CEO ?'

Michael Smith was stumped. He did not expect this question. The meeting till then had gone very well...and now, out of the blue, there was this question which clouded his credibility. All the glory, the aura he had created was thrashed. Everything he said thus far suddenly seemed to be untrue.

He thought for a moment before he answered the question. The first time in the evening when he had to think through an answer. Maybe this was the first question that was not fixed beforehand.

The response was quite unconvincing. Michael did not have an answer to why SCB made double the profits as GB2 in India. He had no answers to why they were losing millions of dollars in their cards and personal loans business. He had no answer to explain the lower productivity per employee in India. What he managed to do instead was to create enough doubts in the minds of the press reporters and stakeholders that everything he said that evening may not be the truth.

The evening ended on a low note. Newspapers next morning were extremely caustic about GB2's strategy in emerging markets. Some even questioned GB2's claim to be an emerging markets' bank. Even the stock markets reacted negatively to the entire press conference. The stocks of GB2 fell by 4 per cent in the morning trade.

A peeved Michael Smith ordered a detailed review of the India business. It was a knee-jerk reaction to the stock fall and the press conference debacle. India of late had been a stressed business and had received quite a bit of attention from the region on account of losses, but for the first time it received sponsorship at such a high level. Michael Smith himself drove the review.

A number of sanctions were imposed on India pending the completion of this review. Costs were frozen. Foreign travel was stopped except at the CEO's level. Recruitment was completely frozen. Hiring wasn't allowed, even as a replacement hire for someone who quit the bank. Organisation structures and span of control were revisited. A strategic planning team from Singapore descended on Mumbai, to review the end-to-end process. Standard Chartered Bank became the buzzword. Everyone was obsessed with comparing GB2's performance with SCB.

In this chaos, there was only one person who benefitted.

When Karan moved to Citibank in December 2007, the organisation advertised that position and filled it internally with Govind K, who was the head of cards sales. Manish Bhalla, the India head of cards business, was extremely upset that Govind had left him and moved to another business. He held on to him for two months on some pretext or the other and released him to take over his new role only in February 2008. When he couldn't find a replacement for him either internally or from competition, Manish decided to look at the FMCG (Fast Moving Consumer Goods) sector. After an intense search he narrowed down on one candidate.

'Let's do one last reference check before we make him the offer,' Manish Bhalla told Joel Wilkins, the HR Head.

'Bhelllaa,' said Wilkins with his trademark drag. 'We have done three reference checks already. Why do you want to do one more?'

'Don't know, Joel. My instinct tells me that we should play safe and do our homework. Give me a day's time. I will revert to you by tomorrow.'

'Look, Bhellaa, we have the offer ready. We are ok to roll. Once you get back to us, we will make him the offer.'

'Great. I will get back to you latest by tomorrow.'

'It's ok, pal. It's your business. You take your time. Today is Monday, the third of March. You have time till Thursday. If you do not get back to me by Thursday, I will ask my team to press the button on Friday. We will release the offer. Else we will get you some more CVs for prospective candidates. Will that be ok?'

'Oh, Friday is too far. I will revert by tomorrow, maximum by Wednesday.'

'Great. Just give me a call if you need any help from us,' and the discussion ended.

Bhalla called up a few industry contacts who had worked with the external candidate and did a quick and discreet reference check. Everybody gave him a roaring feedback about the guy. 'I don't believe in interviews,' Bhalla had once told Wilkins. 'For me the most critical thing is reference checks. It's extremely easy to fake a forty-five minute interview but it is almost impossible to doctor a good reference check. That's why I would rather do ten reference checks than do four rounds of interview.'

On Wednesday, 5 March 2008, at 6.45 in the evening, Bhalla called Wilkins at his desk, only to be greeted by his answering machine. 'You have reached the voicemail of extension 6468. To leave a message please record after the beep, else hang up.'

I will just drop him a mail, Bhalla thought, and he began typing out a note. 'Let's go ahead with the west guy.' He had put one issue to rest.

Next morning when he reached office, there was a message from Joel waiting for him.

'Bhalla, please call me when you see this.'

Bhalla immediately called him.

'Joel, what happened? Just saw your message. I called you last evening, too. But, you lazy bum, you had left by then.'

"Every day of the week, I come in two hours before you, my friend.'

'Hmm...ok. Tell me. You left a message for me – to call. '

'We have a problem.'

'What problem? Has someone else made an offer to Srinivas?' Srinivas was the guy they were planning to hire in the regional cards sales role for west.

'No no. No one has hired him. In fact we haven't even spoken to him.'