Wall Street adopts “CEO of Forever”

This is an audio transcript of the FT News Briefing podcast episode: Wall Street adopts “CEO of Forever”

Jessica smith
Hello from the Financial Times. Today is Monday September 27th, and this is your FT News Briefing.

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Germany held historic elections yesterday and the polls ended with the main parties neck and neck. Chinese real estate giant Evergrande looks more fragile, so Chinese cities are now taking action to fend off the fallout. And then the American debate on abortion. A group of academics weighed in on the economic impact of restricting access to the procedure. In addition, the average tenure of CEOs of banks in the United States is shrinking, but some appear to be fixed devices.

Joshua Franklin
There’s this feeling on Wall Street that if you have a good thing with your CEO, if the stock price is doing well, and he seems to be doing a decent job of managing risk, then his boards are happy to keep the CEOs in place.

Jessica smith
I am Jess Smith, I am replacing Marc Filippino. And here is the news you need to start your day.

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The Evergrande crisis continues to unfold. The heavily indebted Chinese real estate developer has struggled to access credit following Beijing’s crackdown on real estate debt and soaring house prices. Evergrande has missed the bond payments and now at least two local governments in China are taking action. The FT reports that officials in the southern city of Guangzhou have asked an Evergrande subsidiary to put pre-sales income from a stalled residential development into a state-controlled custody account. They say it’s to protect homebuyers and make sure construction continues. In another southern city, Zhuhai, housing officials also asked an Evergrande residential project to transfer the sales proceeds to a government account.

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We may hear the hissing sound of a deflating Spac bubble. Investors in specialized acquisition companies are withdrawing their liquidity at increasingly higher rates. Spaces are shell companies that raise funds by going public, and they put the money they raise in a trust before they find an acquisition target. Some Spacs have seen their trust accounts almost wiped out. According to data provider Dealogic, the average third-quarter redemption rate was over 50%. This is up from 10% in the first quarter of the year. It was the height of the Spac frenzy, and around $ 100 billion worth of Spacs was listed. The FT spoke to one of Wall Street’s top bankers who compared this first quarter to the dot-com bubble of 2000. But for Spacs, he said a confluence of factors has led to “insane behavior and looking for risk, especially at the retail investor level. ” And he added: “We will never see this again.”

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In the United States, the legal battle over abortion is intensifying, and now a group of academic economists has weighed in on an abortion case that the United States Supreme Court will hear later this year. Last week, more than 150 economists filed a brief on how women will be affected if states like Mississippi and Texas are allowed to place tough new restrictions on the procedure.

Claire Bushey
The bottom line is that abortion, since being legal in the United States, has had a “significant impact on women’s wages and education, with the impacts felt most strongly by black women. “.

Jessica smith
Claire Bushey of the FT says this economic argument is unusual because abortion tends to be brought up by opponents and supporters in terms of ethics and morals or the role of government.

Claire Bushey
People are not used to thinking about abortion economically, and it is absolutely an economic issue. It affects participation in the labor market. It affects income. It affects whether or not a woman is likely to graduate. This determines whether you are more or less likely to live in poverty. It is very important for the economic life of women. And so I think abortion rights advocates are trying to make it clear exactly what will happen to women if access to abortion decreases more than it already has.

Jessica smith
Claire Bushey is the FT’s Chicago correspondent.

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In the US banking industry, CEO terms are getting shorter. According to recent research on publicly traded companies, the average tenure of outgoing CEOs has dropped from nearly 15 years in 2017 to seven years. And then you have CEOs like Jamie Dimon and Brian Moynihan. The CEOs of JPMorgan Chase and Bank of America have been around forever, it seems, and they’re not going anywhere anytime soon. To learn more about bank CEO mandates, I’m joined by our American banking editor, Josh Franklin. Hey, Josh.

Joshua Franklin
Hey.

Jessica smith
So I mentioned Jamie Dimon and Brian Moynihan. You also talk about Morgan Stanley CEO James Gorman. Is it only these three that are distinguished by these very long mandates?

Joshua Franklin
Big banks, yes. It’s really those three who sort of have ten or more decades as CEOs. And that’s really kind of a contrast to what we see in the financial industry in general, which is for shorter CEO terms at a number of financial services companies, especially the smaller ones. And part of that is because you’ve seen a push for more diversity in the C suite in a number of companies, you know, better representation of women and minorities. And that’s kind of a push for some of the changes we’re seeing in some of these executive chambers.

Jessica smith
So for those few perennial CEOs like Jamie Dimon, I mean, is this new? I mean, is it unusual for them to stay so long? And is there an advantage?

Joshua Franklin
Long tenure as CEOs on Wall Street is nothing new in itself. You know, we saw the last CEO of Goldman Sachs, Lloyd Blankfein. He ran the bank for 12 years before finally leaving in 2018. And there’s this feeling on Wall Street that if you have a good thing with your CEO, if the stock price is doing well and it looks do a decent job. risk management, so their boards are happy to keep the CEOs in place. The leverage available to these CEOs that allows them to stay as long as they are is the performance of the bank and the share price. If it’s clear that investors have no qualms or worries about sticking around as long as they are, then boards seem happy to keep them in place. Replacing bank CEOs is very, very difficult work. You have to find someone who can navigate the complexity of these organizations, help manage the risk, and be prepared to, you know, sometimes, be kind of a punching bag for the public whenever something bad happens. on Wall Street. These are therefore difficult positions to fill. So if you’re a bank and you have something that works, then they’re happy to let the CEOs stay put.

Jessica smith
Josh, can you tell us a little bit more about how the job of CEO of a big bank has changed?

Joshua Franklin
Yes, if you’re the CEO of a big Wall Street corporation, you know you have to appear before Congress at least once a year for a grueling grill of lawmakers. And it’s if there isn’t a PR disaster for your bank that gets you even more caught up than that. You need to do constant reporting on what your bank is doing to regulators. Obviously, these executives are very well paid. James Gorman was the highest paid CEO on Wall Street last year, earning more than $ 20 million. So it’s not a test from that point of view, but it is very demanding, difficult tasks that if you have shown that you can do it well then the boards are happy to keep you in place for a long time. .

Jessica smith
And what are the downsides, then, of having a CEO who never leaves?

Joshua Franklin
One of the big downsides is that your lieutenants may get tired of waiting around to see if they get the chance to take the top job as well. You know, a lot of people in finance are very ambitious. And so they would like to be CEOs of big companies someday. And so if you’ve got somebody that’s going to stick around for five, 10, 15 years, then you’re thinking, I’m unlikely to have a chance to run this bank one day, so they might move somewhere else. The other potential risk is that it can be a sort of diversity blockage. You know, so far there has been only one female CEO of a major bank on Wall Street. It was Jane Fraser earlier this year at Citigroup. And we’re still waiting for who might follow her. The counterpoint to this is that the banks are doing a decent job of promoting a more diverse candidate slate within the larger C suite. So sort of as group leaders and division heads and potentially having them become CEOs someday if and when those CEOs end up stepping back.

Jessica smith
Josh Franklin is the FT’s US banking editor. Thanks Josh.

Joshua Franklin
Thank you.

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Jessica smith
And before we left, Germany’s election yesterday was the first in post-war history in which an incumbent chancellor failed to stand for re-election. Angela Merkel’s departure meant voters lacked strong allegiances, which made the election very unpredictable. When the polls closed, the two main parties, the center-right CDU and the center-left SPD, were neck and neck. The Greens were in third place. The country now looks set to have a three-way coalition government. It’s also a first in recent history, and it could take weeks of wrangling. We will cover all results. And you can join our reporters, Erika Solomon and Guy Chazan in a live webinar on Monday, October 4, for a discussion on what the election means for Germany and the rest of the world. It’s free for subscribers, and you can sign up now at ft.com/germanelection. You will find a link in our show notes.

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You can read more about all of these stories at FT.com. This has been your daily FT News briefing. Make sure to come back tomorrow for the latest business news.

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