Here’s our latest.  Will be on Bloomberg Radio with Tom Keene 8-9 AM ET today — Chris

The Institutional Risk Analyst
October 5, 2009


“Banking in all countries hangs together so closely that the strength of the best may easily be that of the weakest if scandal arises owning to the mistakes of the worst… Just as a man cycling down a crowded street depends for his life not only on his skill, but more on the course of the traffic there.” Hartley Withers
The Meaning of Money
Smith, Elder & Co., London (1906)

“Gran, theurer Freund, ist alle Theorie, Und grim des Lebens goldner Baum.”
(“Theory is a greybeard, and Life a fresh tree, green and golden”)
Mephistopheles speaking to the student
Faust
Goethe

This past week in the IRA Advisory Service, we added M&T Bancorp (NYSE:MTB) to our coverage list. As of Q2 2009, MTB was rated “A” by the IRA Bank Monitor’s Stress Index due to its below-peer loss rate and strong operating results. We also started to describe for our clients our concerns about the outlook for Bank of America (NYSE:BAC), which was rated “C” as of Q2 2009 by the IRA Bank Monitor. Click here to register for the IRA Bank Cart and look up the rating for your bank.

If you reduce the increasingly difficult situation facing the largest banks down to its essence, the problem is politicians picking winners and losers. If we don’t have losers in our economic life, then there are no winners either. If we don’t resolve troubled banks, then all of our banks will be bad, as the century-old Whithers quote above suggests. And the fact that Washington will not let large, mediocre institutions such as BAC fail means that our entire financial system is getting sicker, not recovering as the politicians ask you to believe. The different financial and operational situations facing BAC and other members of the large bank peer group illustrate the point.

As we told CNBC’s Fast Money on Friday, the departure of Ken Lewis as CEO is probably the best news for BAC equity and bond holders in many years. Whoever is eventually selected to replace Lewis, though, is facing a tough task. In his column in the New York Times over the weekend, Joe Nocera makes that point as he talks about the culture of mediocrity that Lewis promoted at BAC, a culture where competent managers were systematically forced out by the human resources department of BAC.

For all of his insider savvy and HR muscle within the bank, Lewis really was not an operator. BAC, after all, is a combination of dozens of companies merged over the last 30 years that were never actually integrated. The mergers “worked” because the old NCNB HR department ruthlessly squeezed down personnel costs. These are “process” people, after all, who believe that you can identify tasks that can be done by one person, then train that person and pay him/her well below average. This is what they call “synergies” at BAC. This goal of short-term cost cutting pervades BAC and has led to an organization that produces narrowly focused employees and business units, with no incentive to innovate or manage risk on an enterprise basis as required by Sarbanes-Oxley, not to mention federal banking laws.


The operational mess left behind by Lewis at BAC makes a mockery of terms like “internal systems and controls,” as used in the Sarbanes-Oxley. As Nocera describes, Lewis forced his managers into product silos instead of a customer focused horizontal organization, and never attempted to fully integrate the organization so as to have a complete view of the risks the bank takes on both retail and institutional exposures. For example, an individual customer at BAC could have many distinct contacts with the bank; a branch banker, private banker, high touch brokerage, discount brokerage, a HELOC lending officer, a mortgage lending officer, a credit card representative, and a P&C insurance rep, to name just a few of the possibilities. And all of these silos come together only in Ken Lewis’ office. Thus there was no way for the mortgage credit guys to stop the HELOC guys from making huge credit mistakes. And like most big lenders, they did make huge mistakes.

Keep in mind that Hugh McColl and Lewis reportedly disliked to spend money on integration. Few of the IT systems in the various targets acquired over the years actually talk to one another. Even had Lewis had wanted his managers to communicate, they could not do so. This is why, to this day, each state in which BAC operates has a distinct ABA#. Inter-district deposits and payments must be processed by hand. And the same penny-wise mentality has now stripped most of the value — that is, highly skilled, experienced people — out of Countrywide and Merrill Lynch.

Now contrast the situation at BAC with JPMorgan Chase (NYSE:JPM), which has for many years excelled at integrating acquisitions quickly and onto a common IT platform. Indeed, while many give Jaime Dimon high marks as an M&A banker – and we do as well – the real secret of the JPM deal machine is the excellent back office staff, a rich legacy that goes all the way back to the merger with Chemical Bank. Yeah, that’s right, Chemical Bank, one of the most technologically advanced institutions of its time. This is one reason why we constantly remind our clients that banks, even large banks, are vastly different one to the next. But in addition to operations, the key distinction to make between BAC and JPM is senior management.

As we have noted before and we’ll probably state again, the difference between BAC and Wells Fargo (NYSE:WFC), on the one hand, and JPM on the other, is that Jaime Dimon had the good sense to buy WaMu from the FDIC after it was restructured via the resolution process. All of the legacy liabilities of WaMu, including the legal liabilities from the massive securitizations sponsored by Washington Mutual Inc., were left in the DE bankruptcy court after the FDIC took control of the bank unit. That is why the cleansing process of bankruptcy is so important to the restoration of a healthy, growing economy.

The founders of the United States did not embed a requirement in the Constitution that the Congress create federal bankruptcy courts because they were nice guys. Rather, they knew that a healthy society needs finality in matters of insolvency, a crucial truth that concepts such as “too big to fail” and “systemic risk” short-circuit. For every loser in a business failure, like the equity and bond holders of Washington Mutual Inc., there is a winner, as in the equity and bond holders of JPM. This is why arguments made by economists and politicians about the frightful “systemic” effects of large bank failures do us all such a disservice. Economists, never forget, are basically risk averse, otherwise they would run real businesses, employ real people and take real risks in the markets instead of just talking about them in theory. Thus the quotation from Faust above.

While the Big Media focuses on the personalities and political problems at BAC, we instead focus our Advisory Service clients on the rest of the story, namely the bank’s festering off-balance sheet (“OBS”) exposure from securitized HELOCs, first lien mortgages and complex structured assets that are a legacy of the Countrywide and Merrill transactions, and also of BAC’s own securitization activities. Countrywide reportedly securitized nearly 80% of its HELOC loans, rancid credits that now trade in the 40s in the distressed markets, so just do the math.

Banks currently report that 5% of the $1 trillion or so in existing HELOCs are delinquent, but our sources in the secondary market say that the true situation is closer to 15%. In the current deflationary environment in real estate, the loss severity on these HELOCs is likely to be 100%. Now you know why the largest banks are working so hard to reduce unused lines (See “Exposure at Default: As Banks Shrink, So Does the Economy”), but EAD only measures on-balance sheet exposures. If you want to understand the totality of the potential loss exposure facing the largest banks that were active in securitization, take the FDIC data series for unused credit lines and add a zero.

By eschewing securitization and buying banks after they have been restructured, JPM gained a huge advantage for its equity and bond holders. BAC and WFC, on the other hand, still face the daunting task of cleaning up the mess left by the troubled acquisitions of Countrywide, Merrill Lynch and Wachovia. In the case of BAC, we hear that this includes buying defaulted mortgage paper at par from the various securitization vehicles sponsored by BAC directly or acquired from Countrywide and/or Merrill Lynch. The latter, in case you’ve forgotten, was the biggest CDO sponsor on Wall Street. This one reason we told our friends at Fast Money that we believe BAC is next in line behind Citigroup (NYSE:C) in terms of financial problems and could be back in the arms of the US government by the middle of 2010.

The thing that many people still don’t understand about securitizations is that it was not just overtly profitable for the sponsors. There also was a hidden profit in many deals that were not disclosed, a profit that is now become a liability. Consider a hypothetical example based on actual deals. Say Countrywide created a new DE trust and contributed $100 million face amount of loans to the entity, call it “QSPE1″ for “qualifying special purpose entity” under the FASB rules, which incidentally are scheduled to be rescinded at the end of the year. The folks at Moody’s (NYSE:MCO), S&P or Fitch would then be paid a fee to provide a rating for the new entity prior to the issuance of securities. We’ll come back to this point in a future comment.

In return, QSPE1 gave Countrywide an IOU for $100 million and then sold bonds to investors for at least that amount, allowing QSPE1 to repay the IOU to Countrywide. But the dirty little secret that Wall Street still conceals from the Congress, the public and the shareholders of all banks is that the collateral contributed by Countrywide to QSPE1 was not worth nearly $100 million, but in some cases closer to $95 million or even less. This is why during the interview earlier this year (“Back to Basis for Securitization and Structured Credit: Interview With Ann Rutledge’), Ann talked about the fact that the mezzanine tranches of many late-vintage securitizations never converge on “AAA,” unlike an auto or credit card securitization. In plain English, this means that there is never enough collateral inside QSPE1 to pay the investors interest and principal — without an under-the-table subsidy from the sponsor.

For many years in the securitization sector, the fact of a secular increase in the value of collateral masked these unsafe and unsound practices in the banking industry. Sponsors such as Countrywide were assumed to be willing to “cure” such defects — that is, substitute collateral in the event of a default or advance cash to the securitization trust — in order to make sure that the trustee in charge of QSPE1 was able to make timely payments to bond holders. The legal fiction was that QSPE1 and Countrywide were separate entities, but the economic reality is that QSPE1 and Countrywide are one and the same.

Click here to see Ann’s presentation from the June 10, 2009 PRMIA event, “Regulation of Credit Default Swaps & Collateralized Debt Obligations.” Look at slides 12-16, showing various securitizations by Ford (NYSE:F) and the last by Countrywide. Notice that while all of the F deals converge on “AAA” early, the Countrywide deal never accumulates sufficient collateral and cash to ensure repayment of bond investors. Only because Countrywide and other issuers were willing to “cure” these deals with undocumented payments to the securitization trust could investors ever be repaid.

In fact, the reliance by Buy Side investors and regulators on the reps & warranties by sponsors of securitizations provided a source of hidden recourse all the way up the securitization food chain. And not just in residential mortgages. By the early part of this decade, the practice of under-collateralization of securitizations became a pervasive problem for any type of origination that had scale, at least inside the institutions for whom cheating was the business model, including Countrywide, C and Lehman Brothers.

Securitization was once a hidden cash cow for the sponsors, but now that the situation is reversed. Collateral values have fallen dramatically and will fall further in the next 12-18 months, thus banks such as BAC, WFC and C must take that hidden windfall profit out of their pockets and essentially reverse the original transaction – and then some. Otherwise they get sued. This is why the dealers are desperately trying to buy-off prospective plaintiffs with under-the-table payoffs to prevent this ugly reality from being exposed through litigation. This is yet another reason why we laugh uncontrollably when the economists suggest that Lehman should or could have been bailed out.

So now you know why we remain so bearish on BAC, WFC, C and other aggressive sponsors of the trillions of dollars in securitizations originated over the past decade. And the sad part is that for retail investors, there is still virtually no disclosure by these banks describing this specific risk factor. That is why many Sell Side firms are still able to post “Buy” recommendations on BAC and its peers, because they can point to the paltry public disclosure filed with the SEC and say: “Gee, we didn’t know.” But you can bet that just about every Sell Side analysts who follows money center banks for a living knows precisely those hidden risk factors of which we speak.

And now you too understand why the banking industry and even federal bank regulators have been making noises about delaying the change in the FASB rules regarding OBS vehicles like QSPE1 in our hypothetical example above. But as we explained to subscribers to The IRA Advisory Service last week, whether the FASB changes the rules or not will be irrelevant to the economic and true legal reality facing the large issuers of securitization. We’ll be digging into the details of BAC’s OBS black hole in the IRA Advisory Service in coming weeks.

Keep in mind that federal regulators, who have been aware of the problems with securitization since day one, have made this situation progressively worse by allowing large zombie banks to continue to merge with one another, especially in the case of BAC. Ken Lewis and the HR department of BAC have already destroyed much of the value of Countrywide and Merrill Lynch by driving many of the best people out of these organizations. But the real question to ask is why the economists and lawyers who populate the federal bank supervision community permitted and even encouraged these mergers in the first instance.

Just as Lewis and his henchmen in the HR department of BAC drove the best people out of that organization by picking winners, our political class in Washington, in the Congress and among the regulatory community, is doing the same thing with the “too big to fail” banks. And by continuing to protect large zombie banks under the ridiculous rubric of “systemic risk,” we are dooming the US economy to years of economic stagnation and mediocrity.

The only reason the US economy regenerates itself is because we allow failure. When we legislate away the opportunity for failure, we also eliminate the possibility of renewal and gain. The more we try to avoid systemic risk, the more America will become like the moribund states of the EU, where corporate failures are effectively outlawed, there is no private capital formation to create new banks and companies, and there is no growth in employment or opportunities for the vast majority of Europeans.

At the end of the day, the true threat of “systemic risk” is not financial, but political. Until we purge this creation of the economists from our national vocabulary, we are not going to make any progress toward emerging from the current crisis. As we told our friends on Fast Money , the good news is the recession is over, but the bad news is that the depression has begun. And this next downward leg of the economic crisis will be deeper and more painful because we allow politicians in Washington to pick winners and losers in our financial markets.

So far, the winners have been the bond holders and the counterparties of of the zombie banks and AIG, who are subsidized by equity infusions from the US Treasury. But we notice that Bloomberg News reports that FDIC Chairman Sheila Bair suggested yesterday that creditors of large banks should help to pay for future bank failures by limiting their claims in the event of insolvency. So we ask this question of the readers of The IRA: If you assume, as we do, that the equity of BAC is a zero, where should bond holders be haircut in order to recapitalize the bank without further financial support from the US taxpayer? We’ll start the bidding at 70 cents on the dollar.

No Way Out: Government Response to the Financial Crisis

IRA co-founder Christopher Whalen will be appearing this Friday, October 9th, at American Enterprise Institute in Washington to discuss solutions to the crisis. Join AEI Resident Scholar Vincent R. Reinhart, Greg Ip of The Economist, and Angel Ubide of Tudor Corporation for what promises to be a most interesting discussion. Click here to register for this event.

Questions? Comments? info@institutionalriskanalytics.com

Category: Markets, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “B of A: Bond Holder’s Haircut Can Restore Solvency”

  1. flipspiceland says:

    Thanks for this.

    Having been in the employment and Executive Recruiting business for a number of years, I predicted that just this kind of practice that the HR departments engaged in would be the ruination of american industry. Feeling vindicated is no balm for what was so easily seen.

    I am certain however that in many companies the best people are still being thwarted and let go to minimize risk to the truly incompetent but well-connected mediocrities that abound in our corporations.

    Politics has maimed and destroyed so many institutions, that you would think that natural selection would have rooted out this pernicious practice eons ago.

  2. globaleyes says:

    This story underscores my simple thesis which is this: 46 years of deficit spending explains everything including how Ken Lewis destroyed a major bank by firing competents and replacing them with incompetents.

  3. jc says:

    If you assume, as we do, that the equity of BAC is a zero, where should bond holders be haircut in order to recapitalize the bank without further financial support from the US taxpayer? We’ll start the bidding at 70 cents on the dollar.

    The current MV of common is $140B so BAC needs nearly $200B to get back on it’s feet?

    Fortunately the US is out of it’s 118B guarantee to BAC

    Bank of America said Monday it will pay the U.S. government $425 million to end a federal backstop of assets related to its purchase of troubled brokerage Merrill Lynch earlier this year.

    The government agreed to guarantee $118 billion in assets in January as part of a plan to help BofA absorb Merrill Lynch, which was on the verge of failure. In exchange, BofA agreed to pay the U.S. a fee of 3.7%.

  4. jc says:

    The US will have to institute extraordinary actions to stop a wave of foreclosures that will wipe out C, BAC and WFC.

    We’ll see a massive US program to buy and manage foreclosed homes, purchased at “fair prices” (above market) will be implemented to save these big banks.

  5. jc says:

    Listened to Chris Whalen on Keene’s show. I think I heard him say that the US will be paying for the banks bailouts for the rest of the century, nice, a century worth of taxpayer commitments in less than a year.

    These commitments will only increase as “strategic defaults” become socially acceptable, it’s really irrational for homeowners to not walk away when they’re so far underwater with no prospects of a big rebound.

    Whalen also had some interesting comments how these underwater homes will impact a very mobil society.The average mortgage only runs for about 7 years I believe, people will be forced into short sales and foreclosures by life. Life happens!

  6. Had Enough says:

    Interesting post/article.

    “This goal of short-term cost cutting pervades BAC and has led to an organization that produces narrowly focused employees and business units, with no incentive to innovate or manage risk on an enterprise basis as required by Sarbanes-Oxley, not to mention federal banking laws.”

    Narrowly focused indeed.

    Kinda seems like par for the course at nearly every contemporary US organization irrespective of industry, don’t ya think? I challenge anyone on this blog to supply an example to the contrary from the past two or three decades.

    Meanwhile, I have a couple of ideas to help explain…

    Rise of the Dogberts

    For this you might want to thank our lumpin-academia’s fetish for moronic specialization featuring the stars of management theory, like Peter Druker, who helped to train legions of MBAs – future accountants and “dogberts” donning their ridiculous “management consultant” hats and swarming over our formerly productive enterprises to “revolutionize” industrial organization, marketing, finance, human resources. Slashing and burning their way through the fragile economic ecosystem that took years to evolve to expose the thin layer of barely fertile earth, they they sowed and reaped quick profits for a few seasons and moved on leaving the poor remaining topsoil to be eroded and scattered by the four winds.

    Since these dogberts and money changers have used up and foiled nearly all our useful soil for future generations to come, they have been heading for planes, trains and automobiles, machetes in hand, ready to slash and burn the precious few remaining acres available in foreign lands.

    The “Egalitarian” Workplace

    “Hi, I’m Bob” says the C.E.O to the analyst. Bob? So I take it these two will be hitting the links and afterward out for a couple of beers and to shoot the shit? Right. What ever happened to the respectful formality of the Mr. Such and Such address that helps to square away any confusion about who is really in charge in the relationship, avoiding the disgustingly patronizing charade between two obviously unequal employees.

    For the past 20 years, the result of countless dimwitted strategies by which top brass has been attempting to introduce a pretense of egalitarianism and democracy into the work environments of profit-seeking organizations comprised of owners and employees with essentially diametrically opposed ends in mind, charitable intentions notwithstanding, is to simply have encouraged more unnecessary bad behavior of employees seeking recognition, status, authority, and remuneration in the face of an apparent total lack of popper standards and hierarchy for employees.

    Instead of time spent productively, the employee of a typical contemporary US firm (banks included) must now waste countless company hours jockeying for the few non-outsourced, non-button-pushing positions left in the country with his peers who are as equally frustrated and confused by their undefined status-hierarchy-less positions. Without a proper and just hierarchy imposed on the employee, the do-gooder management sabotages his own labor-force’s productivity. Instead of surly cooperation and begrudgingly productive skill-building, management gets seemingly team-player employees who secretly fritter away company time practicing the useless arts of clever back-talking, peer sabotage, “that’s not my area/function/job description” buck passing, and special knowledge hoarding – all in the name of one-up-ing fellow employees and establishing authority or station in the company whose management and owners would have been much better served by formally establishing from the start.

    Employees don’t want to be micromanaged and treated condescendingly, but they are desperate to know, and deserve to know where they precisely stand on the org chart and in respect to immediate coworkers. I believe that top brass benefits from chain of command ambiguity as it permits them to similarly shirk responsibility and claim not guilty to actions that would otherwise properly correspond to their positions. Keep it fuzzy, that way when the shit hits the fan, everyone can say they weren’t to blame.

    The unfortunate thing is that now, after several decades of natural selection, the poorly trained beasts of the democratic workplace, quite adept by now at barking, stealing other’s scraps and marking territory to get ahead, rather than by virtue of their productivity or ability to make wise decisions, are now running the whole show for the rest of us (including our government) and seem to have a preference for hiring others just like them.

    “The founders of the United States did not embed a requirement in the Constitution that the Congress create federal bankruptcy courts because they were nice guys. Rather, they knew that a healthy society needs finality in matters of insolvency, a crucial truth that concepts such as “too big to fail” and “systemic risk” short-circuit.”

    Um, no. The founders did not embed a requirement because they didn’t need to. Economic participants simply had no way of accessing and playing around with so much of other people’s capital in the first place in those days. Remember that debt was still shameful and many countries still operated prisons to house those who fail to pay creditors.

    Come to think of it, perhaps in light of recent events, not a bad idea after all. But the question might be, will we have a prison big enough?

    Rather, the 18th century founders more likely would have considered the rise of such “too big to fail” institutions as we now proudly enjoy in this country, a threat to individual liberty, and as such utterly repugnant and in grave need of proscription. Furthermore, they would unlikely have had any reason to anticipate the rise of such monstrosities and associated financial “innovations.”

  7. Moss says:

    Great article. I hope Sheila Bair gets her way. Some sort of discipline needs to be imposed.

  8. Bruce in Tn says:

    http://www.cnbc.com/id/33171729

    US Officials Exaggerated Banks’ Health: Watchdog

    “Senior U.S. officials deliberately created the impression last year that banks receiving huge government cash infusions were healthier than was the case, a Treasury Department watchdog’s report released Monday said.

    As a result, the government and the bailout lost public credibility when the financial crisis deepened”

    Imagine that…I am from the government, and I am here to…..spin?…….

  9. jc says:

    Right now the big banks seem to be rushing to pay off their US guarantees so they can resume paying their bonuses.At the same time they are holding off on foreclosures. They want to pay the bonuses before the foreclosurures wipe them out. I think they realize they’ll definitely be wiped out and they just want to get their bonuses and severance pacjages first, thats the real reason why they’re creating the shadow inventory, they have no solution to the problem aside from a massive US resue which will cost them their jobs and bonuses, they don’t care about the banks survival thats a foregone conclusion they just want to take their money & run. look at the pittance Wagoner got compared to Lewis!

  10. jc says:

    look at the pittance Lewis got compared to O’Neal. TAKE THE MONEY & RUN

  11. jc says:

    When Vikram & the WFC CEO leave thats when we know some big shoes are ready to drop

  12. [...] Posted by Chill on 05 Oct 2009 at 09:45 am | Barry is exactly right about Bank of America here. BAC, after all, is a combination of dozens of companies merged over the last 30 years that were [...]

  13. Bruce in Tn says:

    http://www.lloydslist.com/ll/news/maersk-abandons-recovery-hopes-and-looks-to-slash-officer-jobs/20017704117.htm?src=rss#

    Maersk abandons recovery hopes and looks to slash officer jobs
    Richard Meade – Friday 2 October 2009

    Maersk Line currently employ around 3,000 officers
    MAERSK Line is seeking over 280 voluntary officer redundancies from the UK and Denmark in a bid to slash costs across the company.
    Confirming the industry’s worst fears, the box giant admitted that hopes of an early economic upturn have now been abandoned and frontline jobs are on the line.

    ….off topic, but this is MAERSK!….your 6’7″ offensive lineman……

  14. Onlooker from Troy says:

    ….off topic, but this is MAERSK!….your 6′7″ offensive lineman……

    Excellent metaphor Bruce. The cracks are showing in the recovery thesis; large enough that even the folks with blinders on won’t be able to ignore them for too much longer.

  15. ZackAttack says:

    But, of course, the GS upgrade is good for a fast +100 on the Dow.

  16. Chris,

    This is, another, excellent article.

    ~~
    Bruce,

    re: Maersk, and “Maersk abandons recovery hopes.” I agree, that is an ominous Bell tolling..

    additionally: “Maersk Line is the core liner shipping activity of the A.P. Moller – Maersk Group, and the leading container shipping company in the world. The Maersk Line fleet comprises more than 500 vessels and a number of containers corresponding to more than 1,900,000 TEU (Twenty foot Equivalent Unit – a container 20 feet long). This ensures a reliable and comprehensive coverage worldwide. ..”
    “…World trade would not be the same without the modern container, invented in 1956. Today, it carries more than 90 percent of all goods in world trade. Every commodity and type of goods can be loaded and carried in ‘the box’, as the container is often referred to. As a result, modern container shipping has changed the way we transport goods around the world and has played a key role in globalisation.

    *A single 20-foot container can hold about 48,000 bananas. So, in theory, a PS-vessel such as the EMMA MAERSK can transport approximately 528 million bananas in a single voyage – enough to give every person in Europe or North America a banana for breakfast.
    *If all Maersk Line containers were placed one after the other, they would reach about 19,000 km. This is more than the distance from Copenhagen, Denmark to Perth, Australia, via Cape Town, South Africa or almost half of the earth’s circumference or almost three times the earth’s radius.
    *If all the Maersk Line containers were stacked on top of each other they would reach approximately 2,500 kilometres high, equivalent to stacking 8,550 Eiffel Towers on top of each other.
    *At any one point in time, Maersk Line is transporting cargo worth approximately three percent of the world’s GNP (world GNP in 2005: USD 36,356,240,000,000).
    *In 2007, Maersk Line made around 41,500 port calls – equivalent to approximately five port calls per hour or one call every 13 minutes.
    http://www.maerskline.com/link/?page=brochure&path=/about_us/company_info

  17. MichaelGat says:

    Employees don’t want to be micromanaged and treated condescendingly, but they are desperate to know, and deserve to know where they precisely stand on the org chart and in respect to immediate coworkers.

    I’m going to disagree with you slightly, because I find that the “well defined org chart” to often be a crutch, or in the worst cases, a smokescreen to cover for the fact that management often has no clue what it is doing. One of the worst examples I can think of was a company I worked for some years ago where the founder/owner/CEO famously stated that “Success is 1% inspiration and 99% last-minute changes.” This company, despite having only a few hundred employees, a very detailed org chart, and an employee manual over a hundred pages long, was constantly failing to get things done, because even at the upper management levels, they couldn’t decide what to do and when they did decide they often kept it secret, apparently presuming that well-informed employees were somehow a threat. An org chart won’t help you if that’s the case, as appears to be the situation at BAC.

    I prefer Jon Carroll’s definition of what works:

    Too many bosses try to be nice guys. A little common courtesy is always appreciated, but what people really want from their bosses is clarity. “Just tell me the truth” is the common cry of the confused employee. (Competence is also nice in a boss, but competence is really gravy. Clarity is the pearl beyond price.)

    I worked for Rupert Murdoch for four years. He was not a nice guy, even when he was trying to be. But he always told me the truth, even when it was not a truth I wanted to hear. It was a really easy gig, even when it was hard. I knew how I would be judged.

    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/04/27/DDG27BCCUL1.DTL

    Note that he complains about a lot of the same things you do, but he reaches to the core of what’s missing from some companies, and it’s not org charts, formal heirarchies, dress codes or modes of address.

    “Clarity” is the key. You can have clarity even when the organization and relationships are complex. I’ve seen this in some of the better organizations I’ve worked for over the years. Intel and HP in their heydays practiced amazing clarity, despite flat and often fluid organization structures, and a great deal of informality in their internal operations. Look at any great Silicon Valley company and you’ll probably find much the same state of affairs. It’s what works when rapid change is the name of the game.

    Throughout my work history with both of those companies and many others like them, I often had multiple projects and almost alwayshave had to work across organizational lines to get things done.My boss’s job (and the job of the formal org chart) was to make sure my goals were clear and well aligned with the goals of the organization, and to provide an evaluation of my performance. Beyond that, the heirarchy was largely irrelevant. What I needed to get donewasn’t always neatly defined by an org chart. It was always clear.

    I’ll take “clarity of goals” over “neatly defined organization” any day. The former is the key.

  18. [...] article, this one a blog post from Chris Whalen at The Big Picture economics blog goes over some of the problems that came out of the wave of takeovers late last year [...]