Friday, October 17, 2008

Forbes: Bank of America's Chief Risk Officer

ForbesLife

Amy Woods Brinkley
Julie Earle-Levine
Forbes Magazine dated September 29, 2008


As chief risk officer at Bank of America, the largest retail bank in the U.S., Amy Woods Brinkley spearheaded its recent takeover of the stricken mortgage lender, Countrywide Financial, just as the U.S. economy was heading downward. She will have a key role in defining the types of loans the new subsidiary will make and the growth model it will pursue as it is absorbed into the company.

Brinkley joined the bank 30 years ago in the commercial credit department after graduating Phi Beta Kappa from the University of North Carolina. She held a variety of positions in international banking, domestic corporate banking, and marketing, leading the consumer products group before assuming her current sector in December 2001. In 2005, she was awarded the top spot on US Banker magazine's list of "The 25 Most Powerful Women in Banking."

Why did you take on Countrywide?

Our company did very extensive due diligence. I've been involved in a lot of our acquisitions and I don't recall one that was more thorough. During that process I became increasingly comfortable; the problems at Countrywide were real, but they were also manageable. I always thought it would be a terrific strategic acquisition but the main question was whether we could handle the short-term challenges, and I think we can. I am excited about the longer-term opportunities.

And the impact on Bank of America (nyse: BAC - news - people )?

We understood there was significant reputation risk. That's why we promptly [made] certain changes that would mitigate that risk, such as the elimination of subprime mortgages and other nontraditional mortgages, pledging to work out loans wherever possible and working with community group partners. In the end, people need to judge us by what we do now and what we will do going forward.

But the estimates on write-downs for Countrywide's mortgages range from $8 billion to $30 billion. (Bank of America puts the figure at $12 to $13 billion.)

As we said a number of times, we did very extensive due diligence on the transaction, not only before signing but going back in before closing the transaction, and we believe the economics made sense and the market-share opportunity is worth the risk. We told investors in June that the purchase accounting adjustments will be in the neighborhood of $12 to $13 billion. Based on what we have contemplated, the acquisition would be accretive in the second half of this year. If we are wrong we will face some other losses in the future, but that would only delay the payback from the acquisition. Certainly I don't know that we bought at the bottom, but we clearly did not buy at the top of the market. So again, just before closing the transaction we revisited the economics and we are comfortable with what they tell us.

Where do you see the upside?

This transaction represents a rare opportunity to significantly gain market share, in this case in the mortgage business. We will have market share in the 20 percent range, in a business that is vital to consumers and to the economy.

Is it still hard convincing analysts about the deal?

I think some have understood [the purchase] better than others. Others will understand it more fully as time passes.

When will the mortgage crisis abate?

The single biggest question is when housing prices [will] stabilize, which is dependent on quite a few factors. I think we'll see some stabilization in 2009. I wouldn't try to call it into a quarter. We are battling a series of issues that stem from the impact of falling home prices, and that has created unprecedented illiquidity and extreme volatility in certain parts of the capital markets. Some areas are getting better: for example, liquidity in the leveraged loan market has improved. The bigger picture beyond housing and mortgages is the collective impact of higher energy and food costs [and whether that] results in a recession. We are not presently calling for that, but it is a close call.

As a chief risk officer, how do you calculate risk?

I certainly use many quantitative techniques based on probabilistic analysis. But it is also really important to use common sense and to not over-rely on models and historical evaluations of risk. I would describe it as balance of science and art. It's 70-30. I think there was a time when the quantitative approach worked better than it does today, and that is due in part to the increasing complexity of the global marketplace.

The industry is always good at lagging and coincidence indicators, but the best [people] are really good at reading the leading indicators and making informed judgments on that basis. Excesses in markets do come home to roost at some point, in some way, so learning from the past is also important.

And the pros and cons?

First of all, it's accepting that the most important decisions we make do involve tradeoffs--what appear on the surface to be equally imperfect, equally important choices, or partially right choices.

For instance, last year before the credit crisis hit, we didn't like where the leveraged finance market was going and we didn't like the deal terms being granted. Earlier than most, we became more selective. We faced losing potential revenue because the market was continuing to grow, but we had to weigh that against what we were beginning to see. We thought it was the right time to reevaluate our risk appetite, and it proved to be right.

When do you decide to decide?

One approach has helped me a lot through the years. I call it "trying each decision on and wearing it for a while." It might be just a few days, or longer. Usually I'll find that deciding one way leaves me feeling more comfortable than the other. When we exited the subprime mortgage business in 2001, it was a tough decision because it was giving up a not insignificant amount of revenue, and we are a growth-oriented company. We had to convince investors. On the other side, we had reputation risk (related to predatory lending) and concern where volatility could go over the longer term. It really was art and science and trying both decisions on.

What keeps you up at night?

Actually, I sleep okay. But what does concern me most is what we haven't thought of that we need to be thinking of. Are we pushing ourselves enough? What might be next? Worry in and of itself is unproductive. In today's world you have stuff coming at you every which way. Structuring time to just sit and think is important.

In speeches, you encourage trying on the unfamiliar to advance careerwise. When have you done so?

Early in my career, I was in the international group at Bank of America and worked in Asia. I spent brief periods in Hong Kong. At that time it was very unusual to have a single woman--a woman, period--in those markets.

Another time [in the 1980s], I was asked to start a risk-management function for the consumer businesses. All of my experience up to that point had been on the commercial and business side--I didn't know anything about the consumer business. I was getting in on the ground floor. I knew it was an opportunity to learn a whole new business, and to acquire a totally different skill set. That said, day one, I didn't know what I was doing. But I figured it out. You find good people that you trust.

Can you have a work/life balance?

All great leaders have balance. That's what allows you to keep perspective. It is your own formula. For me, reading, plus some nonprofit work, helps with balance. And exercise--walking and being outdoors.

Describe your day.

I get up very early in the morning, 4:30 or 5 a.m., and have that time for quiet thinking to plan my day. If I don't have an evening event, I leave work at 6:30 or 7 p.m. I can't recall a weekend when I haven't done some work. It might be a few hours, or the whole weekend. I try to work from home then. It stimulates my thinking, just to be in a different space.

What have been your tradeoffs?

[Giving up] more baseball games for my son than I'd like to, and annual cousin reunions that I cherish. It is a myth that you can have it all.

How do you see your strengths and weaknesses?

I think I'm very straightforward. Sometimes I might be too impatient--I tend to operate with a fair amount of urgency, and at times that might be overplayed.


Brinkley's Tips for Surviving and Thriving

1. Don't be preoccupied with proving yourself. I think a lot of energy gets lost in this. It did for me.

2. Make sure you know what you think you know.

3. Maintain balance. You will be better for it.

4. Don't wear your gender on your sleeve. This is not my line--another woman banker said it, but it's good.

5. Explore unconventional career paths. Take lateral moves and learn.

6. Always find great people who are better than you are and learn from them.

7. Trust your gut instinct. If it's speaking loudly, listen.