Jonathan Golin - The Bank Credit Analysis Handbook: A Guide for Analysts, Bankers and Investors

Contents

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First edition published in 2001.

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ISBN 978-0-470-82157-2 (Hardcover)

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Preface to the New Edition

In early 1997, Jonathan Golin applied for a position of bank credit analyst with Thomson BankWatch. He had limited experience in financial analysis, let alone bank financial analysis, but Philippe Delhaise, then president of BankWatchs Asia division, had long held the view that outstanding brains, good analytical skills, a passion for details, and a degree of latent skepticism were the best assets of a brilliant bank financial analyst. He immediately hired Jonathan.

Jonathan joined a team of very talented senior analysts, among them Andrew Seiz, Damien Wood, Tony Watson, Paul Grela, and Mark Jones. Philippe and the Thomson BankWatch Asia team produced, as early as 1994 and 1995, forewarning reports on the weaknesses of Asias banking systems that led to the Asian crisis of 1997.

After the crisis erupted, Philippe made countless presentations on all continents, and he conducted, with some of his senior analysts, a number of seminars on the Asian crisis. This led to a contract with John Wiley & Sons for Philippe to produce a book on the 1997 crisis that was very well received, and which we hope the reader will forgive us for quoting occasionally.

When in 1999 John Wiley & Sons started looking for a writer who could put together a comprehensive bank credit analysis handbook, Philippe had neither the time nor the courage to embark on such a voyage, but he encouraged Jonathan to take the plunge with the support of unlimited access to Philippes notes and experience, something Jonathan gave him credit for in the first edition of the Bank Credit Analysis Handbook , published in 2001.

Meanwhile, Thomson BankWatchat one point renamed Thomson Financial BankWatchmerged with Fitch in 2000, but Philippe and Jonathan quit prior to the merger. Philippe carried on teaching finance and conducting seminars on bank risk management in a number of countries. Recently, in Hong Kong, Philippe cofounded CTRisks Rating, a new rating agency using advanced techniques in the analysis of risk. Jonathan moved to London, where he founded two companies devoted to bank and company risk analysis.

During the 2000s, the risk profile of most banks changed dramatically. Many changes took place in the manner banks had to manage and report their own risks, and in the way such risks shaped a banks own credit risk, as seen from the outside. Jonathans book needed an overhaul rather than a cosmetic update. This is how eventually Jonathan and Philippe joined forces to present this new, expanded edition to our readers.

In the preface of the first edition, Jonathan thanked Darren Stubing for his substantial contribution to several chapters, and most likely some of Darrens original input still pervades this new version of the book. The same applies to texts contributed by Andrew Seiz in the first edition, and there is no doubt that research done by the Thomson BankWatch Asia team, together with some of their New Yorkbased colleagues, permeates the analytical line adopted both in Jonathans first edition and in the present new edition of The Bank Credit Analysis Handbook . The only direct outside contribution to this edition is coming from Richard Lumley in the chapter on risk management. We are thankful to all direct and indirect contributors.

The crisis that started in 2007 is still on at the time of writing. Banks and financial systems should share the blame with profligate politicians, outdated socioeconomic models, and a shift of the worlds center of gravity toward newcomers.

However deep the resentment against banking and financeoften fanned by otherwise entertaining political slogansbanks are here to stay.

Banks remain a major conduit for the transformation of savings into productive investments. It is particularly so in emerging countries where capital markets are still not sufficiently developed and where savers have limited access to direct credit risk opportunities. Even in advanced economies, access to market risk often involves dealing with banks whose contribution as intermediaries is sometimesand often justifiablyquestionable.

More than most other financial intermediaries, banks do carry substantial credit and market risks. They act as shock absorbers by removing from their depositors shouldersand charging, alas, hefty fees for the servicesome of that burden.

As we shall point out in this book, weak banks actually rarely failthey often merge or get nationalizedor at least their problems rarely translate into losses for depositors or creditors. Major disasters do occur, though, and we should not dismiss the view that the mere possibility of such an occurrence is enough for state ownership or state control of banks to gain respect in spite of the huge inefficiencies such models introduce. At the very least, banks should be submitted, within reason, to better regulatory control.