TWO FACES OF RISK
By Mike Chambers

The sub-prime debacle may have damaged reputations, emptied executive suites, and riled investors, but it hasn’t been a nightmare for every investment bank. You could call it A Tale of Two CFOs, because for Goldman Sach’s finance chief Daniel Viniar, 2007 is turning out to be the best of times as the bank avoids the worst of the sub-prime crunch. Recently replaced Merrill Lynch CFO Jeffrey Edwards hasn’t been nearly so fortunate. Because of his mistakes, Edwards’s head is the latest on the sub-prime chopping block at Merrill, following last month’s departure of CEO Stanley O’Neal.

How did the two men’s careers diverge so dramatically? Viniar is credited with seeing the writing on the wall early on when he advised Goldman executives to cut mortgage-related investments and acquire more insurance as a hedge against potential losses. Contrary to popular thinking at the time, this turned out to be prescient advice: Goldman has significantly outperformed its peers, closing up about 13 percent for the year. In contrast, Merrill Lynch is down nearly 40 percent for 2007 and the vultures are circling.

Edwards, who was responsible for risk management at Merrill, really underestimated the danger from the mortgage market. When the bottom dropped out, Merrill was in a bind and had to write down US$8 billion in sub-prime losses—it was only a matter of time before Edwards got the boot. That blow finally came on December 3, when the company announced that Nelson Chai, CFO of NYSE Euronext, would take over as CFO on December 10. Merrill has said Edwards will remain with the firm, but hasn’t announced his new role.

As a side effect of Goldman’s success,
its executives are in demand for many recently vacated C-suite positions. In fact, Merrill Lynch just hired former Goldman co-president Jonathon Thain as CEO. Meanwhile, Viniar and the gang at Goldman Sachs can sit back and enjoy their bonuses from a surprisingly good year.