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business newsWells Fargo Exits Reverse Mortgage Business on "Unpredictable Market"
By
Peter Atwater
Jun 20, 2011 9:30 am
Investors and boards of directors shouldn't accept the lack precictability as a valid excuse.
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So when I read Wells Fargo's (WFC) release last week announcing the bank's decision to exit the reverse mortgage business I was struck by their particular choice of explanation, "today’s unpredictable home values."
At the risk of a logic lesson, to exit a business today because of "unpredictable values" suggests that the decision to enter the business back in 1990 was some how based on "predictable values" then, as in “Wells Fargo believed in 1990 that it could predict home prices into the future.”
Pretty funny when you put it that way, isn't it?
When things work out as we hoped, the outcomes are always "predictable" and when they don't, well, we use "unpredictable" as the excuse.
As someone who watches words for a living, I have been fascinated by the rising attribution of losses to the unpredictability of prices -- as if we could never foresee falling home values or stock or commodity markets, or major world events. Who could have expected the 2008 banking crisis or this year’s Arab Spring?
For Wells Fargo, their willingness to attribute a bad outcome to "unpredictability" begs the question: Where else are they (and other corporations for that matter) using a proverbial crystal ball in their decision making processes? And more importantly who is accountable for those predictions -- especially if they don't work out? (Especially since management will always take the credit and be compensated for the outcomes when they do succeed.)
For investors and boards of directors to accept "unpredictable" as a reasonable excuse for an outcome -- along with the “one-time non-cash charge” that is almost certain to go along with it -- is pathetic.
Real life has been, is, and will always be unpredictable. Predictable outcomes are nothing more than hope come true. "Unpredictable" outcomes are a failure of basic risk management. It is time that investors and boards of directors stood up to say it.
Positions in SH, JPM
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