Friday, September 16, 2016

Don’t Take No for an Answer

By Bob Sherby
      Financial Consultant

Many years ago when I was CFO for an investment management subsidiary of AIG, I thought I had a very good idea and went to the president of the company and suggested that we start doing securities lending to add incremental income to our investment portfolios. He said “Bob, I don’t want to put $100 million of securities at risk to make $100,000.”

I really had no answer for him at that time so I just said okay. I really thought it was a great idea but I didn’t know anything about how securities lending worked. I had several banks pitching the idea to me so I told them they had to teach me all about securities lending and the risks involved. Then I asked them how those risks could be addressed. When I was comfortable about all of the risks, I prepared a paper that identified the three major risks and how they could be addressed to mitigate any potential losses.

I went back to my boss and asked for some of his time. I explained that I still thought securities lending was a good idea and told him that I had identified the risks involved and how those could be addressed with our securities lending agreement. Eliminating the risks would cut some of the potential income but we could still make some good incremental income. He said, okay, you’ve convinced me. Do it.

I met with the portfolio managers involved and explained how it would work and that it wouldn’t restrict any of their trading as long as the banks got timely notice of the trades. I then met with the investment accounting people and explained the accounting to them.

After starting with one portfolio of assets, we made over $1 million in additional income the following year. After adding other portfolios, we ended up making over $8 million in the first three years of the program with no losses on securities.

If I had accepted no for the original answer, nothing would have been done. The value to me was the satisfaction that came with accomplishing something positive. Oh, and my boss added me to a bonus program that had been set up for portfolio managers.

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