As the former chief risk officer of Citigroup, Jorge Bermudez ’73 knows a thing or two about the current economic crisis. Bermudez spent 33 years with the company in a variety of management roles before retiring in July of 2008 to start his own consulting firm. During a recent campus visit, he spoke with students at Texas A&M University’s Mays Business School about his career, the state of the economy, and the future of business.
As chief risk officer, Bermudez looked at the risk processes at Citigroup that led to their current financial situation. He helped to create a new company risk-management architecture to prevent future instances like this from happening.
“Many people say that this financial crisis that we’re in started in July of last year. That’s like sayingâ€¦my sneeze is the cause of my tuberculosis,” said Bermudez. In his opinion, the roots of today’s problems began in 1998, when the Glass-Steagall Act was modified to allow commercial and investment banks to merge, creating a riskier environment for investing, with more potential for loss as well as gain. The other factor was the artificial liquidity the U.S. government had injected into the economy for the past eight years to stave off recession. Together, Bermudez says those two factors created a level of greed on Wall Street that led to inappropriate risk management.
A student asked, is more regulation the key to reversing this trend? Bermudez says yes, there has to be more effective regulation, especially in light of the recent bailouts. “There had to be a bailout,” he said. “Without the bailout, this country and the world would be having really tough timesâ€¦We learned that from the Great Depression.” However, he fears without proper regulation, the bailouts could lead to even riskier investing and larger financial repercussions, as banks are now backed by the government, thus reducing accountability. “Something has to change,” he said.
A good place for that change to start, says Bermudez, would be for companies to stop rewarding greed: Bermudez recommends executive compensation should reflect the performance as well as the risk incurred by the individual. “To me, that is a way to capture greed, and keep it somewhat in check,” he said. He also says American businesses need to improve communication with risk officers, so that appropriate dynamic risk-adjusted returns become an integral part of business management.
He had practical advice for students about managing their future careers, as well. “Don’t do anything you don’t understand,” Bermudez told them, encouraging students to ask questions at work and dig beneath the surface of an issue before making a decision. He also reminded them that their integrity is their most valuable asset. “If it comes down to losing your job or losing your standards, lose your job!” he told them. “It is absolutely not worth it to violate your ethical standards.”
Originally from Cuba, Bermudez holds a bachelors and a master’s degree in Agricultural economics. After he graduated from A&M with his MA in 1975, he was one of the first Aggies to go to work for Citigroup in their New York office, where he worked as an international banker.
“Texas A&M has given me an education that allows me to compete with anyone,” he told students. “It doesn’t matter where you went to school, it’s the quality and the quantity of the work that you’re willing to provide that will set you apartâ€¦you are coming out of this university extremely well prepared.”