M&T Bank CEO Robert Willmers astutely diagnoses his company's failings during the financial crisis

This is an excellent example of a leader showing a "sense of agency." It's an excerpt from a letter from M&T Bank CEO Robert Willmers that accompanied the bank's 2008 Annual Report, and explains why M&T's results, despite being better than many banks' during that awful year, were unacceptable. In short, M&T focused more on its competitors than its customers, got greedy and deviated from its mission. That a CEO would admit that, in writing, shows a maturity and a sense of agency that has proved rare in the banking community in the wake of the financial crisis.

The italics below are mine, to indicate where (in my view) Willmers really took accountability and owned up to mistakes.

UNDERSTANDING 2008

How should the [bank's 2008 financial] results best be understood? One is tempted to portray them in modestly positive terms, to emphasize that we continued to do a great many things right over the course of 2008, absent which we would not have been able to report even the lower net income noted above. Nor is there doubt that, at least to some extent, our own situation was hostage to far larger forces. Even those of us who believed that the economic and financial system problems which began to emerge in 2007 were deep and serious could not have anticipated the unprecedented events about which we now speak matter-of-factly. Few imagined the demise of storied Wall Street financial institutions, the placement in government conservatorship of the secondary mortgage market companies Fannie Mae and Freddie Mac, the direct investment of taxpayer dollars in major financial institutions, including an international insurance company, a government stake in the automobile industry, a more than-doubled increase in the government-insured level of bank deposits and the extension of such insurance, under near-emergency conditions, to investment funds not previously covered. The Nobel laureate novelist V.S. Naipaul has recalled the newspapers of his Caribbean youth as having unfailingly promoted their work as accounts of “extraordinary events and amazing occurrences.” As applied to what’s happened over the past year, such would be no overstatement.

It is true, as well, that the year past was one for which a report of any earnings at all can be said to distinguish us. After all, 2008, officially a recession year, saw major banks of national reach sold at fire sale prices, after reporting billions in losses —and the U.S. banking system as a whole (ie., the 8,384 financial institutions whose deposits are insured by the federal government) appears poised to have recorded its first quarterly loss since 1990. That we were able, as noted above, to continue to generate positive results from growth in our average earning assets and fees reflects the fundamental strength of M&T.

It will not do, however, to claim that we’ve succeeded because we’ve avoided failure. The key question suggested by the figures above must not be how we avoided disaster but why we did not do better. It is an answer with a number of separate parts but broad, unifying themes.

During what we now know as the “bubble” years of 2004–2007, many banks tried desperately to maintain earnings growth by facilitating the extension of credit, especially through home mortgages and home equity loans, to less-than-prime customers. M&T, in some limited but nonetheless significant ways, was not immune to this temptation. Last year, this space noted the decision to purchase, for $131.7 million, three bonds known as collateralized debt obligations, backed by subprime mortgages —and whose value we were forced to write down by $127.3 million in 2007. Similarly, the specific drags on our 2008 earnings —noted above but deserving of emphasis—largely represented departures from our traditional community banking model, a model based on lending in the markets where we live and work to people and enterprises whom we know. In contrast, the investments which proved problematic shared the following characteristics: they were transactional in nature, outside our market footprint, far from our branches and not associated with deposits. Some, moreover, were businesses with which we were not familiar and in geographies in which we’d only been doing business a short period of time.

[Hat tip to Justin Fox at HBR.org]

Disclosure: I am an M&T customer. For some prior references to the bank in my writings, check here, here and here.