If in doubt, stick it in

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Negotiation Anatomy™

Casanova yesterday. Just, ah, sign here, baby.

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Also known as Casanova’s advice or the credit officer’s refrain, “If in doubt, stick it in” — a chubby finger-post to the nearest negotiation oubliette — is an admonition that rings daily around the cloistered spaces of every institution but is only offered, in these pages, with a generous helping of irony.

“Well, it can’t hurt to ask.”

But it can hurt to ask. Every time you ask, a little part of your negotiation team dies.

So: better advice: murder your darlings. Or, as our brethren legal eagles would say, subject one’s darlings, or procure that such darlings are subjected to, culpable homicide.

There are two kinds of pointless things we habitually stick in contracts.

The first: absurd aspirations of the credit team. Walk-aways, key person clauses, NAV triggers — things those at the coalface know will be rejected, just as habitually, by any counterparty advisor having a pulse. Yet the credit team draws strength and comfort, seemingly just from the knowledge they are being sought at all. We know not why.

The second: matters of tedious internal compliance — be they accommodations of the manifold misconceived pedantries of bad regulation or internal policy overreactions sustained in the aftermath of some collapse or other blunt market trauma in times gone by. If you wonder why your terms of business are such lengthy, irrational, illogical, random tracts, this is the reason: they are a graveyard for random items of compliance. “Can’t we just shove something in the TOBs?” is a refrain the legal department will hear once a week. No matter how strong his heart or earnest his resolution, the poor fellow responsible for the TOBs will eventually lose the will to resist.[1]

In either case the result is the same: gnomic confections piped into the back end of your contract templates like so much kitchen dirt swept under a rug, only to fossilise there, unloved, undisturbed, until overlaid with yet more scar tissue.

A credit officer murmurs, distractedly, “well I'm not going to die in a ditch about it, but at least let’s give it a try.”
“Give what a try?”
“Well, say we exclude out liability except for loss arising from our gross negligence?”
“'Gross negligence? But surely no sensible client will accept that?” you say.[2]
The risk officer shrugs. “Perhaps so. But why don’t we give it a try?”

Because asking for a term you don’t need but to which a counterparty will object has an actual cost: The time and devotion of negotiation and, via the circle of escalation, management resources to resolve the client objection. You can only clear the point by persuading your client to accept it, your risk management team to live without it or walking away from the negotiation altogether.

You will expend some time and resource whenever the client objects, even if it immediately relents. The longer that takes the more expensive it will be. That cost may be de minimis per negotiation but, across many negotiations in portfolio, de minimis costs add up: just ask the head of the documentation unit how often chief operating officer hungrily regards her team with a view to offshoring, rightsizing, automating or otherwise eviscerating it.

See also


  1. You may detect the tang of personal experience here. I cannot deny it.
  2. Conventional wisdom has it that US counterparties will unblinkingly accept gross negligence standard. Which makes you wonder about conventional wisdom in America. But anyway.