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I have my own theory about why decline happens at companies like IBM or Microsoft. The company does a good job, innovates and becomes a monopoly or close to it, and then the quality of the product becomes less important. The company starts valuing the great salesmen, because they're the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company...

- Steve Jobs, co-founder and former-CEO of Apple (AAPL 0.71%)

A bank loan and an iPad aren't as dissimilar as you might think.

Sure, one is tangible while the other is intangible. One is stodgy while the other is cool. One implies obligation and the other entertainment. But fundamentally, both are products. And fundamentally, the quality of both dictates the success of the company selling them.

In the quote above, Steve Jobs was referring to IBM's failure to dominate the PC market after its early successes and Microsoft's initial complacence toward mobile computing. What's interesting, however, is that the same principals were present at banks on the eve of the financial crisis.

If there's one commonality that failed and underperforming banks share, it's the conscious decision to boost sales volume at the expense of credit quality. In the technology sphere, this manifests itself in the use of inferior components and rushing products to market. In the banking sphere, this comes from sidelining risk management.

Here's a pre-2007 anecdote about Merrill Lynch's former-CEO Stanley O'Neal (emphasis added):

O'Neal's vision had been to make Merrill Lynch more like Goldman Sachs, the perennial profit machine of Wall Street, but like everyone who made the mistake of trying to copy Goldman, O'Neal was mesmerized by the profits and gargantuan pay packages for which Goldman was famous. O'Neal had no interest in replicating the foundation of Goldman's success, which was a culture based on restraint, teamwork, and self-discipline, where risk managers wielded more power than traders.

- Greg Farrell, Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near Collapse of Bank of America

O'Neal lost his job not long before Merrill sold itself under duress to Bank of America (BAC 0.14%) in September 2008.

Along these same lines, here's an anecdote about the now-extinct Washington Mutual in 2005 (emphasis added):

Suffering from health problems and weary from battling the growth of high-risk loans, Jim Vanasek, WaMu's chief risk officer, retired. In the spring of 2005, in one of his last attempts to change the company's direction, he wrote a memo to WaMu's executive committee. If the bank continued to make high-risk loans, he warned, the results could be disastrous for the company.

- Kirsten Grind, The Lost Bank: The Story of Washington Mutual -- The Biggest Bank Failure in American History

Washington Mutual was seized by the Office of Thrift Supervision three years later and given to JPMorgan Chase (JPM 0.10%).

And here's an anecdote about Bear Stearns dating back to the same time period (emphasis added):

As at most investment banks, [Bear Stearns'] levers were pulled exclusively by a short list of managers who ran divisions like fixed income, equities, and prime brokerage, which handled trading and lending to Bear's most important hedge fund clients. Managers in places like risk management and operations were considered less important to the firm's core franchise and therefore largely excluded from important decisions.

- Kate Kelly, Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street

Bear too found itself in the not-so-warm embrace of JPMorgan thanks to this philosophy.

Are you seeing a trend here?

By comparison, here's a quote from JPMorgan's CEO Jamie Dimon:

No one ever has the right to not assume that the business cycle will turn! Every five years or so, you have got to assume that something bad will happen.

- Gillian Tett, Fool's Gold: The Inside Story of J.P. Morgan and How Wall St. Greed Corrupted Its Bold Dream and Created a Financial Catastrophe

The point here is that banks, like technology companies, fail because they take their eyes off the ball. They become complacent in success, transfer authority to salespeople, and by doing so allow the quality of their products to decline.

It's a story that we've seen repeated many times in the past. And it's one we'll continue to see in the future. At least now, we're all hopefully better equipped to recognize the telltale signs before it's too late -- be it with a technology company or a bank.