It's last call at the betting window. Cold beers have been wagered on the outcome of the May 21 annual shareholder meeting of JPMorgan Chase. One one side, the status quo which has weathered risky times, rebounded from mistakes, and outperformed on a range of metrics. On the other side, philosophical and ideological notions of governance backed by the moral principle that less risk-taking is an inherent good. Governance blogs on LinkedIn provide ample background:

Boards and Advisors Blog 1
Boards and Advisors Blog 2
Boards and Advisors Blog 3

The quants, too, have their say. With five days, left, the Steel City Re reputational value metrics, as before,  show exceptionally low levels of current reputational value (Current RVM) volatility at JPM indicating stakeholders are not expecting change.

The chattering classes are terribly excited about the upcoming annual meeting of JPMorgan Chase. True, the banking industry is generally not all that exciting, except when it is uncomfortably so. But JP Morgan Chase has much good news to share. This part quarter, for example, its trading team had a perfect record of no losses on any day bringing in a performance that beat both Morgan Stanley and Goldman Sachs. Its M&A team also topped the league tables for the prior year, again beating Goldman Sachs. The bank's borrowing costs are rock bottom, and its CEO was offered up as Secretary of the Treasury by none other than Warren Buffet.

None of that, however, is factoring in to the chatter. The press and airwaves are dominated by expressions of outrage by proxy advisory groups that CEO Jamie Dimon, the earstwhile Treasury secretary nominee, has the audacity of being his own boss by holding also the title of Chairman. Their distress, to be shared in Tampa, Fla., on May 21, is more broadly directed at the board as a whole comprising individuals who failed to monitor the bank’s risk management, a failure highlighted by last year’s $6 billion trading loss in the company’s chief investment office. The directors stand charged with "letting down outside shareholders."

Writing for the Financial Times, Gary Silverman offers a refreshing counterpoint. In an essay aptly named "Daydreams of supervising Dimon," Silverman concludes "that just about the only person who would be truly capable of supervising Mr Dimon at JPMorgan these days is Mr Dimon himself, and that means this column leaves him as it found him – in a lonely place."

Huygens, being a numbers man, seeks comfort in the wisdom of crowds. Yet as Jacques Anatole François Thibault, winner of the 1921 Nobel Prize in Literature observed, "If fifty million people say a foolish thing, it is still a foolish thing." Huygens, being a numbers man and being from Pittsburgh and and being an admirer of Andrew Carnegie, is less interested in what people say, and more interested in what they do (or are expected to do).

Stakeholders are generally rational. Activist investors have a point, and when a company is in trouble, things need to be shaken up. Witness the value created at JCPenny by activists investors who upon the departure of then CEO Myron Ullman and brought in Apple Inc. retail giant Ron Johnson to restore integrity to the sinking retail ship. Seeking Alpha's assessment: JCP's stakeholders must be furious that the company spent $170M of their money to hire Ron Johnson and his team...only to rack up dreadful five quarters of 15%+ year-over-year declines in comparable sales. So who's in charge now? Myron Ullman.

From a reputational value perspective, JPMorgan Chases remarkable journey over the past two years has been document here previously. At the risk of having a Karl Rove moment, Huygens opined recently on a LinkedIn blog, Boards and Advisors, that the Steel City Re Reputation Value Metrics indicated no major changes at JPMorgan Chase. Huygens shared the same with friends on the LinkedIn blog of the Intangible Asset Finance Society. Updated metrics from this past week, now only less than two weeks from the annual meeting, affirm Huygen's impression. JPMorgan Chase's reputation is in generally good standing, and the current volatility of its RVM, a non-financial measure of reputational value, is at a peer-group low of less than 1% (Chart, top, row, Vital Signs and Current RVM Volatility). The data, representing the wisdom of crowds including, but not limited to pundits and shareholder advisers, indicate that as a group, no one is expecting any surprises. Or in the words of Consensiv, an advisory group, the Consensus Trend for JPMorgan Chase reflects a remarkable coherence of expectations.

Which leads Huygens to predictions in the alternative. First, it is unlikely that there will be major changes at JPMorgan Chase's Board of Directors; second, if in the unlikely scenario there are, the stock price will become quite volatile.

A meat-product snack called Slim Jim took pride in its two classes of followers: haters and lovers. The haters could be dismissed as long as there were enough lovers finding value in the product.

JPMorgan Chase (JPM) may be the banking equivalent. There is no shortage of governance executives and proxy advisors who have strong concerns about the fact that Jamie Dimon holds titles as both CEO and his own boss, Chairman of the Board. They're pushing for a split. Others see a Karmic injustice in the ability of Mr. Dimon to weather the consequences of the London Whale event and its multi-billion dollar loss without nary a scratch.

Other stakeholders have spoken through more economically compelling actions. Creditors are offering superior terms, equity value is high, and customers may have pushed the bank past Goldman Sachs on the M&A Value league table. Employees have love, too, and while the effects are transparent on the P&L, it's nice to know why.

Consider the bank's response to Super Storrm Sandy. CFO's Caroline McDonald writes, "Unlike many companies, faced with closed branch banks when people needed access, Chase chose not to passively wait for employees to get back to work whenever they could. The company provided transportation to pick up employees and take them to work, according to the employee I spoke to. The company also provided them with food, and those who had no home to go back to were put up in hotels, she said. This was all corroborated by a Chase spokesperson. The list went on and on, including taking care of children whose schools were closed through its backup childcare program, and helping employees find automobiles when theirs were destroyed."

What about the objective measures of reputational value from Steel City Re, and how is the growing horde calling for changes in Mr. Dimon's status affecting reputational value volatility? The short answer is not much. Relative to its 50 peers, JPM's ranking is in the 90th percentile. Its RVM volatility, a measure of uncertainty, is at the 15th percentile with an absolute measurement of around 1.5%. All indicators of reputational value stability are at top levels, suggesting that change is not expected. Which is not necessarily good if the proxy advisors get their way on principle - expect a major loss of equity value in the uncertainty that would follow.

Cynics insist that the big banks have only an interest in reputation -- an interest that distributes risk inequitably on others. As the old fable goes:

A Pig and a Chicken are walking down the road. The Chicken says: "Hey Pig, I was thinking we should open a restaurant!" Pig replies: "Hm, maybe, what would we call it?" The Chicken responds: "How about 'ham-n-eggs'?" The Pig thinks for a moment and says: "No thanks. I'd be committed, but you'd only be involved!"

Last year, UBS tied the CEO's bonus to measures of reputation. Now, a second bank is no longer chicken. In a bigger and bolder display of commitment, the 2012 Barclays Bank Annual Report describes robust board and operational level controls designed to drive reputation risk management throughout the enterprise.

In order to strengthen the governance relating to reputation matters, we have recategorised reputation risk as a new Principal Risk and have created a Board Conduct, Reputation and Operational Risk Committee in 2013. The Barclays Reputation Council created a Bank wide Reputation Risk Control Framework and Reputation Risk Impact/Control Policy, both of which were approved by the Board. The Council has also delivered training on reputation risk to senior executives across the bank to ensure the knowledge and culture is embedded.

The Steel City Re Reputational Value Metrics suggest Barclays is realizing some of the rewards associated with transparently reporting its commitment. RVM is a non-financial indicator of reputational value. The current RVM volatility, an indicator of homogeneity of expectations of reputational value, has been dropping steadily over the past 4 weeks since Huygens last reported the metrics.  Meanwhile, the CRR, a measure of relative reputational value in rank order, shows that BCS has climbed from the 21st to 24th percentile since mid-Feb. ROE is holding steady at just above the median for the sector comprising 49 banking firms.

The data show that BCS's emphasis on reputation, backed by authentic controls, is creating value. The controls have not been tested, so those that have been converted appreciate the qualitative effort. The data also show that while the number of sceptics is dropping, BCS current RVM volatility is still above the median at the 54th percentile. To extract more value from the investment, BCS needs to turn around this very large block of sceptics with a quantitative story -- something made possible by a product like reputational value insurance, perhaps?

The path to providence for a prodigal bank was never expected to be easy. Human nature delights in the fall of the mighty; more so the meek who once suffered at their hands. We are speaking, of course, of the hands of the masters of the Universe.

William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. He scoffs as Antony Jenkins, the chief executive officer of Barclays Plc., seeks to shred the banks old culture and restore ethics, integrity, and other critical values. Cohan wrote on Monday,

It’s tempting to trust this sweet-talking British banking executive, still in the flush of his new appointment to run the scandal-ridden institution. He is understandably anxious to distance himself and his bank from the atrocious behavior rampant at Barclays during the absolute monarchy of his predecessor, Robert Diamond.

Scoffing, as it is now abundantly clear, is a mainstream financial media concern. Last Thursday, the NYSE announced the start of a metric-based publication service tracking sentiment - a social media data analysis service. Call it a scoff meter. Barbara Gray, an analyst with Brady Capital, explains the demand in the financial sector for sentiment data this way.

Social media is creating a new form of appreciating equity called social capital and we are now starting to see an explosion in growth of the number and sophistication of social analytics tools. As these new tools turn more and more qualitative data on companies (previously ignored by investors that just focused on the numbers) into quantitative data, I believe social capital will become even more of a predictive variable for determining stock price performance.

Indeed, the scoff meter is a 17 year old idea whose time has come. As described in Reputation, Stock Price and You, as far back as 1996, Cap Gemini Ernst & Young, a global accountancy, established that non-financial performance plays a critical role in how public companies are valued, accounting for as much as 35% of institutional investors’ valuation. In 2005, PwC, another global accountancy, reported controlled experiments showing that extra-financial data and intangible asset value calculations swayed 40% of analysts to change their target valuations of public companies. That same year, Thomson Extel, the publishing group, reported that 6% of buy-side brokerages devoted material resources to extra-financial data to determine intangible asset value. A year later, that figure was updated to 32% of buy-side brokerages.

The Society, in cooperation with Steel City Re, has been publishing reputational value metrics for several years. S&P/DowJones Indexes publishes an equity index (Ticker: REPUVAR)  informed by the same measures. These measures capture the expected economic consequences of stakeholder actions influenced by, among other things, the same data streams tracked by the scoff meters. In fact, the volatility of the RVM metric, a non-financial measure of reputational value, is a measure of stakeholder expectation alignment -- truly, a scoff meter. And CRR, a measure of reputational value premium, is an indicator of the relative value of those expectations among all stakeholders in terms of expected economic impact. When RVM volatilty is high, CRR naturally suffers.

Below, Barclays' most recent data from Steel City Re in both Investor Relations-friendly and traditional Risk Manager-centered actuarial formats. Looking first at the IR-friendly form of reputational value reporting, the data show that the measures of expectation alignment - the degree to which stakeholders believe what is being said about Barclays and plan to act accordingly, is around the 8th percentile relative to the other 49 firms in the financial services sector. The measure captures the expected economic impact of Cohan's scoffing, as shown on the same Peer Standing chart where the reputational value premium is around the 21st percentile. Two measures, both in the black box, indicating (optimistically) great upside potential.

Below, in the bottom left, a comparison of current alignment versus historic alignment. The measure appears to be decreasing, which could be interpreted to mean stakeholders are trusting the messaging less, or more aptly here, with the new messaging, stakeholders aren't accepting it...reference Cohan again.

Turning to more traditional economic measures, the Beta charts at right show that Barclays' economic returns have a Beta of 1.5 x both the group median and the S&P500; Barclays' reputational value metrics, on the other hand, have a Beta of 0.0 relative to the group median and the market measure of uncertainty -- the VIX. Barclays, from a reputational value perspective, is now in a league of its own.



The story is no different looking at the actuarial data below although time series data provide more nuanced insight. Barclays wild ride goes back to September 2012 and a steady rise in economic value not yet matched by a rise in CRR suggesting equity investors have a feeling for something others, like Cohan, are fighting tooth, nail, and blog.

There are three types of companies that can benefit from tinkering with the business bits that underpin reputation. Iconic firms can build in reputational resilience to help them in their ongoing battle with NGOs. Good firms in commodity businesses can signal points of value-added differentiation. The last group, of which Barclays is an unhappy member, can signal material efforts at repairing that which has caused them in the recent past reputational value loss.

The good news for Barclays and similarly situated firms is that evidence shows that reputation restoration works and, all things being equal, can create an additional 6.5% in market capitalization. The other good news for Barclays Plc is that Chief Executive Officer Antony Jenkins’s pledge to shred the legacy of his predecessor and fix the lender’s culture, as reported by Bloomberg,  appears to be creating value as stakeholder expectations are realligning.

The reputational value metrics, calculated by Steel City Re, show two important shifts. The volatility of RVM, a non-financial measure of reputational value, is high and rising. The value and direction of change of CRR, a measure of relative reputational ranking (the reputational value premium), is now above the median level for the 49 peers, and is rising rapidly. Profits and the commensurate equity bump, are sure to follow.

They're at different ends of the ROE continuum, but both JPMorgan Chase and Deutsche Bank share one common attribute that is a hallmark of the financial services sector: remarkable resilience. Both keep taking a licking of one form or another and keep on ticking.

Earlier this month, the Board of Directors at JPMorgan Chase stepped into the fray, took up Barney Frank’s 2012 suggestion, and slashed Jamie Dimon’s bonus for the $6bn London Whale affair and for, as the press reports, “damaging the bank’s reputation.”

Yet objective measures of reputational value would argue otherwise. An institution in the throes of a reputational value crisis cannot buy $2.85 billion in credit at rock-bottom prices. In addition to paying only 77 basis points above US Treasuries for fixed-rate securities due October 2015, with an unprecedented low rate of 1.1 percent, the largest US bank paid only 66 basis points more than 3-month LIBORs for floating rate securities for the balance. Moreover, a CEO in the center of a reputational crisis is unlikely to be nominated by Warren Buffet to be Secretary of the US Treasury. And an institution in a reputational crisis is unlikely to report net income of $5.7bn for the fourth quarter, up sharply from $3.7bn a year earlier, as JPMorgan Chase shared last week.

Meanwhile an Italian judge recently convicted Deutsche Bank together with  JPMorgan Chase, Switzerland's UBS and a German-Irish bank, Depfa, for their role in overseeing fraud by their bankers in the sale of interest rate bets to the city of Milan. In parallel, Deutsche Bank is part of a worldwide investigation for altering the British benchmark interest rate (Libor) and its euro-counterpart (Euribor). The US Senate named the German bank alongside Goldman Sachs as the two institutions that played a “key role” in the financial crisis.

Once renowned for its solid and risk-averse business, Deutsche Bank became an aggressive investor under the leadership of Swiss top banker Josef Ackermann. His successor, Juergen Fitschen, who vowed to change the company's culture, recently came under fire in Germany for having phoned up the regional governor to complain about the police raids which are denting his bank's reputation.

The Steel City Re Reputational Value Metrics show JPMorgan Chase far ahead on most measures. As shown in the vital signs chart below, Deutsche Bank's RVM volatility, a measure of reputational value volatility, is been and still is more volatile that JPMorgan Chase's, its CRR, a measure of relative reputational ranking is lower, and its ROE is significantly lower. But in a nod to last week's Mission Intangible Monthly Briefing on organizational resilience, Deutsche Bank's reputational ranking, its CRR, is rapidly on the rise and therefore its reputational stability (reflecting change) is also lower than JPM's. These reputational value measures are forward-looking indicators of economic value. Therefore, notwithstanding all of the scandalous news, these reputational value metrics indicate that in the setting of a rapidly rising CRR, profitability at Deutsche Bank (read: ROE) is sure to follow.

Corruption. Rogue trading. Libor. Foreign corrupt practices. Billion dollar penalties and fines. Just another day on Wall Street. Compare and contrast, if you will, HSBC and UBS. Pictures comprising select images reporting Steel City Re Reputational Value Metrics speak louder than mere words. RVM is a non-financial measure of reputational value; CRR is a measure of relative reputational ranking. Peer group comprises 251 financial/banking institutions. (For more background, read: Reputation, Stock Price and You: Why the market rewards some companies and punishes others (2012, Apress).

To a medical patient with non-specific signs, a radiological diagnosis of a negative CT (pronounced, CAT) scan is reassuring. Goldman Sachs' board may be breathing easier, too, having received the report of a negative Muppet scan.

Here's how the Financial Times (10 October, Braithwaite T, Alloway T) reported it Wednesday night: Goldman Sachs has told its board of directors that an internal investigation found little substance to allegations made by Greg Smith, the disaffected employee who claimed the bank has a “toxic environment” where bankers refer to clients as “muppets.”...Goldman responded by launching an investigation into what was nicknamed internally “the muppet hunt”. The investigators interviewed dozens of staff and sifted through millions of emails, finding about 4,000 “muppet” references. But they said 99 per cent of those referred to last year’s movie of the same name.

As we've reported consistently here and  describe in greater detail in the forthcoming book, Reputation, Stock Price and You (October 2012, Published by Apress), Goldman is harvesting the benefits of a superior reputation within its key market. The Steel City Re Reputational Value Metrics, beginning with the Vital Signs (Column 2 Row 2) show that the volatility of the RVM, a measure of reputational value, is decreasing; the CRR, a measure of relative ranking, is at the 88th percentile, the return on equity is par for the group, and the forecast stability is above average at the 80th percentile relative to the 256 companies in the Bank, Holding Company, and Security Brokerage super industry group. All forecasting measures (Column 1 Row 3,4 and Column 2 Row 4) report  upward movement in RVM and CRR.

The reputational value metrics from Steel City re say quantitatively what Barron's wrote for their October cover story on Goldman Sachs titled, Built to Win. Without diminishing the benefits of a negative Muppet scan, Barron's subtitle probably brings the board more comfort: "Goldman Sachs shares could rally 25% in the next year as capital markets improve. How Wall Street's leader has stayed on top."

"JP Morgan Chase & Co., the bank that plunged as much as 24 percent in the month after disclosing a multibillion-dollar trading loss, has erased that decline," reported Bloomberg (Kopecki, 13 September). The wrong-way bets on credit derivatives cost the bank $5.8 billiion so far and are the focus of an escalating investigation by a U.S. Senate panel and at least 11 agencies, including the Justice Department and Securities and Exchange Commission.

While the bets first disclosed 10 May 2012 also were potential sources of significant reputational damage, Huygens reported that the Steel City Re reputational metrics suggested otherwise. Those metrics now indicate that JP Morgan Chase's reputation, too, is almost back to where it was prior to the spring 2012 event. The metrics further indicate that JPM's reputation ranking is expected to continue to rise at a reasonable rate with both the current reputational volatility and projected stability ranking in the 60th percentile with a positive expected direction of change.

JP Morgan Chase has been a robust reputational risk story. One point emerging from the story is that reputational  metrics could have given both the market and JP Morgan Chase's board significant peace of mind. The events made for great media fodder, but it was never really  a reputational crisis, as the metrics showed then, and affirm now. Notwithstanding the personal abuse of the hearings etc., CEO Jamie Dimon has done well. So far he and his wife have reaped a 22.6% gain from their $17.1 million bet on JP Morgan Chase's reputational resilience for a cool $3.86 million in less than two months.