MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Reputation: Sentiment Can Become Reality

C. HUYGENS - Friday, May 26, 2017
Financial services is a lot about confidence—if there are any cracks, it can result in contagion.

The back story: Home Capital (TSE:HCG) experienced a run on the bank, more formally known as a liquidity “issue.” Dave McKay, CEO of Royal Bank of Canada told the Financial Times, “There wasn’t a credit reason to drive the liquidity challenges that Home Capital faced, but more a lack of confidence.”

It is an explanation, but not necessarily a source of reassurance.

“I don’t think you can conclude that even though they [Home Capital] are 1 per cent of the market, it won’t have an impact,” said James Shanahan, analyst at Edward Jones. “The problem is that sentiment can become reality. Financial services is a lot about confidence. If there are any cracks in confidence, it can result in contagion."


Read more from the Financial Times:

Paying Down the Costs of a Reputation Crisis

C. HUYGENS - Tuesday, May 09, 2017
More going-forward costs of #reputation #risk -- now burning furniture.

San Francisco-based bank Wells Fargo & Co. is considering selling its insurance brokerage unit for about $2 billion, Bloomberg reported Tuesday.

Citing “people familiar with the matter,” Bloomberg said Wells Fargo is contacting private equity firms to determine the interest in Wells Fargo Insurance Services USA Inc. The bank is planning to move forward with a sale, Bloomberg reported, but it hasn’t set a timeline for holding a formal auction, one of the people said.


Read more in the Business Insurance.

Paying the Ongoing Costs of a Reputation Crisis

C. HUYGENS - Monday, May 08, 2017
#Reputation #Risk “Corporate names are resilient: when their images get damaged, a change of management or strategy will often revive their fortunes. But personal reputations are fragile: mess with them and it can be fatal,” wrote John Gapper for the Financial Times in August, 2016.

Wells Fargo is preparing to unveil new cost-cutting measures as the scandal-hit US bank tries to rebuild Wall Street’s confidence after a bruising annual meeting with shareholders.

Tim Sloan, chief executive, is this week expected to reveal plans for annual savings at Wells, the world’s third-biggest bank by market capitalisation, of as much as $3bn — on top of an existing $2bn expense-reduction plan.


Read more in the Financial Times.

Wells Fargo: Legal Bills Pile Up

C. HUYGENS - Friday, May 05, 2017
#Reputation #risk Entry level losses based on 6000 events average 24% market cap, 13% sales, and 12% net income. Values vary by industry sector, year, and underlying causes.

Wells Fargo has warned its litigation bill could be $200m higher than previously thought as the US bank sheds new light on a series of lawsuits it is facing over the bogus account scandal.

In a quarterly filing on Friday, Wells said “reasonably possible” losses from legal actions against it could exceed its existing provisions by $2bn — up from a $1.8bn figure it disclosed three months ago.

The document shows how lawsuits are piling up against Wells after thousands of its employees, under pressure to hit sales targets, turned to fraud. Workers signed up as many as 2.1m customers for cards and accounts over several years without their authorisation or consent, in some cases faking signatures.


Read more in the Financial Times.

Citi: Opportunity for enterprise risk management grand slam

C. HUYGENS - Wednesday, September 03, 2014
Other than BNP Paribas, which is actively struggling with serious compliance issues and reputation damage, the large banks appear to be stabilizing. Jonathan Salem Baskin of Consensiv, writing for Forbes, notes that for a financial conglomerate such as Citi, stability is a misnomer -- its very essence is a conflict of narratives.

"Citi’s brand possesses at least four major attributes, by my accounting, and each comes with varying degrees of credibility and meaning: Evil lender, reward points-giver, 200 year-old company, and friend to small business. If it could express them as an integrated, coherent whole, it would be a branding grand slam."

The value of Citi's integrated coherent whole, that is to say, its reputational value, is much better than it has been in the past, but it is still relatively dynamic with at least around $14.3B in play (~10% of market cap) over the trailing twelve months.

"Figuring out how to weave together at least four of its brand attributes would be a grand slam," affirms Baskin. If it could transform that collective reputation into a stable source of value, it would be an enterprise risk management grand slam.

JPMorgan Chase: You're doing it wrong

C. HUYGENS - Monday, March 31, 2014
"Doing it," a double entendre used extensively in the arts, rarely raises an eyebrow nowdays. But when used in banking?

Last week, start-up condom company Lovability learned that Chase Paymentech, an operating company of JP Morgan Chase, would not handle its credit card transactions. Lovability’s founder, Tiffany Gaines, who started the company as a way to discreetly sell condoms to women, told the Huffington Post that a representative told her on the phone that they would not work with her because doing so posed a “reputation risk” to the company.

The financial sector is under orders from the Office of Comptroller of Currency (OCC) to manage financial risk where "reputation risk" is a named component. But reputation risk, in this context, is a risk of negative future expectations -- which in the financial sector, means liquidity risk. Confounding reputation risk with social concepts such as likability and cultural acceptability, as Jonathan Salem Baskin wrote in Forbes,  is simply "doing it" wrong.

Planning to attend RIMS 2014 Denver 29 April? Come learn more on enterprise reputation risk.

Eight Horsemen of the Banking Risk Apocalypse

C. HUYGENS - Monday, February 03, 2014
Banks must develop a written framework to manage risks or face civil money penalties for failure to comply with new regulations from the Office of Comptroller of the Currency (OCC). Issued on January 16, the proposed rules and guidelines requires management controls for the following eight (8) enumerated risks: credit, interest rate, liquidity, price, operational, compliance, strategic and reputation.

The Proposed Guidelines would generally apply to insured national banks, insured federal savings associations, and insured federal branches of foreign banks with average total consolidated assets of $50 billion or more (each a Bank, and collectively Banks). Banks would also be required to develop a written three-year strategic plan that is developed by the CEO with input from the applicable business units (front line, risk management, and internal audit).

The Bank's board of directors (Board) would be required to evaluate, approve, and actively monitor implementation of the strategic plan. Read more.

MSCI: Business is war profiteering

C. HUYGENS - Monday, November 04, 2013
Business, management guru Gary Hamel explained, is war. Companies battle for supremacy, annihilate the competition, fight for market share and conquer new territories. And while this metaphor is limiting, it works with respect to war profiteers.

Huh? Consider Joseph Heller's infamous Milo Minderbinder. A U.S. Army Air Corps mess officer during the second world war, his war profiteering business model draws revenues from both sides of the conflict when he begins contracting missions for the Germans, fighting on both sides in the battle at Orvieto, and bombing his own squadron at Pianosa.

Now consider the proxy advisory firms. They provide recommendations to shareholders regarding governance practices and also provide consulting services to the companies whose boards and directors they assess. This "war profiteering" has become as undesirable as auditors that also charge management consulting fees of their audit clients, and credit firms that also provide consulting services to the firms they score. The SEC, Congress and other regulators have been indeed considering.

MSCI Inc. (MSCI), the global stock market index provider, reported October 31st that it has hired Morgan Stanley to explore options of sale or other possibilities for Institutional Shareholder Services Inc. (ISS), its Rockville, MD governance proxy advisory unit. The problem is that is not clear, given the scrutiny, whether ISS, or any of its competitors, will be able to deliver the independent, objective shareholder analyses required in today’s more demanding governance marketplace, and make money. ISS, GMI Ratings, Glass Lewis and Marco Consulting are all in the same boat. The question: have they collectively taken a torpedo below the waterline?

How this might affect MSCI Inc. may be gleaned from the Consensiv reputation metrics that reflect stakeholder expectations. Of the 16 firms in its sector, Financial Publishing/Services, MSCI Inc. draws a slightly better than average Reputation Premium. Its stakeholders are more confident than average in that value with a Consensus Trend that is in the second quartile with an absolute value of 1.9% and a Consensus Benchmark at a comfortable 7%. But with all that, its reputational health is just average suggesting that disposal of ISS, the problem child, may deliver a reputational value boost.



For more background on the Consensiv reputation controls, click here. To view the October 2013 reputational value league table at CFO.com, click here.

Goldman Sachs: Reputation is just fine, thank you.

C. HUYGENS - Thursday, October 31, 2013
Last week, an article in the New York Times' Dealbook declared that Lloyd C. Blankfein presided over the implosion of Goldman Sachs’s brand and reputation. Really?

Written by Jesse Eisinger who is a top-notch investigative financial journalist working for ProPublica, the charge against the company's Chairman and CEO should stick. No slouch, he and colleague Jake Bernstein were awarded in 2011 the Pulitzer Prize for National Reporting for a series of stories on questionable Wall Street practices that helped make the financial crisis the worst since the Great Depression. He and Bernstein were also finalists for the 2011 Goldsmith Prize for Investigative Reporting for the series.

Here's the funny part. Eisinger documents all the operational successes Goldman Sachs appears to be realizing and the remarkably light touch regulatory opprobrium it navigated -- all empirical proof points that stakeholders are valuing Goldman Sachs' reputation. He concludes that reputation must be irrelevant, quoting Yale legal scholar Jonathan R. Macey. “Reputation is no longer an asset in which it is rational to invest,” writes Macey in his recent book, “The Death of Corporate Reputation” (FT Press).

The problem and source of Eisinger's congnitive dissonance, as followers of the blog picked up from the opening paragraph, is lack of clarity over the meaning of reputation. It is not brand, and it can not be understood the way brand is understood -- through opinions and sentiment surveys.

Andrew Carnegie, one of Pittsburgh's most famous capitalists, explained, "As I grow older, I pay less attention to what men say, I just watch what they do." Sentiment and opinion surveys only capture what 'men' say. To appreciate a company's reputation, you need to watch what its stakeholders do. Everything else is just marketing.

Turning to what stakeholders do as evidenced by the Consensiv metrics, Goldman Sachs' Reputation Premium is at the 86th percentile having bounced near the peak these past few months. Its Consensus Trend, the uniformity with which stakeholders agree on its Reputation Premium, is high with a scatter of only 1.2%. Both values stand out as extraordinary when compared to the 80 peers in the Investment Banks/Brokers sector. The Consensus Benchmark is at a generous 10.5% indicating that the normal variance of reputational value and the associated ability of the company to exhibit resilience in the setting of bad news, is at an optimum.

Notwithstanding all the stories over the past few years, none of which present a more sinister image of Goldman Sachs than Matt Taibi's "giant vampire squid," the customers flock to its doors, employees love working for the firm, its costs of capital are reasonable, and the greatest cost of all -- regulatory burden -- somehow seems lighter.

Yes, the overall reputational health, as Eisinger points out in detail, is quite good.



For more background on the Consensiv reputation controls, click here. To view the October 2013 reputational value league table at CFO.com, click here.

JPMorgan Chase: The limits of reputation resilience

C. HUYGENS - Tuesday, October 15, 2013
A strong reputation among a diversity of stakeholders can sustain a firm for years through thick and thin. Witness the 25-year run enjoyed by Johnson & Johnson (JNJ) after the famed 1982 Tylenol poisoning, and the less famed but much more important 1986 Tylenol poisoning II. Alas, resilience has its limits as Johnson & Johnson discovered in recent years.

Enter JPMorgan Chase (JPM), an integrated bank led by Jamie Dimon, a CEO with rock star-like cult status as a risk manager extraordinaire, who guided his firm through the ugliness of 2008 unscathed. Since the London Whale event hit the news 18 months ago, sturm und drang have played out amongst stakeholders, especially those at the periphery comprising regulators, litigators and mommy bloggers, who have piled on the opprobrium -- and the fines. The New York Times' pithy summary comprises the headline: The Bloodlust of Pundits Swirls Around Jamie Dimon. See cartoon clip starting at 0:56/2:31 - http://www.youtube.com/watch?v=KNCz0-CYj8M

The damage has been incremental, but measurable; the largest U.S. bank by assets, on Friday reported a $380 million loss, or 17 cents per share, in the third quarter on lower revenue and massive legal bills. That compares with net income of $5.7 billion, or $1.40 per share, a year earlier. Excluding litigation expense, the New York financial giant posted a profit of $5.82 billion, or $1.42 per share.

The Steel City Re reputational value metrics reflect the lowered reputation (CRR) ranking (reputation premium) driven by the volatility of stakeholder (RVM Vol) expectations (consensus trend). Wells Fargo (WFC) now enjoys a greater premium and greater return on equity, and lower current volatility. The projections are for Wells Fargo to continue gaining premium value, and for JP Morgan Chase to continue losing.


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