MISSION INTANGIBLE

M:I Products

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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Wells Fargo Drops Yet Another Shoe

C. HUYGENS - Friday, August 04, 2017
Reputation risk cost is often high because of losses initially not visible, like the submerged mass of an iceberg.

“Wells Fargo said that the number of fake bank accounts set up by its staff could be significantly higher than previously thought and warned investors that it risks further regulatory investigations into a new scandal over car insurance.”

Strategies to convince stakeholders there isn't an iceberg just below the surface—which will work as long as the assertion is true—include warranties on governance and related transparent financial products.

Read more in the Financial Times.

Wells Fargo Digging Deeper Hole for Board

C. HUYGENS - Sunday, July 30, 2017
Senator Warren calls (again) on Fed to remove Wells Fargo board members, report Reuters, after The New York Times reported Friday that more than 800,000 Wells Fargo customers were charged for auto insurance they did not request. Activists such as Scott Stringer, who oversees public pension funds that hold roughly 11.6 million Wells Fargo shares, wants a new Chairman at least.

In a letter sent Friday to Yellen, Warren, a Democrat, said the recent revelation of more improper charges at the bank indicates "deep risk management problems," and called for the removal of all board members who served from 2011 to 2015, when the activity reportedly occurred.

The question stakeholders must be asking is "exactly how big is that iceberg of unethical behavior that has not yet been disclosed?"

Until Wells Fargo can authentically communicate to stakeholders that all that is being disclosed now comprises "sins of the past," they will continue to be on a downward reputational spiral. And with the battle over regulatory controls looming in Congress, as Kate Berry reports in American Banker, the bank's risk of further reputational damage with regulators is undercutting its objective of eliminating the CFPB.

Read more in the New York Times.

Reputational Impact of Responsible Behavior

C. HUYGENS - Thursday, July 27, 2017
What regulatory reputational resilience looks like according to SEC Chairman Jay Clayton in the context of cyber security:

“If a company is being responsible . . . I don’t think we should then be punishing them for being a victim..."

Read more in the Financial Times.

Wells Fargo: Regulators and Litigators Want Board Member Scalps

C. HUYGENS - Thursday, June 22, 2017
Regulators and litigators want board member scalps--Buffet may be outgunned. The reputation crisis at Wells Fargo now enters the regulatory phase, which by Steel City Re's metrics, is typically a very costly process.

"I urge you to exercise your legal authority to remove the holdover Wells Fargo Board members. Federal Reserve regulations and guidance impose clear risk-management obligations on the Board — obligations that are quite demanding for a bank as large and complex as Wells Fargo," Warren wrote. "The Board did nothing to stop rampant misconduct in the Community Bank that resulted in more than 5000 bank employees creating more than two million fake accounts over four years."

Read more in Business Insider.

Board Allowed Long-lasting Reputational Damage to Wells Fargo

C. HUYGENS - Wednesday, June 21, 2017
Senator Warren, writing to the Fed demanding the removal of all 12 directors of Wells Fargo…

…argues in the letter that the directors failed in their risk-management obligations, resulting in "massive financial losses" and "long-lasting reputational damage to the bank that has eroded the bank's customer base."

Read more in the Business Insider.

Expectations for Quality Accounting

C. HUYGENS - Thursday, May 11, 2017
#risk Alan Greenspan noted in 2008 that in a business based on trust, #reputation has significant value.

The UK’s accounting watchdog has fined professional services firm PwC a record £5m for “misconduct” in relation to the audit of Connaught, a FTSE 250 social housing maintenance group put into administration in 2010.…The latest ruling is another blow to PwC’s reputation following its Oscars envelope mishap and a $3.1bn legal battle with MF Global in the US.

Read more in the Financial Times.

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.

VW's Reputation Hinges on Quality of Governance

C. HUYGENS - Monday, September 28, 2015
The event the BBC’s Russel Hotten reports as being dubbed the “diesel dupe” is not a recent discovery. Notwithstanding the extraordinary attention it’s been receiving these past two weeks, as with most operational issues that blossom into full blown reputational value crises, there were risk signatures going back 15 months that something was amiss.

In 2014, the West Virginia University Center for Alternative Fuels, Engines and Emissions was contracted by by nonprofit pollution control advocate International Council on Clean Transportation to measure emissions on three cars: a 2012 VW Jetta, a 2013 VW Passat and a BMW X5 SUV.

As reported by FOX, the “BMW passed, but the university found significantly higher emissions from the Volkswagens, according to the U.S. Environmental Protection Agency. The university and the council reported their findings to the EPA and the California Air Resources Board in May 2014, but VW blamed the problem on technical issues and unexpected conditions.”

As we now understand, VW installed software that was supposed to adjust engine output to meet environmental standards when it detected the presence of an external monitoring device typically found in garage and in-door environments. The software did not recognize the monitoring tool used by the WVU lab which is designed to be used in road tests. The engine output was at variance with expected values.

Leading the project for the International Council on Clean Transportation that exposed the shenanigans at VW is an engineer with the improbable name of John German. As reported in the Guardian, German said of his research, “We really didn’t expect to find anything.”

Here’s how the BBC summarizes VW’s position.

The case against VW appears cast-iron. "We've totally screwed up," said VW America boss Michael Horn, while group chief executive Martin Winterkorn said his company had "broken the trust of our customers and the public". An internal inquiry has been launched.

With VW recalling almost 500,000 cars in the US alone, it has set aside €6.5bn (£4.7bn) to cover costs. But that's unlikely to be the end of the financial impact. The EPA has the power to fine a company up to $37,500 for each vehicle that breaches standards - a maximum fine of about $18bn.

Legal action from consumers and shareholders may follow, and there is speculation that the US Justice Department will launch a criminal probe.


Turning to the Reputational Value Metrics as reported by Consensiv based on data from Steel City Re, the indicators of reputational value, volatility, and loss indicate VW is NOT topping the charts in measures of reputational value impairment among the full range of stakeholders. Equity investors, of course, are the first to panic: they've shaved about 30% off the company’s market cap.

But is this a reputational crisis? No, or at least, not yet.  Right now, the indicators of reputational value suggest the Company is benefiting from its historic reputation of automotive engineering excellence reinforced by decisive crisis management action (not merely communications). That legacy of operational excellence, which has been understood and appreciated by myriad stakeholders for years, is providing reputational value resilience.

As for the future, as well appreciated by readers of Reputation, Stock Price and You, and as headlined in the Philadelphia Inquirer, the “financial, reputation hits to Volkswagen hinge on top execs' culpability.”

BNP Paribas: Reputation risk realized

C. HUYGENS - Tuesday, September 02, 2014
In late June, the Financial Times  headed an article on the regulatory travails of BNP Paribas with the line, "Biggest threat to BNP Paribas could be to its reputation." That threat is apparently being realized.

In the article, journalists Michael Stothard and Martin Arnold reviewed the details of about $30 billion in trades between 2002 and 2009 with Sudan, Iran, and Cuba that had run afoul of US banking sanctions. Consensiv's analysis based on Steel City Re's data (below) shows a rock bottom reputation premium, peak reputation value risk, and a net reputational health of only 10% of the company's potential. The company's equity is down about 9% ($7.5B) since the beginning of the year and the indicated loss attributable to reputation from that is around $5B.


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