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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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.

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.

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.

CEO: In the cross hairs

C. HUYGENS - Tuesday, July 23, 2013
According to the cruel calculus of war, a wounded enemy combatant is much more valuable than one who is dead. The wounded consume more enemy resources.

How else to explain SEC's strategy of winging Steven Cohen, founder of the $15bn hedge fund SAC Capital rather than taking him out of action? The SEC claims Cohen was negligent by ignoring red flags of illegal trading and failing to “take reasonable steps to investigate and prevent such violations”. In an administrative action filed last Friday, the Financial Times reports, the SEC alleged that Cohen "failed reasonably to supervise” two portfolio managers who engaged in insider trading that generated profits and avoided losses of more than $275m in total for the hedge fund.

Is that the best SEC can do? Cohen is a bad manager who failed to recognize red flags? Apparently, it is sufficiently cathartic. Senior heads, if not actually roll, will at least list.

Davia Temin, a reputation management consultant and crisis management expert, explains, "People have so much pent up anger, I believe, coming from the high expectations of life that were then dashed, from 2008 onwards, that they lash out more quickly, and more completely than ever before. And thru social media they can do so. But there are still currents and eddies of popular opinion...and if they catch one, they can do a lot of damage."

How angry are they, Davia? "I started to experiment in my Forbes.com column with what catches on. Many thought pieces get about 300 views...while my "angry pieces" that rail against some injustice, can get almost 90,000! Anger is contagious!"

Beware CEOs and Board Members. Yes, they're gunning for you. And if they get you, it won't be through a single rifle shot. It will be slow, and it will hurt. As the Economist notes this week, the "... SEC has vowed to take more cases to their conclusion, be it a determination of guilt or innocence. As a result, even if the outcome of the case against Mr Cohen is by no means obvious, it is a good bet that his legal entanglements will not end soon."

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