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.

Read future M:I posts via RSS RSS

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.

Citigroup: Great expectations

C. HUYGENS - Thursday, October 25, 2012
Vikram Pandit stepped down last week as Citigroup Inc.’s chief executive officer. For followers of corporate reputational value, this turn of events was not surprising.

The lot was cast when Pandit asked long-suffering Citigroup investors to support an outsized pay package for mediocre performance. As discussed in the forthcoming book, Reputation, Stock Price and You, Pandit’s nominal salary was generous relative to the respect afforded to him by investors.

As reflected in a regression of Barron’s Most Respected Company scores from the book's Chapter 7, financial sector CEO salaries correlate with reputations. Three companies were outliers. Nominal salaries at Berkshire Hathaway and Visa, both companies with stellar reputations, were below the trend line. At the bottom end of the spectrum, Citigroup ranked just above AIG. While AIG’s CEO’s salary was $3.02 million,  Pandit’s nominal salary was significantly above the trend line at $7.02 million.

Citigroup’s performance, however, has been only mediocre. As shown below in the Steel City Re Reputational Value Metrics, among 250 peer companies, Citigroup ranked in the 56th percentile recently on Steel City Re’s CRR, a measure of relative reputational standing; in the 46th percentile on the RVM, a measure of reputational value volatility; and rewarded equity investors with trailing twelve month returns in the 49th percentile. The figures are vastly improved from just earlier this year.

But as is often the case, better may not be good enough. None of these levels are what would be expected for such a huge balance sheet. Goldman Sach’s recent CRR was in the 88th percentile and its RVM volatility was in the 40th percentile. JP Morgan Chase’s CRR was the 77th percentile and riding on a post-whale upwards wave with a greater RVM volatility ranking in the 65th percentile.

AIG’s CEO’s salary was $3.02 million, and his compensation package was approved by 99.19% of the votes cast at the last annual shareholder meeting. In contrast, Pandit’s compensation package was approved by only 45% of the votes cast. The board had to act. Ann Murray, partner at McKenna Long & Aldridge LLP, a law firm, warns that boards need to act defensively and anticipate shareholder reaction. “Failed” say-on-pay votes triggered derivative litigation against directors in about 20% of the cases in 2011.

The last data entries on the charts below show the market's response to Pandit's resignation. Stock price jumped relative to peers, RVM volatility decreased and forward-looking reputational ranking (CRR) indicators reported expected upswings.

Credit: Seeking an environmentally clean balance sheet

Nir Kossovsky - Tuesday, August 31, 2010
The New York Times reports today  that major lenders are backing off from companies that present the potential for material environmental risks. It's a reputational thing.

According to the report by Tom Zeller, "After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines." Major financial institutions now factoring sustainability issues into their lending decisions include Wells Fargo (NYSE:WFC), Credit Suisse (NYSE:CS), Morgan Stanley (NYSE:MS), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citibank (NYSE:C), HSBC (NYSE:HBC), and Rabobank (AMS:ROBA).

In the parlance of the Society, it appears that sustainability policies and practices are emerging as material credit risk factors. And for those of you who were wondering what all the fuss is about at the Society, this is an example of what we mean by "intangible asset finance."

Recent Comments