Archive for the ‘Financial crisis & recession’ Category

Five stages of grief

September 15, 2011

I hate to go all morose and contrarian on another “up” day in the markets, but …

Jerome Booth, research director of London-based emerging markets specialist Ashmore Investment Management, makes an interesting point in a Sept. 14 Financial Times column. He posits that global markets are moving, slogging really, through the classic five stages of grief. When we lose a loved one, we follow a pattern described by psychiatrist Elisabeth Kübler-Ross as the five-step model of grief: denial … anger … bargaining … depression … and, finally, acceptance.

Booth applies this to global markets.

As investor relations people making our rounds with investors, we might probe what stage the patient is in, on any particular day, before launching into our story.

What has died, Booth writes, is our complacence in using debt to meet all needs:

Western Europe and the US now face years of painful deleveraging. The loss they feel is the death of the levered model enabling them to live beyond their means, plus a loss of prestige as their economic models have failed.

As an EM guy, Booth says we’ll have to adjust to kowtowing a bit to emerging markets. In the West right now, he writes, we’re in denial:

When faced with a truly awful prospect we explore and then cling to any theory or hope that reality may be different. Even where political leaders understand the immensity of their loss, the denial of their electorates constrains their action.

There are examples of anger – riots in Greece and other nations over economics. And of bargaining to delay unpleasant consequences or sweep them under the rug. Still ahead, perhaps, is the loss of hope a patient feels as depression. And we haven’t seen many signs yet that our leaders – or we the people – have moved on to acceptance of realities so we can deal with what needs to be done.

All this is very global and “macro,” but let’s think about how it applies to IR messages about the businesses we speak for:

  • Above all, are we helping our management teams to avoid living in denial?
  • In offering forward-looking views to investors, do we spell out assumptions on the economic factors that drive our particular businesses?
  • Do we explain how we plan to perform if the economy stays weak for a long time, vs. signing onto consensus hopes for recovery in H2, or H1 2012, or  … ?
  • When our stock is beaten-down, do we listen to see if the investor on the line is in the anger stage or depression – or maybe in a place to hear reality and look forward to ways out of the doldrums?
  • Do we deal with debt and balance sheet metrics, including strategies for managing the balance sheet, in a way that helps investors understand?

Just a handful of thought-starters. I’m not arguing where investors’ sentiment should be – just saying IR people need to pay attention to where it is.

Mainly, I appreciate Booth’s wry insight into the psychology of today’s happy-nervous-elated-terrified-optimistic-not so sure-ever mercurial stock market. I’d love to hear your reactions.

© 2011 Johnson Strategic Communications Inc.

Jamie Dimon: Cheer up, America!

August 10, 2011

While the markets are going crazy, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co., is out visiting bank customers and employees on a bus tour in California – and giving an interview today with CNBC. His core message: Cheer up, America! That’s not bad advice for investor relations folks, either.

Dimon doesn’t mince words about shortcomings in European finances, US policy making, even the state of banking. But he comes back to a bedrock optimism:

Confidence is like a secret sauce. … Here’s what I would say to the American public in total. When you go to sleep at night think about the following before you get depressed and you see the market down 500 points: This nation is still the greatest nation on the planet. It was the first democracy on the planet. We have the best military on the planet, and God bless our veterans all around the world, those who have served and those who are serving today. We have the best universities on the planet and the best businesses. Those things that I just said – best military, best rule of law, most innovation, the hardest working ethic of all – those things are going to be here for decades. They’re not going away. The strength in the system is going to blow your socks off when it gets out of this malaise we’re in. Those things are there.

It’s good to see an executive smiling. Regardless of what you think of Dimon or big banks, he’s expressing the spirit that drives American business. It’s worth watching both pieces on CNBC. Just to feel better on another day of, as they say, volatility.

By the way, in 2008 I shared 10 ideas on doing IR in a bear market. These apply today, too, for investor relations practitioners surveying the Wall Street carnage. I’d welcome your comments or ideas on helping our companies rise above the malaise.

© 2011 Johnson Strategic Communications Inc.

Investor relations for the USA?

August 8, 2011

The President has pulled into the lead, ahead of a three-way tie among the Treasury secretary, “Other” (write-ins Ben BernankePaul Volcker, Bill Clinton and “Someone who’s fluent in Chinese“) and “Oh, never mind!” What do you think?

Not a political comment … just a little comic relief amid wild days in the markets.

Adding wiggle room to guidance

August 5, 2011

Are we in recession again? Weak recovery? Heading for Financial Crisis 2.0? No wonder more than a few CFOs and IROs have been wringing their hands over what guidance to provide investors as part of the second-quarter reporting season.

If you’re looking for an example of softening guidance by widening the range, Procter & Gamble provided just that today with its fiscal fourth-quarter results. For the new fiscal year, P&G forecast core EPS “in a range of $4.17 to $4.33, up six to 10 percent.” Fair enough. That’s not exactly fuzzy, but the range is a bit broader than P&G gave last year at this time (a 10-cent span in EPS, vs. 16 cents this year).

Market watchers commented on the change, as in The Wall Street Journal story headlined “P&G Outlook Reflects Jitters”:

P&G adopted a wider-than-normal range for its fiscal 2012 outlook, which encircled Wall Street estimates, calling for per-share earnings growth of 6% to 10%. The low-end is slightly below the consumer-product giant’s long-term goals for annual growth of high-single digits to low double-digit growth, largely on questions percolating through the global economy.

On P&G’s conference call, Chief Financial Officer Jon Moeller blamed a cloudy macro environment:

Our guidance ranges will be a little bit wider than normal this year, reflecting a broad policy uncertainty, ongoing high levels of volatility and market growth rates, input costs and foreign exchange, as well as uncertainty both upside and downside related to pricing across the portfolio.

So there you have it – big, sensible P&G is a pretty safe role model. Go ahead and add wiggle room to your guidance. We may all need it.

© 2011 Johnson Strategic Communications Inc.

Still too big to fail

June 23, 2011

Tom Hoenig, president of the Federal Reserve Bank of Kansas City and a skeptic on loose monetary policy and the state of the world’s biggest banks, is convinced the United States still hasn’t heeded the lessons of the last financial crisis.

During an otherwise happy gathering in our hometown, the “CFO of the Year” awards event organized by the Kansas City Business Journal, Hoenig climbed on his soapbox to warn of the prospect of another crisis in the future. The trouble is, he said, the same too-big-to-fail banks that starred in the 2008 meltdown and the recent HBO dramatization of Andrew Ross Sorkin’s book Too Big to Fail are still, well, too big to fail – even moreso.

The financial reform law enacted in 2010 to guard against the next crisis doesn’t solve the issue of systemic risk, Hoenig said. And the world’s central banks continue to be “held hostage” by issues raised in 2008, he said. Exhibit A is the way everyone is worrying that debt problems of one smallish country could reverberate through big banks worldwide – roiling capital markets and threatening a new crisis.

“Dodd-Frank does three things, and it leaves one thing undone – and that is the most significant thing,” Hoenig said. What the financial reform law does:

  • Enhances supervision. “We’ve enhanced supervision after every crisis,” and it hasn’t prevented the next cycle of financial collapses, Hoenig noted.
  • Raises capital standards. But commercial banks used to hold capital around 15% of assets, and now some bankers feel 8% is too onerous a requirement, he said.
  • Mandates a new resolution process. But the next time a giant bank teeters on the brink, the bailout impulse will be as strong as ever, Hoenig said.

What Dodd-Frank leaves undone is addressing “too big to fail,” Hoenig said. The U.S. banking system is more concentrated than ever, and that fact haunts the financial markets, he said.

Hoenig offered a “TBTF” history lesson: In 1913, when the Federal Reserve was created, the five largest U.S. financial institutions managed assets totaling 2½% of the country’s GDP. In the Great Depression, the government created a safety net for banks – FDIC insurance and the like – and barred bank holding companies from speculative activities through the Glass-Steagall Act of 1933.

And it worked, Hoenig said. Banks lent money and cushioned their balance sheets against downturns. Investment banks, kept separate from the safety net, took on leverage and invested in riskier assets for greater returns. The economy grew. Markets did well. While the banks expanded, by 1980 the five biggest still held assets equal to only 14% of GDP. One failure wouldn’t have crashed the system.

That changed after the 1999 repeal of Glass-Steagall freed banks to enter other financial services, growing bigger and bigger – and taking on more and more risk. Despite the turmoil of 2007 to 2010, Hoenig said, the banks kept getting bigger.

“Even today, after the crisis, the five largest financial institutions control 20% more assets than before the crisis,” Hoenig said. With the mergers caused by the financial crisis, concentration in U.S. banking has grown to around 60% of GDP.

As one who has lived through weekend “too big to fail” negotiating sessions, Hoenig said, when another giant teeters on the brink the story will be the same. Given the threat that a huge bank failure could lead to collapse in the real economy, he said, “on Sunday evening, before the Asian markets open, you will in fact bail it out.”

Before that next crisis arrives, Hoenig suggested, big U.S. banks should be broken into more manageable pieces – especially, separating commercial banking with its publicly provided safety net from those riskier investment activities in the capital markets. Hoenig laid out more specifics in a speech last month in Philadelphia.

I agree. Let’s dismantle too-big-to-fail before it fails us, again.

© 2011 Johnson Strategic Communications Inc.

The “all lawsuit” channel

April 29, 2010

Browsing a litigation magazine borrowed from my favorite legal beagle – as a non-lawyer, I’m a little put off even by the idea of a litigation magazine – I ran across a neat online resource from Stanford Law School on shareholder lawsuits.

Stanford’s Securities Class Action Clearinghouse, in collaboration with litigation consultant Cornerstone Research, tracks shareholder lawsuits, reports recent filings and settlements, and slices and dices data on different kinds of cases. The website is like a special cable TV channel: all securities lawsuits, and nothing but.

Professor Joseph Grundfest of Stanford Law and John Gould of Cornerstone offer analysis that will interest many investor relations people and corporate lawyers.

For example:

  • Not so many securities class actions were filed in 2009, after 2008 gave plaintiffs’ attorneys a robust year via the financial crisis. In 2009, the lawyers just about ran out of financial institutions to sue, and some even went back to file suits based on older issues, Stanford says. The high point was 2001, when the dot com bubble turned into a litigation bubble related to IPO allocations. We’re off to a so-so start in 2010.
  • More securities class actions were settled in 2009, on the other hand. This reflects lawsuits filed 3 to 5 years earlier, since it usually takes awhile for both sides to get down to settling. Median settlement was $8 million, but the total was $3.8 billion.
  • The biggest settlements tend to involve alleged accounting violations, especially if there is a parallel SEC action. Also, when the plaintiffs are public pension funds rather than individual investors, settlements are typically higher.
  • Stanford also provides articles and papers on topics like D&O insurance and litigation outcomes and a page of links to news stories and releases.

So, for those of you who are intrigued – or scared stiff – by securities litigation, happy browsing!

© 2010 Johnson Strategic Communications Inc.

We’re Goldman Sachs. Trust us.

April 19, 2010

The Securities and Exchange Commission lawsuit against Goldman Sachs strikes deeply at the issue of trust in the capital markets. Both the firm and the markets as a whole suffered yet another blow in the SEC suit. And it will not be the last.

My Monday-morning question on this latest Wall Street scandal: If you managed billions of dollars for a big pension fund or cash-rich Asian or Middle Eastern government, what’s your reaction the next time a Goldman Sachs institutional rep comes in with a deal that can’t miss? Attractive yield, triple-A rating, assets assembled by the smartest guys on Wall Street, selected just for you?

Well, you will think twice. You’ll remember caveat emptor. You will wonder what toxic dregs the packagers of this deal have chosen to sell to you – and whether they’ve already lined up short sellers to bet against you. Maybe the shorts actually designed the deal. You will think about i-bankers’ commissions and bonuses.

You will not trust.

This is the upshot of the financial crisis, particularly the episodes when someone has failed to disclose what later proved important – when transparency has been lacking and people we assumed were trustworthy proved not to be.

The “Heard on the Street” column in today’s Wall Street Journal makes this point about trust waning in the marketplace. It goes on to note that, beyond the details of the 2007 CDO sale, Goldman Sachs did not disclose the SEC subpoenas in August 2008 or the July 2009 Wells notice of a potential SEC enforcement action. Were these items not material, not worthy of disclosing to Goldman Sachs shareholders? When the suit became public Friday, shareholders lost $12 billion.

I won’t try to dissect the controversy over who knew what about the original CDO. Goldman says it did nothing wrong, the investors were sophisticated and should have known another client was betting on the failure of those securities. Maybe caveat emptor is always the rule. Maybe Goldman is just like everyone else, hustling to make a buck (or a billion).

What I will say is that the financial crisis – and the ongoing collapse of trust in capital markets – should drive every company to rethink what it values.

In investor relations, we understand how valuable it is for a company to have earned the confidence of the capital markets. Trust is a long time coming – built by doing what you say, being open, disclosing problems, addressing issues head-on, underpromising and overdelivering, and doing it over and over – for years.

Trust is lost in a moment.

To be clear, the SEC isn’t the one that destroyed trust in this case. Goldman Sachs, if in fact it assembled the junk of the market for hedge funds that were betting against that junk – and then peddled those deals as jewels – destroyed trust.

The pundits think the SEC’s slap at Goldman Sachs will add momentum to the push in Congress for tougher regulation of Wall Street. No doubt. Ever since the market’s collapse in 2008, “transparency” has become the popular buzzword.

In my experience, trust isn’t legislated. Transparency doesn’t come about because lawyers cite chapter and verse of some law, and companies say well, OK. The laws cited in the SEC complaint against Goldman have been on the books all along.

Rather, trust grows out of an impulse for honesty among people making decisions. In investor communication, trust is built upon CEOs, CFOs and IROs asking what information matters, what do investors want to know? What do we know that the investors need to know in order to make informed decisions? And acting upon it.

Every company going into the capital markets now lives with the loss of trust created by failures of transparency over the years. We must rebuild, step by step.

The job of IR is, above all, to provide the transparency that leads to that trust.

What’s your take on Goldman Sachs, transparency – or regulatory reform?

© 2010 Johnson Strategic Communications Inc.

Macro rap

January 28, 2010

The late economist John Maynard Keynes has been mentioned more than once in the news coverage of President Obama’s State of the Union speech.

For a little comic relief from all the analysis of Washington and our economy, here’s a fun video – OK, so maybe fun is in the eye of the beholder – let’s call it an educational video on opposing approaches to macroeconomics.

Imagine fiscal policy theorist J.M. Keynes vs. free market capitalist F.A. von Hayek dueling in a music video. They’re rapping – yes, rapping – on the financial crisis, recession, monetary and fiscal policy, and all that:

This clip is the work of EconStories.tv, a newly launched educational venture of Russell Roberts, professor of Economics at George Mason University; John Papola, a producer-director; and a crew of dozens.

Good for a chuckle. And we might as well chuckle. If the news from Washington is any indication, Keynes already won this rap contest and Hayek has gone silent.

If you’re feeling more serious about the dismal science and economic policy’s impact on all of our companies, National Public Radio offers this view of Obama the Keynesian. Talk back by offering a comment – or a rap of your own.

© 2010 Johnson Strategic Communications Inc.

On the bright side

January 8, 2010

Brian Wesbury, chief economist at First Trust Advisors, is seeing V’s everywhere. A strong recovery, he believes, is in full swing for the US economy. The stock market, of course, is up. His graphs all show a V-shaped ascent after the nosedive of 2008.

Yet people everywhere are still worried, intent on reliving the worst of the 1930s:

What I sense is that the panic [Autumn '08] altered a lot of psyches. It’s like people are in the grip of an economic ‘Stockholm syndrome.’ The Stockholm syndrome is when people taken hostage fall in love with their captors. In the panic, people fell in love with pessimism.

The market economist delivered the annual economic forecast today for the Kansas City chapters of the Association for Corporate Growth (ACG) and Financial Executives International (FEI).

Wesbury doesn’t buy into the “pall of pessimism” or the “new normal” idea that has become conventional wisdom. He’s confident that we are fast returning to the “old normal” (except for unemployment, which he expects to improve but stay stubbornly high – largely because government is gobbling resources that might have fueled private businesses). Overall, he’s an unabashed optimist:

I believe we’re in a V-shaped recovery that’s going to take [the market] back to the pre-Lehman levels: 12,500 on the Dow. The question is whether whether we’re going to 13-, 14- or 15,000.

If you want Wesbury’s evidence, check out his book It’s Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive. (Confession – I haven’t read it, so I can’t offer an opinion.)

Let’s hope he is right. My crystal ball is hazy, but a “V” would be a victory for all.

© 2010 Johnson Strategic Communications Inc.

Mission accomplished?

October 29, 2009

I’m getting a mental picture: The confident commander-in-chief strides across the flight deck of the USS Economy and addresses the aircraft carrier’s crew as a MISSION ACCOMPLISHED banner flies overhead. “The recession is over!”

Well, maybe we should hold off on photo ops.

The good news on third-quarter GDP rising, breaking the recessionary streak, doesn’t mean we’re finished with tough times. The other good news may be that the Obama Administration does not seem ready to declare victory just yet.

Although a recovery may be taking hold, investors remain plenty nervous. The “U” and “W” and “L” scenarios are still too plausible to declare it’s over.

Not that we should get mired in doom and gloom – but, in telling our story to investors, we ought to keep our feet on solid ground.

For sure, companies and investor relations people should be explaining our strategies for the recovery phase, providing perspective and industry insights. An earlier post offers some ideas on IR for the coming recovery. In this transitional time, we should present a view of the business based on data, not wishful thinking.

Feel free to share your thoughts … Where are we in the economic cycle? And how can IROs best tell the story while the macro picture remains uncertain?


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