I was having a discussion on the JP Morgan news and was asked 'How would you have advised them differently? After all one would assume they have at the ready the best consultants or public relations firms money can buy advising them.' Fair point, but the assumption that just because they have money to spend doesn't mean the value of the advice received will equal it. You can spend a near fortune obtaining worthless advice then spend nearly twice as much trying to repair the damage from the original investment. And the latter will always remain an open question of: 'If.'
I decided it was a fair and relevant topic for discussion and although I normally don't write about certain strategies and tactics I would advise for a client (in other words opinions are free, advice I charge) I decided to write what I would have advised with my reasoning for stating so.
This post will be a little longer in breath than most, but I wanted it to be available to you or anyone else whom might be new here (And there are many, and thank you!) rather than writing a white paper and putting it in the archives. So with no more fanfare let's get into it.
Mitigating the debacle caused by the CIO (Chief Investment Office) in London.
As of this writing JPM is regarded in the minds of many to have two faces. One face is of greedy financial executives cheating depositors and taxpayers alike for their own benefits while leaving behind a wasteland of financial disasters in their wake. The other holds JPM in a slightly better limelight than most others. It seems they have been able to keep some of their cache' intact with being looked upon as one of the more prudent, well run, less riskier institutions with a straight shooting, credible CEO at the helm.
What will be critical to management from the CEO down will be to embrace while understanding the former image of greedy reckless behavior will overshadow the latter view in the public's perceptions and minds. You will not be able to overcome a very emotionally charged subject with logic at first. That will take a consistent effort and marketing campaign that will involve all levels of management for the foreseeable future. This will not be viewed as a one time problem or issue.
This will be viewed by the public as systemic and will be fueled by the press and other news outlets as 'red meat to the masses.' The first critical words uttered will set the stage which will be relentless. Management must realize this dilemma will fuel an image problem, an emotional perception. You won't be making logical arguments to people who know or understand your business. They want to know where to gather with the pitchforks. Understanding this will go far in mitigating the issue. Execution of tactics is now paramount.
(As of right here most of you have seen the financial channels or media outlets. You've heard Jamie Dimon's reasoning or defensive statements and more. I'll just write what I would have advised if they had done nothing as of this moment.)
What needs to be understood at JPM.
Since the financial collapse of 2008 public perception of the financial sector is that not only have they not learned from it, but is currently engaged in even more riskier assets since the collapse, and with their money, not the banks. They hear of legislation passed, not passed, implemented, not implemented all laced with ridicule, misunderstandings, and misconceptions. Even the more sophisticated of market mavens are having a hard time understanding what is good and what's not. No matter how manageable JPM thinks the risk might be in the losses accruing, the perceived details available to the press will have all the trappings of tabloid styled headlines the press will be delighted in running with. Mr. Dimon is the type of CEO whom is comfortable in front of the camera while being asked tough questions. The initial statement should be initiated, and delivered by him. Here's how he should address the press.
(What I would have written for Mr. Dimon's press conference)
I want to address an issue first hand before anyone in the press or other outlets run with this story as to give JPM's customers, shareholders, and even the American people solace as to a situation that arose in our London office over the weekend. I see it as my duty as CEO of JPM to make sure that people have no misconceptions and to put minds at ease so they can make their own logical conclusions. As with anything regarding banks or financial institutions there will be a myriad of tabloid expectations and story writing. Although some will try to overstate the severity, in the actual operations of JPM this is well within our parameters and profiles of risk management. Managing risk is what JPM is all about for both our clients and shareholders.
I was made aware that a hedging strategy that was being executed in our London office seemingly has over run its risk profile parameters. Although the sum to most at first blush might seem large and makes for a great headline the risk to JPM is minimal. Although I am of the belief no loss is a good loss. There are times where you need to pull plugs even if you are capable of correcting the mistakes. For us at JPM it's a matter of financial management along with the perception we know many have of the banking and financial sectors. I believe it is my duty as CEO of JPM in understanding that perception is everything, regardless of my ability to stand here and state how we are completely in control and understood the risks when we first entered into this strategy. With that understanding clearly in mind I am compelled to address it before anyone else so that it may be understood clearly, and factually.
The CIO in our London office has reported to me they will experience a $2 billion dollar loss as a result of parameters poorly executed by the team in charge of that strategy. Although the sum sounds large I would remind everyone that JPM is on track to earn for its shareholders over $14 billion in profits. Although this amount will of course result in a dent to our original projections as anyone with even a grade school grasp of mathematics can understand 14 is far larger than 2.
Some will try to make a story or for some push an agenda of if it's so small why even state it? The reasoning is we reported our quarterly earnings just weeks ago. If I or we were to say nothing on this subject only to report it at our next earnings report we would be by our own dint fueling perceptions of secrecy or the letting of others sensationalize such an event. Although waiting until our next report is well within our rights to do so, I felt in today's world of misconceptions, distrust, and other perceptions the public has of the banking and financial system whether deserved or not, I thought it was only proper to address this myself as to put at rest any misconceptions that might arise.
Our CIO office in London reported to me that the parameters set regarding a hedging strategy had been breached. The reasons for the breach in my estimation is unacceptable. Although it is possible to salvage the losses incurred the cost in retro fitting and personnel change is not worth the effort. It has been decided it is more equitable to jettison the strategy completely rather than as the saying goes throw good money after bad. The head of the office is Ina Drew. She has since tendered her resignation. I have accepted it. I have placed Matt Zanes to fill that position. JPM will pursue any and all fixes needed to ensure this situation isn't repeated.
As with everything at JPM the buck stops with me. I have alerted the board of my decisions and asked the board to conduct a full review of the matter. I have also instructed the board that if they find anything improper or a mismanagement on my end that for any reason put JPM at risk or its shareholders I would tender my resignation if they wish. Both the board as well as the shareholders must feel secure that one of Americas finest financial institutions is being managed with correct discipline and adherence to proper risk management that today's turbulent markets demand.
I will be happy to take a few questions.
And that's what I would have had Mr. Dimon say.
As you can see the above is far different from the response that was actually delivered. The problem with what was originally delivered by Mr. Dimon was it left far too many questions unanswered than answered. It sounded more like someone covering their derriere more than it did about getting in front of something to put to rest the issues. I feel their original press conference followed by the Sunday show appearances allowed more fodder for the innuendo crowd of writers and talking heads. Without concise details, and the direct understandable reasoning on why you are speaking to begin with, followed by an understandable layman's view of why the public needn't worry they will find themselves arguing the same points over and over again reigniting old wounds rather than the ability to leave scars behind and get on with healing process.