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April 1st, 2013 |
In the song Hey Jude, Paul McCartney sang that there were benefits to a strategy of making a bad situation a better. The UK artful dodgers at JP Morgan Chase followed Jude’s direction when they were attacked by an overweight mammal in the winter of 2012. On March 22, 2013, the investor relations department at JP Morgan Chase won an actual award for its handling of the London Whale debacle. What is a London Whale? You won’t see many fish, let alone a whale, swimming in the Thames. A tempest started when senior executives at JP Morgan Chase and Federal Regulators were advised of a $6 billion trading loss despite near frantic efforts by parties to minimize the situation as ‘a tempest in a teapot’. Bruno Iksil, a trader for JP Morgan Chase, referred to as “the London Whale” because of the huge positions he took in the credit derivative market, made the wrong bet with other people’s money. Seemingly all responsible parties ignored the Dodd-Frank proscription entitled the “Established Prudential Standard” which is applicable to banks which are ‘too big to fail’. Risk limits be dammed.
The purpose of this Observation is not to chastise the Whale but to briefly comment on how insightful organizations recognize how communication strategies can perpetuate their Lombardi strategy,’ Winning isn’t everything, it is the only thing’. Communication is rarely taught and even more rarely learned in our society. Effective communication is the ability to transmit a message and have that message replicated in the receiver’s mind. The JP Morgan Chase message during the London Whale debacle was shaped by a communication strategy that purposely sought the dissemination of an unfocused message. Transparency became a secondary objective because of the potential negative effects on corporate goals. The irony of the communication strategy is that the government has been complicit. Recently Attorney General Eric Holder testified that there is a reluctance to pursue legal actions against large banking firms for fear of destabilizing the markets. The whale knew not to rock the boat!
A Senate report, released in late March dissected the purposely garbled message. The report revealed that JP Morgan Chase, the largest derivatives dealer in the world, had a $157 billion high risk derivatives portfolio that the OCC hardly knew existed. The Senate report also stated that JP Morgan Chase hid losses for several months from examiners and manipulated documents. In response to the 2007-2008 financial debacles Dodd-Frank legislation proscribed high risk trading practices, even by institutions which are too big to fail.
Sometimes attractive communications are not heard because of the dissemination technique. The air is cleaner. The U.S. job market is improving. More Americans are completing high school. Divorce rates are down. Poverty is falling. Violent crime is decreasing. Americans are smoking and drinking less. Sometimes we may not want to hear the message. President Bush ‘lied’ to the American public about the weapons of mass destruction. Too many young men and women are dying in war. Politicians cannot accept compromise. The deficit is driven by entitlements.
There is no clear answer as to what we need to know and what we are going to be allowed to know. Nevertheless at times we might find messages that affect our well being of interest. “Do you want to know a secret? You’ll never know how much I care,” The Beatles …maybe I’ll tell you what’s going on but beware of the London Whale.
April 1, 2013