NEW YORK: JP Morgan Chase has established a new Policy Review Office that will have the ability to nix future banking deals based solely upon their potential impact on the bank's reputation. The newly created office's rulings cannot be overruled by any of the firm's business divisions.
While Wall Street has historically had regulatory compliance and legal reviews for its business practices, this office may be the first to formally extend that review process to include reputation as a deal-breaking concern.
Attorney Michael Patterson, whose father was once chairman of JP Morgan, will head the division.
"It's a very good move, and I would expect to see other companies following suit, said Michael Morley, deputy chairman of Edelman and author of a book on corporate reputation. "Whether they do so publicly or not, I expect they will do so in practice. They are going to have to look at these banking deals closely, as they keep growing in intricacy and complexity. Technical decisions, as well as moral ones, will have to be made."
The new reputation safeguard comes on the heels of recent allegations that JP Morgan, Citigroup, and Merrill Lynch engineered deals for Enron that allowed the fallen energy trader to deceive shareholders about its precarious financial condition.
Although JP Morgan continues to publicly deny that its dealings with Enron were illegal or even improper, the firm privately acknowledges its reputation has suffered a setback due to the recent media.
"This office will evaluate all significant future deals and ask questions such as, 'Is this the type of transaction the bank wants to take part in?' and 'Is this the type of company we want to do business with?' said an official close to the bank. "So let's say that a certain company is looking to raise $3 billion through some creative structure - the office can step in and nix the deal."