A true test for financial firms

A strong communications function and solid messaging is crucial for all companies in the sector - even those not directly affected by the sub-prime meltdown.

A strong communications function and solid messaging is crucial for all companies in the sector - even those not directly affected by the sub-prime meltdown.

In July, two of the nation's oldest financial institutions merged: The Bank of New York, founded in 1784, and Mellon Financial Corporation of Pittsburgh, founded in 1869. Today, The Bank of New York Mellon (BNY Mellon) is a global asset manager and provider of securities services with more than $20 trillion in assets under custody and administration and $1.1 trillion in assets under management. On December 20, the company announced a new addition to the organization with the full acquisition of ABN AMRO Mellon Global Securities Services, headquartered in Amsterdam.

With the economy in its current tumult, there are two main questions that Jeep Bryant, EVP of corporate communications for BNY Mellon, says the company must ask itself: "What's in our securities investment portfolio?" and "Do we have any exposure to any investment vehicles that might be impacted by sub-prime [mortgages]?"

"We're demonstrating the strength and resiliency of our business model," he says. "Even with the pressures of the market, we see this as an opportunity to distinguish our performance."

Comms' rising importance
The latter question is one that financial institutions across the globe have been asking themselves since the sub-prime mortgage crisis and resulting credit crunch set in during 2007. The economic fallout has forced many to more closely study their company's investments and own up to poor results, adding a new level of importance to the communications function.

"The IR staff is talking directly with analysts and shareholders," says Bryant. "There's a need on the part of the press to dig deeper and go [further], so we're providing more detail in order to build confidence and credibility. The challenge is taking complex financial data and making it accessible and easy-to-understand."

Luckily for BNY Mellon, the sub-prime mortgage crisis has not impacted it much. Nevertheless, the company doesn't feel as though it's totally above the fray.

"This has been an important test of transparency for all financial- services firms," notes Bryant. "It's important for the communications team, the legal team, and management to work together to create confidence in the firm's ability to weather the environment while staying honest and credible."

The communications coming from some financial organizations might show an initial lack of self-scrutiny or internal unity when one set of somewhat benign financial declarations are followed by a second set of even worse announcements, usually including larger sub-prime-induced write-offs.

"Internally, people don't have a great sense of the risk on their balance sheet and, as they delve into it, they're realizing they have more exposure than they recently thought," says Doug Donsky, MD of financial services and special situations for FD. "One of the cardinal rules [of communications] would be [to] get it out all at once."

When such staggered announcements are made, corporate reputation takes more of a hit and stronger action is needed.

"The effect is we've seen a lot of CEOs [lose] their jobs (see sidebar) and that's probably a lesson in communications right there," notes Donsky. "Sometimes the only way to restore credibility on Wall Street is to replace the CEO and start fresh. And when the new leadership comes in, they want to clean up the balance sheet and the issues and start from a fresh perspective."

Katie Spring, who only three months ago assumed the role of MD of corporate communications at Citadel Investment Group, is the first to hold the position in the business' 17-year history. The organization recently retained FD and will be working with the firm to build its communications function.

An alternative asset management firm with $17 billion in investment capital, Citadel recently acquired a 20% stake in E-Trade for $2.55 billion. E-Trade became another victim of the sub-prime mortgage crisis when CEO Mitch Caplan stepped down last November. Caplan called the coverage of the E-Trade transaction "fair."

"As alternative asset funds and hedge funds become more mainstream," says Spring, "it [is] time to bring someone in to develop a strategic communications program and line up the business and communications goals.

"It's been really back to basics - educating, providing context, talking to reporters every day, and investing considerable time on complex topics," she adds. "If organizations expect the stories to be fair and balanced, [they] need to invest the time with the media to educate them about these topics."

Focus on the positive
Even companies troubled with sub-prime mortgage investments can use communications to shine a light on some positive aspects.

"At the moment, the credit turmoil is completely dominating the coverage of financial institutions," says Adam Miller, president of Abernathy MacGregor Group. "Effective communicators will start to pivot away from that and begin to emphasize the strength of their core business. Part of the problem is that people are so distracted by the write-offs that they lose sight of everything else."

Casualties of the mortgage crisis

E. Stanley O'Neal
The Merrill Lynch CEO saw his six-year reign end after an $8.4 billion write-down and unauthorized talk of a merger with Wachovia bank.

Charles O. Prince III
The Citigroup CEO was essentially forced to step down after the nation's largest bank was hit hard by the sub-prime crisis. The company posted more than $11 billion in write-downs and suffered a decline in its stock price.

Zoe Cruz
The Morgan Stanley co-president, a 25-year veteran, "retired" after the financial firm reported the largest losses in its history - $5.9 billion in write-downs.

Mitchell Caplan
The E-Trade CEO resigned as part of a $2.55 billion deal with Citadel Investment Group. The online financial company saw its stock sink by half on word that its mortgage investments could cause write-downs.

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