Perhaps the most historic PR gaff ever made by JPMorgan Chase’s CEO Jamie Dimon occurred on a wet and chilly day in late March 2008 after he strode into the offices of the failed Bear Stearns. That was a day he undoubtedly chooses not to remember. What he did, and said, let alone all that later happened during the Great Financial Crisis, is instructive for how communications leaders should think about managing slow train wreck corporate crises, of which Bear Stearns is one of the ultimate case studies.
Such crises have persisted in the financial services sector, most notably for regional banks with loan books overweighted to commercial real estate. The strategic and tactical playbook for communications leaders includes looking at the impact of the C-Suite’s decisions and the related Board governance issues; understand the role of federal and state regulators and what this all means to the person on the street.
Back to that rainy day in March 2008. Dimon stepped straight into the mangled debris of what can be seen as the slowest of the slow train wreck failures of any top major Wall Street investment bank. He had not read his audience. The journey was literally right across the street from JPMorgan Chase’s headquarters building on Park Ave. He had just bought Bear Stearns – the first major bank to fail because of its risky bets collateralizing home mortgages – for $2 per share and wanted to speak directly to an assembled group of 400 executives as, well, The Savior.
He announced that 14,000 Bear Stearns employees would be fired. He also promised jobs to the best and the brightest (selected by JPMC) that remained. Many of the 400 executives had for years taken stock as compensation in lieu of cash bonuses. Their nest eggs were now virtually worthless. The group’s anger and frustration against him was palpable. Instead of Savior he was seen more as Turkey Vulture.
What were the communications lessons? These start in the C-Suite and what the Board was, and wasn’t, paying attention to. But let’s flash forward to Silicon Valley Bank (SVB) which is equally instructive. It made a wrong bet by failing to hedge a long duration bond portfolio as rates started to rise. The CEO bungled communications on several fronts, beginning with not being more upfront about selling his own stock holdings in the bank in advance of the collapse.
Next look at New York Community Bank. It was part of a nesting doll M&A dynamic of the weak buying the weak trying to become strong – rarely a successful business strategy and difficult to convincingly communicate. NYCB bought Flagstar Bank, which in turn bought select assets of the failed Signature Bank. Then NYCB became its own trainwreck and needed a $1 billion bailout from Steve Mnuchin, Trump’s former treasury secretary, among others.
For communications leaders the playbook is relatively straightforward. The learnings here are clear and compelling and remind us that while history doesn’t always repeat itself it does rhyme.
Align crisis communications planning with the health of the balance sheet
Bank balance sheets are always eventually public. Anyone can eventually see if too much risk has been taken on relative to the course of interest rates. That’s what happened to Bear Stearns. While it piled up risky mortgage assets between 2004-2006 the Fed raised rates 17 times from 1.0% to 5.25%. SVB got into the exact same situation; different asset class but rates went against it and there was no viable hedging.
The core planning issue here is preparing for the scenario of when bank investment portfolios tank. Of course, that requires the CEO and CFO to be more transparent and realistic about the risks. And if they’re not then the Board should and has a public duty to step in more aggressively. Prudence with shareholders’, let alone depositors’, money is a higher leadership and governance value than hollow confidence that a corporate strategy will prevail despite exogenous market and economic realities. PR planning must contemplate and be ready for these potential outcomes.
Be careful when (and over whom) you declare victory
Recall Dimon’s day at Bear Stearns, and he’s never made the same mistake twice. Steve Mnuchin has clearly learned that lesson when he took part in the bailout of NYCB. Bailouts don’t definitively solve a bank crisis. They are often fingers in the dam. The reality of what the real problems are, and their impact take time to unfold. Circumspection, publicly, and not declaring victory, ever, is the right approach.
Government is your friend. Really.
Dimon couldn’t and wouldn’t have bought Bear Stearns without the $30 billion guarantee he got from the Federal Reserve. Government’s primary goal here is to avoid systemic sector failure. It’s the only party in the bank failure equation that has the money to prevent that. By the time a bank needs federal money the communications goal is to acknowledge mistakes, take on the financial ballast, and show that the bank is on a stable, new path.
Mind you, once its money is in play the feds will take a harsh eye to any such situation. That money, after all, belongs to the taxpayers.
Never forget the man on the street
Fundamentally, banks are playing with other people’s money. That reality was much clearer before the Glass-Steagall Act was repealed in 1999. Since then, basically since commercial banks got more into investment banking and, to their peril, a wide variety of derivative products, far more risk with that money has been taken. (And ironically it was a senior JP Morgan executive who is credited with creating the idea for derivatives.) Those behaviors have been duplicated by the regional and community banks. One would have thought that since the GFC a different kind of management ethic would have taken hold, especially among the small banks, because, after all, aren’t they closer to their average person depositors? Reminding management of that is a core mission for communications leaders.
Explore how Montieth & Company assists in issues management and crisis communications.