Archive for May, 2012

AK In The News: Facebook Is An Overvalued Bust

Wednesday, May 23rd, 2012

I was asked to comment on a poll taken by Ignites (a Financial Times Service) on whether or not Facebook stock, in the face of its bungled IPO, is a near- and long-term bust. 47% of the respondents to the poll said that Facebook is a “bust all the way around.” This contrasts to 20% who gave the same answer to a similar poll question at the end of January.

There’s no question that the IPO has a left a bad taste in many people’s mouths – witness today’s announcement of several shareholder lawsuits against Facebook, its CEO and the banks which underwrote the deal. I think it’s generally agreed that the near-term outlook for the stock is cloudy at best – valuation arguments aside. The relative merits of the long-term outlook are less clear, and there are wide divergences of opinion here. I side with those that believe the long-term outlook for the stock is not pretty either.

There is no question in my mind, however, that the mess that has been made of the IPO is a black eye for both Facebook – although they will recover from a brand perspective over time – and the financial services industry (again). Morgan Stanley is in the cross hairs this time over whether or not they were open with the public about their downgrade for the outlook for the company prior to the IPO. The underwriters are also being criticized for raising the offering the price and number of shares – can anyone say greed?

My quote from the article: “I think both the near- and far-term outlook for the stock is bad. The valuation seems ridiculously high, as the market capitalization is — or was — above many blue-chip stocks with real earnings. We have been here before… and I think people are more reluctant to pay this price given what has gone on the past few years. Skepticism about the company and its future itself have emerged as well as a result of the road show and the IPO.”

Facebook will remain a popular social media tool for the foreseeable future. The company will regain some of the luster that it has lost once this mess fades into the background. The financial services industry will remain under scrutiny for its practices – again. And investors are better served investing in other stocks.

AK In The News: Managers Must Gauge Damage From JP Morgan News

Friday, May 18th, 2012

I was asked to write an opinion piece for Fundfire (a Financial Times Service). My thoughts were published in today’s edition. The focus of the piece is on how the brands of both JP Morgan and other asset managers have been affected by the trading loss and what both JP Morgan Chase and asset managers should do at this point. Here are my thoughts.

How bad is the damage to JP Morgan’s brand as an asset manager? I believe it’s significant. However, this is only one of the issues today. In this partisan world, only one misstep can give the opposition an opening to exploit. Nonstop bad publicity can and will erode a lot of the goodwill that JP Morgan has built up in the past.

By downplaying these losses a few weeks ago on an earnings call, Dimon violated the most important best practice that asset managers must adhere to following a crisis – that of being 100% transparent. Many wonder if there’s another shoe waiting to drop and whether we can trust JP Morgan Chase any longer. Already, indications are that the trading losses are at least 50% greater than the $2 billion first thought.

These losses also revealed the violation of other important principles that the industry should always follow – the importance of compliance, oversight and institutional control.

While high-net-worth retail investors might ask, “Is my money safe?”, institutional investors will ask, “Is there an institution-wide lack of control?” The fiduciary responsibility cast upon investment committees mandates that they must ask the right questions – and JP Morgan Chase better have the right answers.

What about the implications for other asset managers, and what should they do? First, if they haven’t done so already, they must proactively address what has happened and emphatically illustrate that they have control of their own business.

Asset managers must, in essence, protect their brand, because fiduciaries will be asking the same questions of them that they are currently asking of or about JP Morgan Chase; they have to. Silence is not an option, and other asset managers will be found guilty by association if they don’t straightforwardly answer the questions on their clients’ minds.

Their answers and other communications should focus on:

  • Transparency
  • Compliance oversight
  • Operational capabilities
  • The strictness of the parameters that dictate their process
  • The strength of their people

Asset managers must remind clients why they chose them as their asset manager in the first place. Asset managers must highlight their unique value proposition, and the soundness and stability of their organization.

Finally, what is important to clients now will also be important to future prospects. Asset managers should use social media, their websites and blogs to proactively showcase their brand as well as all the efforts they make to ensure that client assets are protected to the greatest degree possible. Executives not fluent in social media should use whatever their normal means of communicating are – whether it is the phone, email, a whitepaper or a newsletter.

We live in an extremely viral world – which is exactly why this mess has cascaded out of control the way that it has. Asset managers must use this as an opportunity to reassure investors of their integrity and the soundness of their firm’s compliance oversight and investment principles.

Why The JPM Mess Matters: What YOU Need To Do About It

Monday, May 14th, 2012

If you’re in the financial services industry and have or work with clients, you must proactively address the mess at JPM – lack of action will be detrimental to you and your business – guaranteed.

More on this in a minute. Last week was like a bad dream. And a recurring one at that. It makes you shake your head – over and over. The person leading the public fight against more regulation and Dodd-Frank, the bank that made it through the financial meltdown virtually unscathed, just gave its opponents the greatest gift imaginable. Politicians are salivating and the sound bites have been flying.

Among other things, it makes you wonder yet again whether bank CEOs really understand how the markets interact with the financial instruments that they have created. I have a lot of respect for Jamie Dimon – but this one is bad. Really bad.

Importantly, it affects every person in the industry, and not in a positive way. Frustrating is that we are all tainted, because in today’s political environment it’s easier to blame entire groups of people than to pinpoint the real culprits. “Main Street” never got over its hatred of “Wall Street,” and now people are once again asking “Is my money safe?”

If you haven’t already, you must communicate with your clients about what is going on at JPM – it’s not too late, but soon will be, because this controversy is not going away quickly.

My general advice is to 1) explain without defending what happened; 2) reassure that this in and of itself is not an event that will lead to another systematic meltdown; and 3) acknowledge that it has demonstrated weaknesses in the system and the need for some common sense reforms and/or regulations.

And specifically to you and your business 1) reiterate your stated or unstated code of ethics and commitment to client service; 2) remind how you demand and ensure complete transparency and accountability in your business; 3) emphasize how client assets are protected and safeguarded; and 4) make yourself available to answer questions and personally address any client concerns.

This too shall pass – but only if you stay in front of it.

AK In The News: Industry Remains Skeptical About Social Media

Wednesday, May 2nd, 2012

But I don’t!

Ignites, a Financial Times Service, just completed a poll of readers on social media, and surprisingly the results, which are negative overall, are pretty much the same as similar polls taken by Ignites the past two years: 33% or respondents said that social media is “useful only for certain roles and business functions,” while 29% voted that the hype is “a lot bigger than its usefulness.”

Only 10% of respondents thought that social media was a game changer, and 24% said that it was “important” and that “everyone should use it.” These results are in contrast to most other studies I have seen lately, which show the industry beginning to embrace social media.

For example, kasina is about to report that 87% of asset managers and insurers are using social media. The results of this study complement my comments in the Ignites article – while firms are seeing increased brand awareness and engagement with clients and prospects, few are seeing increased sales.

This lack of sales is probably what accounts for most of the skepticism. But I don’t think it is warranted. First, it takes time – a long time to get actual sales from social media. Be patient. And second, increased sales is not the best and only indicator of social media success.

As I said in the article, “It is evident that there still might be a misunderstanding in the financial services industry about just where social media fits. Unlike some other industries, where more tangible products are involved, social media is not just about getting new business, it is also about providing added value content and client servicing. Since the benefits of such strategies are harder to measure, perhaps that is why there seems to be frustration among the respondents.”

In addition, “Clients are increasingly adopting the mantra that they want what they want, when they want it and delivered how they want it. This is what social media allows you to do. It does not replace other things one does, like face-to-face communications, but complements it.”

Finally, part of social media success is having a conversation with your clients – not just a one way conversation. Firms that do not feel the they are having social media success might not be engaging clients and prospects the right way.