The developing story

The Northern Rock story continues to fascinate. Northern Rock itself has shuffled off-stage for the moment while bigger prey and issues take their turn to come under the spotlight. Last week was the Governor of the Bank of England's turn and his continuing future. His defence of his actions regarding Northern Rock in front of the Treasury Select Committe, were not impressive and in news terms have set other hares running.

Timing is everything in news stories and with Labour having its conference this week in Bournemouth, the Northern Rock story looks set to shift again and allow the media to look carefully at Labour's economic competence, particularly early decisions made when they first came to power on the structure of City regulation. Labour has been hard at work in the studios this weekend on this issue.

However the Economist has raised a more damaging issue that could well start to gain more coverage in the coming weeks. Namely that the management of the Northern Rock crisis by the Bank of England has damaged the City of London's reputation for financial competence. Reputation loss is a serious concern to any organisation particularly one employing so many people and so important to UK plc.

It is the ability of the Northern Rock to continue to metamorphose which highlights how in communication terms it is still exhibiting positive feedback, still somewhat unmaneable making it very difficulty and concerning for organisations and people caught in its wake.

Northern Rock - positive feedback and reputation loss

The current situation with Northern Rock is an excellent example of postive feedback where every day bring fresh news which amplifies the problems facing the bank. In communication terms (and banking terms) nothing can be more serious and terminal for a bank than TV coverage of people queuing up to take their savings out of a bank, in spite of full government and regulatory support. The reputation and corporate brand of Northern Rock is literally disappearing along with customers deposits.

The reaction by the Sunday papers suggests that the situation has become too serious and has the situation to ripple out and amplify problems elsewhere in UK financial markets (further positive feedback). Note Governors of Central Banks operate on a negative feedback model basis (dampening down feedback by putting up interest rates for example). Take a look at the BBC Businss Editor Robert Peston's blog, some good background and issues for consideration next week. Will Northern Rock still be a standalone organisation on Friday?

If you are interested in reading more about positive and negative feedback in economics, take a look at The Origin of Wealth by Eric Beinhocker.

Northern Rock - the ripple effect continues

Today's Financial Times (Friday 14th Sept) highlights the most serious impact so far of the financial turbulence in UK terms. Northern Rock has announced that it has had to go to the Bank of England to ensure proper levels of liquidity going forward. As a company with 20% share of the UK residential mortgage market, this has potentially important consequences as it brings the impact of the financial turbulence into ordinary UK households (with mortgages or with deposits with Northern Rock) and so has much greater political ramifications. It brings greater political pressure on the Governor of the Bank of England to take a more active process than he has wanted to. See how this story develops over the next week. Take a look at the FT.com web site as they have an actual copy of the statement put out by Northern Rock. Consider the style of the communication and also the number of people assigned to handle this important communication. The market may take the view that this is the end of Northern Rock as a standalone company and it will be acquired over the next six months.

Print/web sources on present financial turbulence

There are starting to be some very good features on the present financial situation which highlight how print/web media can arguably be a more powerful medium than TV for example in describing a complex situation and one which is gathering further ripples in its effects. Ones I have spotted which are worth looking out are:

Fortune. Sept 10th edition. Market Shock 2007. http://money.cnn.com/magazines/fortune/fortune_archive/2007/09/03/toc.html

Financial Times has been consistently strong. Look out today's issue, Monday 10th Sept 2007 as a for instance. http://www.ft.com/

I'll have a look at web only sources in my next posting and TV coverage.

Smoke and Mirrors

You could not plan it better. A new 12 week undergraduate module starting this month at the European Business School in London on Financial Media and Communications. Just before it starts we have a serious eruption of instability in global financial markets, started by subprime mortgages in the USA. Crisis may be too strong a description, but it is certainly squally and the ramifications if anything appear to be widening. It is not normal for Central Banks to inject such large amounts of liquidity into the banking system and it is not normal when commercial banks are concerned about lending to each other.

So what's the relevance of the current financial situation to the course apart from providing an interesting backdrop?

Well, here is a list of some of the themes running through the current financial instability and which we are going to explore in the course:

• Financial transparency. It is generally argued that markets operate most efficiently when there is a free flow of information. Commentators are saying that lack of transparency over subprime mortgages and other exotic debt instruments is a major part of the problem. Why has the communications flow in financial markets broken down - or have they?
  
• Breaking the story. In journalistic parlance this story has legs. Nearly every day there are new breaking stories and it is already about three weeks old. The overall story is continuing to break out of the confines of the financial pages into mainstream media. Have the financial media done a good job on this story or should they have picked up the growing problems earlier? Has this story given the print media a real opportunity to show their strengths compared with TV or new media?
  
• Communicating to the markets. How have the Central Banks done in communicating to the markets? Are they rather edgy and uncertain and has their hesitancy caused additional problems? What about the banks - are they natural communicators or in fact rather clumsy with leaden feet? How do organisations plan for communicating in times of crisis and have recent weeks shown that the financial community may not be as well prepared in this respect as for example the airlines or oil sectors?
  

The module is going to be looking at the operation of financial markets through the lens of communications and making use of Porter's value chain to better understand the processes. To follow the ebb and flow of communications and the role of some of the key specialists in this process. How does the financial journalist weigh up a story; how does the financial PR consultant/investor relations advisor decide how to handle an announcement; how does the CEO or CFO plan for the announcement of a bad set of financial results.

All this and with a financial environment which has the potential to throw up many more financial media and communication issues in the coming weeks.