Launch of research by London School of Economics on financial journalism

I attended the launch yesterday by the London School of Economics' Polis media team on a two year research programme on financial journalism. Titled "What is Financial Journalism For? Ethics and Responsibility in a time of Crisis and Change". This is a continuing programme and the research team are looking for feedback.

Some of the headline points from the research findings were as follows:

• Lack of resources to cover stories is growing concern. Apart from one or two examples sucha s the Financial Times and even they are seeking to strengthen their reporting team; there is a growing concern about the time, training and skill of journalists to fully cover stories. An interesting comment from a journalist from The Banker magazine present was the complexity and breadth of the linkeages in financial markets which had grown up in recent years was not understood or perceived by regulators and was in turn a major exercise for journalists to follow.
• A Social Compact. Journalists in most major markets have a privileged position in the eyes of the law, but should these be strengthened further. Damian Tambini the author of the report highlighted whether the Freedom of Information Act should be extended to areas at the moment excluded due to "commercial sensitivity".
• The role of financial PR has had a negative impact on communication flows with senior management increasingly unavailable to be interviewed by financial journalists. This is an aspect of the research programme which I intend to bring to the attention of the UK Chartered Institute of Public Relations as it is an aspect which I think the industry needs to address as part of the wider reflection on "how do we go from here in financial markets". In some respects the financial PR industry is operating a mode of PR very much based on command and control of information flows which is now outdated and other parts of the PR industry are starting to move towards a more conversational and collaborative approach. But it is concerning that potentially the defensiveness of the financial PR teams hindered the free flow of information and added to the overall lack of transparency in financial markets.

These were the key points which struck me, but I intend to return this report on another posting when I have read it all, as opposed to commenting on the presentation at the LSE.

Credit rating agencies - prepare to be frightened

Take a look at this week's Financial Times weekend magazine with an excellent article about credit rating agencies. The best narrative I have come across describing the slippery slope in this case Moody's which took from research based culture to publicly quoted enterprise with short term agenda and focus on bonuses.


Another rather shocking piece of evidence is an announcement by Standard & Poor's on October 20th 2008 announcing that 760 mortgage backed securities issued in 2006/7 and given a range of ratings by S&P have been downgraded to negative (access to this document does require registration with S&P). The document gives a fascinating insight into the sub-prime crisis. The sheer amount of money raised through these asset backed securities is frankly awesome with a number over $1bn. What is frankly unbelievable is the number of these securities which were given AAA status. AAA status is given to very few countries and companies but apparently to many of these sub-prime mortgages.

Are the credit agencies in the clear or is there time in the spotlight yet to come?

Randomness of search uncovers gem

It is indeed fortunate for any economist to bring out a paper in the last month which begins its introduction; "Are credit markets particularly vulnerable to contagion effects..." and which is titled - Contagion in the Credit Default Swap Market. In fact it is based on research carried out in 2005 looking at the case of Ford and General Motors so it is the result of lengthy research and it so happens that publication date could not be better timed with all the problems of credit default swaps which of course led to the demise of AIG among other casualties.

The paper has come out of CEPII which is the leading French research establishment for the international economy.

The reason for the heading is the randomness of finally finding the piece. An email newsletter from Xerfi, the French economics research organisation, highlighted the work of Michel Aglietta whose work has been out of fashion with its emphasis on the need for greater regulation, but of course is now very much back in fashion, as financial markets move away from self regulation. Michel is an adviser to CEPII an organisation, I had not heard of, but seems an excellent resource on international economies.

Russia starts investor relations society

Russia has just started its own investor relations society highlighting the growing influence and role of the investor relations function within organisations.

I await to see if the investor relations community and financial communications PR function feel that they need to re-examine their role in the financial crisis. So far I sense no soul searching but it is early days. One of the over-riding themes whether sub-prime; credit default swaps; mortgage backed securities; strength of bank balance sheets has been the overall lack of transparency. Does investor relations feel that it has to look at its own role in this process?

You might be interested in a guide in both English and French produced by Observatoire Communication Financiere which brings together Euronext the owner of CAC; investor relations groups and investment analysts as well as the leading financial French legal firm of Bredin Prat .

Discourse and dialogue has become growing feature of financial news coverage

A rapidly developing feature of online news coverage is Comments. From articles to blogs, readers are now actively encouraged to respond. A French site called Rue89 shows this to good effect where news is seen as a collaborative effort between the author and the readers. Personally, I have changed my reading habits and find I am equally interested in reading the comments or some of them and the original story and blog.

The financial crisis has highlighted the impact of this dialogue and discussion. Huffington Post, the world's most read blog, will typically get over a 1000 comments on mainstream pieces. Take the lead story about the failure of the vote in Congress on Monday night. The Financial Times news-by-the-minute blog and community site, Alphaville has comments which at times of crisis in recent weeks have gone as high as 500 comments. While economist Nouriel Roubini regularly gets several hundred comments on his increasingly influential blog.

What is interesting is that anyone following the comments on blogs in the USA would have seen that the US financial rescue package, $700bn, now known as TARPS, was going to be a very difficult sell. Main street America was furious at the idea of Wall Street bankers being bailed out. Mainstream media did not really reflect this conflict strongly enough and perhaps was an example where they saw their loyalty to the markets and perceived protection of them, not their readers. It will be interesting to see how the debate develops in the media about going back to Congress a second time. Even experienced commentators are unsure of the measure and it was interesting to note that George Magnus, a senior economist with UBS believes that the money could be used in other ways.

Charles Rose and interview with key commentators

Looks like a good overview and with the whiff of gunpowder as broadcast at the height of the financial crisis last week. Charles Rose interviews Larry Summers, Nouriel Roubini and others.

Who speaks for the financial world?

It is interesting to note the inability of senior figures in the US and UK financial community to stand up and be counted, even in these difficult times and take part in the intense debate and discourse which is happening across the media about the future of the industry. After all one of the narratives is the end of capitalism.

This might be contrasted with France where David Rothschild was interviewed by Le Figaro about the developing crisis last week and as well as analysing it also managed as one would expect from one of the scions of a great banking family to give messages of reassurance and comfort to readers and highlighted the virtues of traditional banking and the strength of most European and Asian banks. There has been no similar interview which I have come across from US or UK leading financial figures over this last week.

Plenty of comments from regulators and politicians and commentators, but I am not conscious of a senior financial figure providing industry leadership in the US and UK or participating in the debate such as the head or Chairman of one of the major banks. I would argue that this crisis has really brought a new generation of financial thought leadership to the fore with online media playing an important role in bringing a wider range of voices to the debate.

Several figures who have gained particular prominence in recent weeks are:

Robert Peston of the BBC. His comments on BBC News, the Today programme and his blog have made him perhaps the most influential financial commentator in the UK. He has broken some major stories (Northern Rock and HBOS and LloydsTSB) but his commentary has also given ordinary viewers and readers a deeper insight and a level of personal perspective which we have not seen before from a financial commentator on the BBC. It has certainly given an added dimension to the debate in the UK.

Bill Gross of PIMCO, the world's largest bond dealers, a regular commentator on CNBC is a masterful commentator and although he may have used his postings and interviews to promote his trading position has also been a a thoughtful analyst of the situation. Note that CNBC, according to Hitwise has become one of the new media success stories in recent weeks with significant increase in readership and participation.

Another leading figure in the gathering debate online is Nouriel Roubini whose blog last week was gathering over 600 comments on some topics. Roubini, Professor of Economics at SternBusiness School in New York and known as a leading sceptic for over six years about the current discredited financial regime has established a powerful position in what might be called an online financial counter-culture.

This failure to participate by leading players is important for the legitimacy of the industry. It is interesting to note that the hedge funds and asset funds seem more active in the process. Yes, the finance industry can do deals in smoke filled rooms and get bailed out; but a modern online democracy requires participants legitimacy to be constantly topped up in the public sphere (Habermas). It will be interesting to see how long it takes before they realise the need to do so.

Panic goes to exuberance

Today market sentiment has rapidly changed. European markets have shot up over 7%. But is this exuberance rational? The US taxpayer is taking on a huge amount of extra debt and the next week or so will bring further consideration of other parts of the financial and global economy to be affected by the crisis.

Will AIG survive?

The screw turns and another financial giant is in the spotlight with administration a very real option. AIG, one of the world's largest insurance companies, better known in the UK as sponsor of Manchester United, is urgently seeking additional funds at the same time as it faces a credit rating downgrade.

What a credit rating downgrade. At 2107 Eastern Time yesterday (Monday 15th Sept.), Moody's announced rating changes - all downgrades - to the unsecured debt of 79 funds/organisations related to AIG. AIG unsecured debt now has the same rating as the bond issued by Maricopa County in Arizona for school improvements at A2. The implications for AIG are significant and may lead to payouts to bond investors for losing its triple A status. The downgrade was particularly severe as all three credit agencies carried it out in the same timescale; a move highlighting the fragility of the situation.

In media terms, each move by different actors across the financial stage reinforces the common narrative of uncertainty, fragility and crisis. Comparisons with the Great Crash of 1929 are now common from financial commentators. The AIG story perhaps adds another element to the developing narrative - that of powerlessness by the authorities in the scale of the problem. The authorities will be keen that this element does not develop further and may be an unsaid factor in saving AIG. The next few days will tell us more.

One of the most valuable short term PR campaigns?

Measuring "success" in a public relations campaign, is often not straightforward, and particularly in the short term.

Well Bill Gross, founder of PIMCO, one of the world's largest dealers in bonds, and leading authority and commentator on bonds, has shown how to do it and tie it in with his investment strategy.

He invested heavily in mortgage bonds issued by Fannie Mae and Freddie Mac, the main lenders of mortgages for the US residential market, to the tune of over $100bn according to the Financial Times. This was at a time when many in the financial community were becoming very concerned about the viability of both organisations and were selling both bonds and equity in both organisations. When the US government acted, and nationalised them, or put them into what the US Treasury called "conservatorship", it rescued the bond holders of Fannie Mae and Freddie Mac and allowed the shareholders to take the pain, giving PIMCO a major trading gain worth $1.7bn.

As well as being a consummate dealer, Bill Gross also knows how to work the media and through his highly regarded newsletters on bonds and through media such as CNBC he has pushed the agenda, that the US government was going to need to take a more active role with Fannie Mae and Freddie Mac and inject more capital. Some in the blogging community have queried this apparent conflict of interest and the role of other industry figures and commentators.

It will be interesting to see whether mainstream financial media or even the regulators take a look again at Bill Gross' success and high profile role as a commentator and decide that there are potential conflicts of interest. It could be argued that Bill Gross has never hid his trading strategy and understands that in today's 24x7 global markets; transparency or advocacy of your trading position is part of the legitimacy of your trading position.

The Wall Street Journal does a summary of winners and losers over the affair and Bill Gross and his trading strategy and PR campaign are one of the clear winners from the affair.

Lehman story shows signs of global fatigue over financial stories

Have you noticed that the developing Lehman Brothers story is not front page news in many countries? Students on the programme highlighted that in nearly all countries looked at, the media is absorbed in other stories. Is this a sign that perhaps the media are judging that public interest in collapsing US banks is no longer an issue central to many readers' lives?

Role of media in credit crunch

The number of conversations over the summer which have turned to the global credit crunch and very quickly followed by "the press/BBC/etc have made it worse by their constant coverage of bad news stories." You cannot really say "but hang on, that is their job and there have been some rather major stories to report - sub-prime, collapse of CDOs, BNP Paribas closing number of funds due to failure to value, massive losses by UBS, Merrill Lynch etc, collapse of Bear Stearns, collapse (as good as) of Fannie Mae and Freddie Mac etc, etc.

One could almost say the role of the media over the global credit crunch has become an urban myth. It is interesting to see that so many people perceive the media to be all powerful in terms of formulating society's view over event(s) while media itself is in fact feeling rather weak as advertising and readership declines and TV audiences fragment. Or has the media discovered that it can still be hugely influential and if so why over financial stories not some other issue like poverty, the environment etc.

As a postscript, if you had difficulty understanding postmodernism as a concept, then people's perception of the role of the media over the global credit crunch is a classic example. An aspect of postmodernism is that "truth" and "reality" is socially constructed. By believing that the press have made the global credit crunch worse by its reporting, we are acknowledging that the "reality" of these events is heavily influenced by the media's coverage of the event. Even though the media might well argue they were reporting the reality of events on the ground, and leading figures such as the UK Chancellor agree with them.

Global credit crunch - when did it start in the eyes of the media?

I am writing this with news just announced of Fannie Mae and Freddie Mac having been taken into public ownership. Such an event would have seemed inconceivable 12 months ago, but this latest event indicates the ability of the sub-prime crisis to continue to spread out and damage not just financial markets but the "real" economy as well. So how was the story first picked up by the financial media and what are the media and analysts saying was the starting point?

A search on Google News on "start of credit crunch" comes up with the first entry in Moneyweek, 11th July 2007 which had a piece titled "Is this the start of a global credit crunch."

According to Google News, the BBC was using the term a month later, with insights from leading financial analysts.

The Independent on Sunday has a good timeline and a major survey this August looking back to the start of the credit crunch in August 2007, going so far as to name August 9th 2007 and the closing of several funds by BNP Paribas due to sub-prime problems in the US as the starting point.

The BNP Paribas press announcement (English version) announcing the development still reads rather shockingly even with the benefit of hindsight. "The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating." Full marks to BNP Paribas for their transparency over the situation at that point - how many banks would have been so honest?

So what did the Financial Times have to say on those events back in August 2007? What is interesting is the potential severity of the situation was understood immediately by the Financial Times and its article the following day seem remarkably prescient. Bear Stearns the month before (July 2007) and then BNP Paribas were the first two markers in a timeline which leads to Fannie Mae and Freddie Mac. Where next?

Schadenfreude and a play on words

The collapse of Peloton or certainly of its major hedge fund has given the financial media a good news hook for its coverage of the story. Peloton is a term from cycling describing the mass of cyclists in a race, all bunched together. When one falls in the peloton he or she can bring down many others. For journalists that image is a powerful one suggesting wider ramifications not just the fall of one hedge fund.

Today's Financial Times (6th March) covering Pelton's public apology to its investors suggests that problems for hedge funds are increasing as banks are requiring much higher margins to lend to hedge funds. Mr Beller, the former Goldman Sachs trader who along with other Goldman Sachs' colleagues founded the company was quoted as saying "In some cases, he said, margin requirements doubled or tripled the cash required to be put up to buy loans – moves that also threaten other leveraged investors."

The remarkable collapse of Peloton's ABS Fund - valued at £2bn in January to near worthless today - has actually led so far to little schadenfreude on behalf of the media. Schadenfreude being the German word for pleasure in someone else's misfortune. But the fact that the banks are requiring so much extra margin to lend to even supposedly well run hedge funds, does illustrate that the business model of some or many hedge funds can be particularly vulnerable to external shocks. Perhaps it is time for all the major investors to take their money out of hedge funds and put them into a nice safe bank account - such as in Lichtenstein, as long as you have told the tax authorities.

Northern Rock - end of the story?

This has been a story which has dominated British politics over the last six months. This week yet another new development which surely can never have been seen back in the summer - Nationalisation of the bank. For the Labour government this has been a very public humiliation but also for the UK financial establishment.

One of the aspects however of the Northern Rock crisis has been, in my judgement, the performance generally of the UK financial media. Many stories have been broken by the media in a timescale which may not have suited regulators and other bodies.

Northern Rock shareholders take their argument to the airwaves

An interesting aspect of the Northern Rock saga, is its demonstration of how weak shareholders can be in terms of influencing executive action particularly when events are moving quickly.

By going quietly, understandably, to the Bank of England to get emergency loans, Northern Rock management has been party to what appears to be the total dilution of shareholder value, or as good as, and at the same time the influence of shareholders. Northern Rock last year, I think was worth £5bn, today it is worth less than £400 million.

No wonder the shareholders are taking their case to the media. Sadly there is very little sympathy for their case from the media because the main shareholders now are hedge funds looking to see what might happen as the carcase is picked over. However many small shareholders were/are Northern Rock employees who have worked for the company for many years.

The hedge funds are not used to being so ignored but it would appear they are potentially sitting on major losses if as expected that Northern Rock is sold for a nominal sum. Certainly the driving force in sorting out Northern Rock appears to the UK government via the Treasury and Bank of England. The board of Northern Rock essentially all resigned last week. It is not often you see a FTSE100 publicly quoted company with no details at all on main board, audit committee etc - take a look at the web site.

Might the shareholders take their case to the courts. Certainly it is being managed by government as though it is nationalised. What is its exact legal entity currently and might this have issues for any decisions taken in this interim period. When companies talk about running the company on behalf of shareholders - remember that does not include banks which have had to run to the Bank of England.

Barclays Capital - follow the flow of communications

A good opportunity to analyse the information flows related to Barclays Capital comes with today's rushed announcement to calm City concerns.

Last week major rumours swept financial markets that Barclays was in greater trouble than it was admitting over collaterised debt obligations (CDO). Barclays Capital, part of Barclays, and one of the main driver of profit for the group, had been one of the most aggressive operators in terms of handling and repackaging subprime mortgages. Interesting to note the intensity of the information flows around this topic of Barclays rumours. According to Google there are over 500,000 search results on the topic. I went to page 10 of these on the Google Search page and they were still highly relevant. A good example of an information "firestorm".

Today they have rushed out an announcement from Barclays Capital, see link above which has covered in great detail, Barclays treatment and exposure to collaterised debt obligations. Seems reassuring and initial coverage on the story seems to be reassuring markets.

Barclays share price at 1251, Thursday was: 533p up 6p on the day suggesting that markets take this positively. A good example of market transparency at work? Let's see the reaction tomorrow and later in the week.

Syndicated loans - underwriters show how to run an issue campaign

A good example of how financial media can be used to develop an issue campaign can be seen by recent coverage on syndicated loans.

Syndicated loans is another area being affected by the spreading ripples of the subprime financial problems. Just as subprime mortgages are packaged up and sold off, so corporate loans are packaged up and sold off by the lead institution(s). However this has become increasingly difficult in the general and gathering credit problems and for example the backers of Boots, a massive management buyout, at the top of the market, has only been partially syndicated, leaving the lead banks nursing a potentially significant hangover on their balance sheets.

The conference, sponsored by Reuters, has highlighted that the major underwriting banks are refusing to discount the syndicated loans on their books unlike US banks. Other members of the large underwriting community, perhaps feeling the lack of business, are highlighting the role of some European banks which are not discounting below par i.e. taking a loss.

By bringing it to wider attention and media coverage, they are ensuring that the investment community will be discounting these loans on the underwriting banks' books and so in effect forcing them to probably start discounting over the coming months.

What's in a word

Alot more than you think. The Financial Times today has highlighted the example of both Chuck Prince former CEO of Citigroup and Stan O'Neal, former CEO of Merrill Lynch both departed over the past week due to the sub-prime crisis and the impact this has had on their respective banks in terms of write-downs. They have both "retired" rather than "resigned". Take a look at the official announcement of Chuck Prince's departure on the
web site press centre I saw it a few days ago and did not pick up on significance of use of language.

Silly. As John Gapper of the FT points out today, there is a great deal of significance in the word. According to the article and because they retired not resigned, they will walk away with significant amounts in unvested shares i.e ones which he has not bought even at a low price but has been able to leave on the shelf until required. In the case of Chuck Prince this means a further $40million. So now we can see the reason for the delay in Chuck Prince's announcement. The lawyers were hard at work agreeing a statement and there was a great deal of signficance in the words. Good lesson - always remember to deconstruct the official statement, the use of words is invariably very important.

Gapper nicely brings into the piece the element of moral hazard about the deal. He says this is an example of moral hazard, encouraging potentially reckless behaviour. Brings us back to Northern Rock and Governor of the Bank of England. Do you remember that moral hazard was the very real concern he had when considering whether to support the bank or let it fail as he indicated when appearing before the House of Commons Parliamentary Finance and Treasury committee. Interesting how certain phrases which we may or may not have heard of or used before, suddenly become common currency for a while.

Investment in financial media

Take a look at an article in Le Figaro today highlighting investment in financial media both in France and globally.