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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Reputation, liquidity, and credit risk

C. HUYGENS - Thursday, May 31, 2012
While we have often written of the link between reputation, liquidity and credit risk, examples help underscore the point. JPMorgan Chase (JPM) is in the throws of an alleged reputation crisis which by many measures, is not particularly noteworthy. On the other hand, notwithstanding the media blitz, there are potential costs to this event that are consistent with reputational damage, if not a full blown reputational crisis.

From the Financial Times (Cotterill, 11 May), we have reactions from Fitch and S&P the day after the 10 May disclosures:

Fitch Ratings has downgraded JPMorgan Chase & Co.’s (JPM) Long-term Issuer Default Rating (IDR) to ‘A+’ from ‘AA-’ and its Short-term IDR to ‘F1′ from ‘F1+’. Fitch has placed all parent and subsidiary long-term ratings on Rating Watch Negative. Fitch has also downgraded JPM’s viability rating (VR) to ‘a+’ from ‘aa-’ and placed it on Rating Watch Negative. Fitch views the size of loss as manageable. That said, the magnitude of the loss and ongoing nature of these positions implies a lack of liquidity. It also raises questions regarding JPM’s risk appetite, risk management framework, practices and oversight; all key credit factors. Fitch believes the potential reputational risk and risk governance issues raised at JPM are no longer consistent with an ‘AA-’ rating.

Standard & Poor’s Ratings Services revised its outlook on JPMorgan Chase & Co. (JPM) and its banking subsidiaries to negative from stable...We currently view JPM’s risk position as “adequate” and not “strong” (as our criteria define the terms), partially because of the risk on JPM’s balance sheet, which we believe contributes to the need for elaborate hedging strategies. Management’s admission that the hedging strategy was “flawed, complex, poorly reviewed, poorly executed, and poorly monitored” contributes to our negative outlook.
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