C. HUYGENS - Wednesday, February 20, 2013
The path to providence for a prodigal bank was never expected to be easy. Human nature delights in the fall of the mighty; more so the meek who once suffered at their hands. We are speaking, of course, of the hands of the masters of the Universe.
William D. Cohan, the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. He was formerly an investment banker at Lazard Freres, Merrill Lynch and JPMorgan Chase. He scoffs as Antony Jenkins, the chief executive officer of Barclays Plc., seeks to shred the banks old culture and restore ethics
, integrity, and other critical values. Cohan wrote on Monday
It’s tempting to trust this sweet-talking British banking executive, still in the flush of his new appointment to run the scandal-ridden institution. He is understandably anxious to distance himself and his bank from the atrocious behavior rampant at Barclays during the absolute monarchy of his predecessor, Robert Diamond.
Scoffing, as it is now abundantly clear, is a mainstream financial media concern. Last Thursday, the NYSE announced the start of a metric-based publication service tracking sentiment - a social media data analysis service
. Call it a scoff meter. Barbara Gray, an analyst with Brady Capital
, explains the demand in the financial sector for sentiment data this way.
Social media is creating a new form of appreciating equity called social capital and we are now starting to see an explosion in growth of the number and sophistication of social analytics tools. As these new tools turn more and more qualitative data on companies (previously ignored by investors that just focused on the numbers) into quantitative data, I believe social capital will become even more of a predictive variable for determining stock price performance.
Indeed, the scoff meter is a 17 year old idea whose time has come. As described in Reputation, Stock Price and You,
as far back as 1996, Cap Gemini Ernst & Young, a global accountancy, established that non-financial performance plays a critical role in how public companies are valued, accounting for as much as 35% of institutional investors’ valuation. In 2005, PwC, another global accountancy, reported controlled experiments showing that extra-financial data and intangible asset value calculations swayed 40% of analysts to change their target valuations of public companies. That same year, Thomson Extel, the publishing group, reported that 6% of buy-side brokerages devoted material resources to extra-financial data to determine intangible asset value. A year later, that figure was updated to 32% of buy-side brokerages.
The Society, in cooperation with Steel City Re, has been publishing reputational value metrics for several years. S&P/DowJones Indexes publishes an equity index (Ticker: REPUVAR
) informed by the same measures. These measures capture the expected economic consequences of stakeholder actions influenced by, among other things, the same data streams tracked by the scoff meters. In fact, the volatility of the RVM metric, a non-financial measure of reputational value, is a measure of stakeholder expectation alignment -- truly, a scoff meter. And CRR, a measure of reputational value premium, is an indicator of the relative value of those expectations among all stakeholders in terms of expected economic impact. When RVM volatilty is high, CRR naturally suffers.
Below, Barclays' most recent data from Steel City Re
in both Investor Relations-friendly and traditional Risk Manager-centered actuarial formats.
Looking first at the IR-friendly form of reputational value reporting, the data show that the measures of expectation alignment - the degree to which stakeholders believe what is being said about Barclays and plan to act accordingly, is around the 8th percentile relative to the other 49 firms in the financial services sector. The measure captures the expected economic impact of Cohan's scoffing, as shown on the same Peer Standing chart where the reputational value premium is around the 21st percentile. Two measures, both in the black box, indicating (optimistically) great upside potential.
Below, in the bottom left, a comparison of current alignment versus historic alignment. The measure appears to be decreasing, which could be interpreted to mean stakeholders are trusting the messaging less, or more aptly here, with the new messaging, stakeholders aren't accepting it...reference Cohan again.
Turning to more traditional economic measures, the Beta charts at right show that Barclays' economic returns have a Beta of 1.5 x both the group median and the S&P500; Barclays' reputational value metrics, on the other hand, have a Beta of 0.0 relative to the group median and the market measure of uncertainty -- the VIX. Barclays, from a reputational value perspective, is now in a league of its own.
The story is no different looking at the actuarial data below although time series data provide more nuanced insight. Barclays wild ride goes back to September 2012 and a steady rise in economic value not yet matched by a rise in CRR suggesting equity investors have a feeling for something others, like Cohan, are fighting tooth, nail, and blog.