CorpComms Magazine

For Wall Street aficionados, a seven-minute CNBC television interview on a March morning was one of the most extraordinary media moments of the global credit crunch. Sitting in a wood-panelled room at a hotel in Palm Beach, the chief executive of Bear Stearns sought to dampen down rumours that his bank was about to collapse.

'I don't know where the rumours started,' said Alan Schwartz, giving an exhausted grimace. 'Our liquidity and balance sheet are strong.'

In Florida to host an industry conference, Schwartz was facing the nightmare scenario of a run on his bank, 1,000 miles to the north. Sporting an incongruously cheerful pink tie, he sounded frustrated and fatalistic in equal measure.

'Maybe I could just say this,' said Schwartz, stumbling slightly over his words. 'I think that, you know, part of the problem is that when speculation starts in a market that has a lot of emotion in which people are concerned about volatility, then people will sell first and ask questions later and that creates its own momentum.'

Questioned by CNBC's star reporter David Faber, Schwartz was forced to deny that counterparties were refusing to deal with Bear. Adding to the sheer drama of the moment, the interview was briefly interrupted by a newsflash informing viewers that New York's governor, Eliot Spitzer, was resigning in a prostitution scandal.

Schwartz's awkward words of reassurance were not enough. Two days later Bear Stearns, teetering on the brink of insolvency, was snapped up for a pittance by JP Morgan - which insisted on a whopping guarantee of $29 billion (£16.5 billion) from the US government. Bear's executives were left floundering in the dust.

For banks, brokerages and investment houses buffeted by this year's financial crisis, age-old public relations strategies have gone out of the window. Accustomed to remaining as low profile as humanly possible, these institutions have been forced into waging a communications battle for their lives.

FEAR AND RUMOUR

In a jumpy market, rumours can send shares lurching by double-digit percentage swings in a matter of hours - even if their veracity is dubious.

The temptation to speak out has become overwhelming. It is often no longer enough to fend off reporters with the statement: 'We don't comment on market speculation.'

For PR teams, the pressure has been intense and unrelenting. One day they might be offering soothing words to investors and journalists. The next day, their institution becomes the latest to announce billions of dollars in credit-related write-offs, the departure of senior executives and hundreds - even thousands - of job losses.

'These are unusual circumstances,' agrees the director of corporate communications at one investment bank in New York. 'There have been times - like around Bear Stearns - when the volatility has gone up dramatically. We've been working not just seven 'til seven but doing more on our Blackberrys and out of hours.'

He describes the industry as sensing a 'different atmosphere' this year, 'There has been a lot of rumour-mongering,' he adds.

In the US, the media have one by one queried the stability of industry titans such as Lehman Brothers, Merrill Lynch, Citigroup and Wachovia, with varying degrees of accuracy and justification. Only a few banks - notably Goldman Sachs - have maintained a solid veneer of confidence throughout.

Similarly in Britain, the collapse of Northern Rock has prompted a pattern of jitters over high-street rivals. Even the mighty Barclays and Royal Bank of Scotland have felt obliged to tap shareholders for more money to soften its cushion of capital. In continental Europe, the credit crunch prompted UBS to dispense with its chief executive.

The crisis has been rapid, severe and unexpected. Many banks were not prepared. Andrew Griffin, managing director of the crisis management specialists Regester Larkin, says: 'The banks have never really been, collectively, in this sort of situation before. They've never been leaders in crisis management and issues management.'

While oil companies and airlines are well drilled for disastrous contingencies, few banks have ever worked out a PR strategy for a threatened 'run on the bank'.

'As a sector, they've been playing catch-up. This is the moment when banks have really realised the value of good communications,' says Griffin. 'As a whole, the message seems to be coming across because there hasn't been a great sense of consumer panic, except for at Northern Rock - which was a very specific situation.'

Like politicians talking down a national recession, the banks' knee-jerk strategy has been to shrug their shoulders and point to factors beyond their control for massive financial hits. They argue that individually, they cannot be blamed for a housing crash and the ensuing global economic downturn, which have decimated the value of investments on their balance sheets.

BLINDING WITH JARGON

In doing so, banking PR departments have invented a whole new lexicon of expressions. There has been a 'serious dislocation in the credit markets', a 'well capitalised excess liquidity pool' and an 'incremental upward shift in delinquencies'.

Conde Nast Portfolio's Business Spin blog brilliantly parodied these euphemisms recently by picking apart a press release in which Wachovia revealed the 'retirement' of its chief executive, Ken Thompson.

'Our recent successful capital raising auctions provide us the solid foundation and flexibility we need in an environment which remains extremely challenging for Wachovia and the entire banking industry,' said Wachovia.

Conde Nast's Jack Flack translated: 'No need to take your money out of our vaults.'

The bank added: 'The board of directors has formed a special committee to conduct a search for a permanent chief executive officer.' Translated as: 'We didn't expect to take Ken out right now, or we would have had a successor ready.'

Some banks have been frank in admitting that their risk management went badly awry - and that they were suckered into over-confidence after a long, prosperous bull market. A tinge of regret can seem refreshingly honest.

Bank of America's chief executive, Ken Lewis, memorably told a conference call of journalists and analysts: 'I've had all the fun I can stand in investment banking at the moment.'

Consultants in crisis management say it is crucial to show that the house is in order in other respects. Griffin points out that in a downturn, critics will be even more eager than usual to find lapses in banks' corporate governance, executive excess or unnecessarily brutal treatment of redundancy victims.

SHOW REMORSE

'What media and stakeholders are looking out for is anything that suggests the banks are getting it wrong at a time when they need to be getting it right,' he says. 'They're looking for the next mistake, they're looking for the next failure, the next poster child for the general malaise - and you do not want it to be you.'

The pitfalls are plentiful - and disasters have been frequent. It did not go down well when it emerged that Bear Stearns' chairman, Jimmy Cayne, had been at a bridge tournament on the day that several crucial hedge funds collapsed. Or when the American Securitisation Forum chose a glitzy casino in Las Vegas to have its annual conference and gala dinner - the New York Times dubbed it the 'predators' ball' and gleefully followed participants around the Venetian style hotel's fake canals.

But the most damaging challenges for banks have been intangible whispers of the kind faced by Bear Stearns in its final days. Lehman Brothers has struggled with similar speculation about its liquidity - causing its shares to collapse by more than 70 per cent since the beginning of the year.

Until her demotion and subsequent resignation this summer, Lehman's chief financial officer, Erin Callan, adopted a high profile, guns-blazing approach to those who sold the bank short. She repeatedly went on television and gave media interviews attacking naysayers.

'There's no confidence and no trust,' she announced in March. 'You have the stupid money coming into the market now.'

Callan quickly became a high profile figure. She attracted unwanted extra attention because, as a woman, she stood out among top-ranking bankers. The usually po-faced Wall Street Journal opted to write about her use of a personal shopper at the New York department store Bergdorf Goodman and quoted a (female) banking analyst's description of Callan as the 'best accessorised' chief financial officer on Wall Street.

Shaking off the chatter, Lehman persisted with its aggression. The bank publicly accused a hedge fund critic, David Einhorn, of adopting a strategy of 'short and distort'. In an unusually pointed rebuttal, it issued a statement accusing Einhorn's Greenlight Capital of 'cherry picking' financial facts and taking them out of context to 'relay a false impression of the firm's financial condition which suits him because of his short position in our stock'.

Such hard-talking communication strategies are controversial. Experts say banks must exercise great care in rebuttals.

'This is not a one pot fits all situation,' says Richard Torrenzano, founder of the eponymous Torrenzano Group, which advises financial institutions in New York on strategic communications.

Whether to speak out, says Torrenzano, is a deeply complex decision. 'You need to assess what is going on, understand the dimensions and the dynamics, where the rumours are coming from, the intensity of it,' he says. 'Is it on blogs, chatrooms or trading floors? What's the decibel level? Am I getting calls from investors or is it just chatter in the marketplace?'

In some cases, he argues that it is better to keep quiet. If speculation is becoming too intense, the choice of medium is critical: 'There's a difference between CNBC television and Bloomberg.'

The identity of the messenger is also key - putting a chief executive in front of the cameras can project a sense of crisis but conversely, a press officer may not carry sufficient gravitas in the current market.

'It involves a great deal of thought, of deciding who the audience is. If you say something, is it going to help? And how are you going to say it?' says Torrenzano.

Banks have so far written off more than $150 billion of losses related to the sub-prime mortgage crisis and the credit crunch. Things are likely to get worse before they get better - finance ministers at a G7 summit earlier this year were told that losses could reach $400 billion.

The head of media relations at one European bank in New York says PR in the industry has had to evolve rapidly: 'The types of queries over the last year have been completely different from those that I've seen before.'

Preferring not to be named, she adds that even at a firm relatively unscathed by the crisis, a hard edge had crept into media and investors' enquiries. 'There's something more fatalistic in questions of how things are, where we're making money, whether we're making write-downs,' she explains.

BEEN HERE BEFORE

The few banks to emerge as winners in the credit crunch have had to be just as careful as the losers to avoid stories of exuberance. Goldman Sachs anxiously played down a breathless report in December about a small team of traders who allegedly generated nearly $4 billion by betting on a sub-prime collapse. Nobody wants to be seen, in a period of economic malaise, to be making crass profits at the expense of struggling homeowners.

The $68.5m pay package for Goldman's boss, Lloyd Blankfein, provoked even more ire than usual as community organisations representing bereft mortgage borrowers criticised such 'preposterous' rewards.

Old hands stress that the world has not ended and that the financial industry has survived many a downturn before the current one. The Asian financial crisis of 1997 briefly crippled a big chunk of the global economy. The collapse of hedge fund Long Term Capital Management in 1998 triggered dramatic warnings of a wholesale challenge to capitalism. Then there were the terrorist attacks of September 11, which brought personal tragedy to New York's financial district and a sense of a nation under siege.

'Every three to five years, we have a storm coming through Wall Street,' says the experienced Torrenzano. 'People have to change because markets change.'

Cooler heads will ultimately prevail. But as Alan Schwartz and his 14,000 colleagues at Bear Stearns learned, words are vitally important in a febrile environment. Rumours, allegations and protestations can be the only differences between a bonus and unemployment. 

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