At a recent breakfast meeting with a vendor of risk solutions, a team of smart technologists and market experts lauded their vendors wares. At one point in the pitch, they claimed that their solution could save a firms reputation. Just look at the $12 billion fine that JPMorgan Chase paid for the London Whale, the banks rogue trader who let losses mount to the tune of $5 billion, they said.
I had already heard this. Weeks before, a vendor of communication monitoring software had said that if Jamie Dimon and company had used its solution, the bank could have avoided the record fine. So at the breakfast meeting, I had a simple reply: So what? JPMorgan paid the fines and not only didnt anyone important lose their job, Dimon seems to have the full support of the board of directors. What reputational risk? I asked.
One of the risk vendors staffers sheepishly agreed. Youre right, he said. This seems to be the cost of doing business these days.
A $20 billion fine here, a $5 billion fine there. To compete with other global powerhouses, the thinking seems to be to break some rules (within reason) and pay the piper down the road. Last decade, I wrote that regulators would have to add a zero or two to their fines if they wanted to get Wall Streets attention. Now, with Mary Jo White helming the SEC, the fines are stiff but the banks are paying them like high-school kids who wrecked Daddys Jaguar after the prom.
Perhaps the only real fear that the SEC, FBI and the various attorneys general can put into the hearts and minds of traders and their bosses is twofold: jail time and a lifetime banishment from trading. Paying millions or even billions in fines might not raise an eyebrow, but even a country club prison plus the loss of the ability to make a living might get their attention.
Perhaps smaller investors – the so-called mom-and-pops that have fled the stock market – might even return.
Hows your reputational risk mitigation these days?
