How the 'four Cs' could have saved banks from a lot of grief

Chris Blackhurst
25 Jan 2010

On the day that President Obama delivered his knockout blow to the banks, I was meeting a senior City figure. We both admitted to being totally perplexed by the banks — how intelligent people should get it so hopelessly wrong.

Between us we drew up the “four Cs” that could have enabled them to stem the tide: contrition, charity, compensation and competition.

It was, as any banker knows, a deliberate choice: when banks make loans, they also apply the four Cs: character, capacity, capital and collateral.

Contrition? They'd displayed precious little. It was impossible to think of any banker who had made a public apology that stuck in the memory. Sure, they'd mumbled a few words before various committees and interviewers, but there was nothing that resonated. Quite the reverse. If there was one phrase that we could remember, it was Lloyd Blankfein's assertion that Goldman Sachs did “God's work”.

We recalled, too, Blankfein's more recent appearance before the US Financial Crisis Inquiry Commission, when he compared the crisis to a hurricane. Chairman Phil Angelides responded: “Mr Blankfein, I want to say this. Having sat on the board of California's earthquake authority, acts of God were exempt. These were acts of men and women. These were controllable.”

Charity? They don't know how to begin. Of course, the bankers continue to make individual donations and they're gratefully received. But since the crisis began, there's been no headline-grabbing act — nothing to even begin to pacify an angry public. When the question of increasing their philanthropy is raised, they say that people would accuse them of making an empty gesture, that they would still be accused of making too much money. They may be right, but if they did it, nobody could accuse them of not giving. As it was, they remained wide open to the charge of selfishness.

Compensation was on our minds because that was also the day that Goldman produced a five-fold leap in profits for 2009 to $13.4 billion (£8.3 billion). It had cut the proportion of its revenue allocated to pay from 48% to 35.8%. The bank's “comp” pool amounted to $16.2 billion or an average of $498,000 per employee. While Goldman was claiming it had shown “restraint” and yes, 400 partners had donated £500 million to charity, there was nothing more we could say — the numbers said everything.

Competition. The banks, we both agreed, were having it too easy. They knew they would not be allowed to go under if they failed; at the same time they were raking in vast profits — and there weren't many of them. They were operating an oligopoly, with the same names cropping up on every transaction. They enjoyed huge advantages from their size, of being across large corporate deals, to knowing exactly what was happening in the markets. Barriers of entry needed to be reduced, which would lead to increased competition and lower fees.

We settled on our four Cs and returned to our offices — to hear Obama say they had not shown any contrition. Quite the reverse: the banks, he said, had indulged in a “binge of irresponsibility”. He didn't mention their lack of charity but there again, he really didn't need to.

As for compensation, he said, “my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform, and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small businesses, they can't keep credit card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers — and that's the claims they're making.”

Did he know he was saying this hours after Goldman had made its announcement? Of course he did — have you never watched an episode of West Wing? On competition, Obama said “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

He added: “I'm also proposing that we prevent the further consolidation of our financial system. There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank. The same principle should apply to wider forms of funding employed by large financial institutions in today's economy.”

Obama concluded: “The American people will not be served by a financial system that comprises just a few massive firms. That's not good for consumers, it's not good for the economy. And through this policy, that is an outcome we will avoid.”

You see. The four Cs. If only they'd applied it to themselves.

... while Angela's the bright-spot amid the bunker-mentality PR

Obama's speech was timely. Not just because it was Goldman Sachs' earnings day. Not only because it followed the humiliation in Massachusetts.

It was also the very day the US Supreme Court opened the floodgates to companies and special interest groups being allowed to advertise directly against senators. So, just as he was speaking, one of the richest lobby groups in the world — the Wall Street banks — was being told it could spend what it likes to campaign against the legislation he is proposing.

Presumably, this is why he said: “I welcome constructive input from folks in the financial sector. But what we've seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and commonsense rules of the road that would protect our economy and the American people. So if these folks want a fight, it's a fight I'm ready to have.”

One almighty pro-banking lobbying push is going to begin. While this is good news for US media companies, it's efficacy must be questionable. One of the remarkable characteristics of the banking crisis and the banks' response to it, has been their appalling PR.

It has seemed at times that the only banker in Britain was Angela Knight of the British Bankers' Association. Repeatedly, she's been required to defend her members on TV, radio and in print.

Of the bank bosses, a few have made the occasional appearance but it's usually been down to Angela — such is their inability and unwillingness to explain themselves.

They've adopted a bunker mentality, along the lines of: “Nobody likes us. Everybody hates us.” For people who devote fortunes to PR and advertising, and pride themselves on their sophistication in getting sales messages across, their lack of communication has been woeful.

In fact so bad has it been that it's only reinforced the impression they really do have something to hide.

Based on their record to date, Obama has absolutely nothing to fear.

Let's just hope your ad agency strategy works at C4, David...

Channel 4's new chief executive, David Abraham, used to be in advertising, which is where I encountered him.

He was co-founder, with Andy Law, of St Luke's. The agency's clients included Boots, Eurostar, Ikea and New Labour. St Luke's was run as a co-operative, where every staff member had a share and a say in its management.

St Luke's had “hubsters”, not receptionists, who took messages for colleagues who didn't have their own space but had to hot-desk. Each client had their own room, so there was the Ikea room, the Eurostar room, all decked out in their corporate colours and branding.

The basement canteen was like a student union bar, where the “University of St Luke's” would convene to hear guest speakers. There were no hierarchies and secrets. At St Luke's, if you wanted to know someone's salary, you just asked or accessed the firm's intranet.

With St Luke's, Law and Abraham set out to “ban fear, greed and ego”. Good luck at C4, David...