A New “Tobacco Moment”
When a respected publication like The Economist proclaims a scandal as global finance’s “tobacco moment,” you know it’s not referring to your average PR-crisis. The furor over Barclays’ alleged LIBOR interest rate fixing is not likely to go away anytime soon for two reasons, both of which should give finance execs pause:
• Experts agree that Barclays represents only the tip of the iceberg. No bank has the market power to manipulate an interest rate by itself, so, as the Wall Street Journal suggests, other banks and even regulators in the U.S. and Europe likely could be implicated. This means more media attention will be dedicated to the scandal – and the banking industry – over a longer period of time.
• The LIBOR scandal accentuates the ongoing narrative in the media and the blogosphere of banks acting like crooks. From the onset of the financial crisis in 2008 through the J. P. Morgan debacle in May each successive crisis has shifted the public conversation to the industry’s disadvantage.
The LIBOR rate determines the value of trillions of dollars of securities, including those affecting credit card and student loan interest rates. It should not surprise anyone — as it apparently initially caught Barclays management off guard — that news of the scandal would sweep the front-pages, hijack political agendas, and potentially risk unleashing a wave of class-action lawsuits.
So what does this mean for Barclays and its competitors? While each institution’s crisis response should be tailored for its specific needs, we at CommCore recommend they all weigh the following when deciding on a communications strategy:
• The new scrutiny of regulators’ roles in allegedly encouraging such behavior likely will only increase political pressure for tougher regulations and more intrusive enforcement that can alter the landscape for investment banks like Barclays. Rep. Barney Frank, among others, has already begun doing so.
• Those banks that come clean gain a first-mover advantage over their competitors as they begin repairing their reputations, as another Economist article suggests. Certainly Barclays has already begun this process as former CEO Bob Diamond is publicly reneging on his $31 million bonus.
• To the extent their legal counsel allows, concessions by the banks that they made serious mistakes will work best if done forcefully and transparently. The LIBOR scandal has further damaged the banking sector’s already tarnished public reputation. Rebuilding it will be difficult and will take time.