Bank Lawyer's Blog

Boneheads Bash Bogus Tweeters

A report in today's Wall Street Journal about consumer advocates organizing a hash-tag "tea party" to assault what the advocates thought was a Goldman Sachs Twitter account, but that turned out to be a fake Tweeter Bird, wasn't quite as amusing as the "Goldman Sex" fiasco, but it was close.

ACORN, a grassroots housing advocacy organization, and MomsRising, an online community of mothers, told their members and the Twitter public at large to tweet “petition @GS_NEWS Prevent home foreclosures with the MHA program now! http://act.ly/5l retweet to sign #Homewrecker.” Their goal is to get Goldman, and three other institutions, to sign on with President Obama’s new Making Home Affordable (MHA) Program.

Except  @GS_NEWS is not Goldman. GS_NEWS’ Twitter page is decorated with a Goldman Sachs logo and tweets about Goldman Sachs news. But, Goldman doesn’t have a presence on Twitter at all, says Andrea Rachman, a spokesperson for the bank. The owner of the @GS_NEWS account could not be reached via Twitter for comment.

According to the story, Acorn and the risen Moms are in a tizzy because Goldman Sachs-owned loan servicer Litton hasn't signed on to "The One's" Making Homes Affordable Program, in which borrowers who had no business taking out loans on their original terms get more generous loan terms so that they can remain in homes they can't afford for awhile longer, hopefully at least until after the next round of Congressional elections. "The One's" mantra is that popularly attributed to another ruler anointed by God, Louis XV: "Après moi, le déluge." As Luke Mullins pointed out today, recently released figures by federal bank regulators show that a majority of modified loans go back into default. Then again, those figures don't include modifications performed in accordance with "The Change We Have Been Waiting For"'s more generous terms, so perhaps the red(ink) sea will part and all those underwater borrowers will scramble to safety onshore before the waves of reality come crashing down upon them again.

Apparently unimpressed with the off-target misfiring of the consumer advocacy twits, Goldman Sachs has decided to continue to hang tough with its own loan modification policies.

“Litton loan modification activities are consistent with the Home Affordable Modification Program,” Ms. Rachman says. “And we very much hope to formalize our participation in the program, but we need clarification from Treasury on whether it will affect our ability to hire the people we need to run our business effectively.”

Goldman's lack of faith in our "A Deal Is Not A Deal" federal government is well warranted. And as long as faux Goldman social media sites continue to make fools out of its opponents, Goldman ought to be able to weather the PR wars in fine shape.

How To Win Friends

My most recent post last Thursday evening (no longer online) hyperlinked to, and quoted from, a story in National Mortgage News. The next day, while traveling without access to my e-mail, I received an e-mail from some jerk who claimed to be an editor at Source Media, the publisher of National Mortgage News, who complained that I did not give attribution to the story from which I quoted passages in my post. My correspondent, who will remain nameless (to protect the foolish), could have raised the issue in a thoughtful and polite manner, perhaps even suggesting that hyperlinking, which most bloggers believe (and have believed for years) is sufficient attribution to the source, is not acceptable to Source Media. Instead, here's how the e-mail opens:

Your "Bank Lawyer's Blog" reproduced big chunks, without attribution, of our May 18th story on nationalmortgagenews.com about the mortgage fraudster who got a 99 year sentence in Texas. You're a lawyer, you must have heard of the copyright law. Do the right thing.

I was using an in-law's Internet access to briefly check e-mail that evening, so I didn't have time for an extensive reply, but I did inform my accuser that I had linked directly to the article from which I had quoted, and that prior to accusing someone of violating a law, perhaps he should actually read it. I was steaming, and my wife asked me what had riled me. When I told her, she laughed with gusto.

"So, some pissant editor who doesn't understand what a link is, who works for some pissant paper nobody's heard of gets bent out of shape because some pissant blogger who writes some pissant blog nobody reads didn't do what he thought was a good enough job of giving a writer of an article in the pissant paper credit for writing an article that most people don't give a hoot about. Have I got that about right?"

She had nailed it. God bless Texas. She also reminded me that I had promised her that as I am going to turn 60 this year (even though, as everyone knows, 60 is the new 40), I was going to distance myself from people and things that anger me, like self-important editors who can't recognize or follow a hyperlink and the publications that employ them.

So, rather than get in a war of visual acuity with the Stevie Wonder of newspaper editors, I'm removing the specific sources of aggravation. I deleted the post that the pissant found objectionable, not because I think he had a valid point, but because (A) it links to a story in his publication, and publicizing that publication is something I've decided is not on my agenda, and (B) it wasn't that much of a blog post anyway. I was in a hurry to pack for a trip and threw out a drive-by piece of snarkiness (the kind my tens of readers have come to expect of the pissants who post here). The only person who thought it worthy of interest was the other pissant involved in this contretemps.

I don't subscribe to the print version of National Mortgage News (I get my mortgage news from more entertaining sources, like Housing Wire, but don't hold that against Housing Wire), so I can't cancel my subscription to that journal. However, tomorrow I'm canceling my subscription to The American Banker, another Source Media publication, to which I do subscribe (but as of tomorrow, no longer). I'll also delete any links on this blog to either publication or to any blogs they sponsor. I'll never attend another seminar they or any of their affiliates sponsor and I will not pass up the opportunity to relate this incident to anyone at any appropriate (or even inappropriate) time. I'm merely a dust speck in the blogosphere, so my feeble efforts will have no real impact on Source Media, but I'll have one less source of aggravation in my life.

As Fredo Corleone was to his brother Michael, Source Media is now and forever "dead to me."

Shameless Shilling

I’m giving a one-hour webinar on May 28, 2009 from 12 pm to 1 pm Eastern Time on the legal risks to banks of using social media. It’s entitled “Banks and Social Media: De-risking the Legal Risk” and is hosted by Bankerstuff.com. It’s the last of three webinars in a series directed to bankers and their advisors on social media. The first is given on May 21 by Jesse Torres, a long-time banker and author of the blog Social Media and Banking, and the second on May 27 by Katie Delahaye Paine, a PR advisor to banks and other businesses, and who also blogs at KDPaine's PR Measurement Blog. There's also a "bonus webinar" (which I don't think is anything like the "bonus round" on "Wheel of Fortune") on June 11, 2009 entitled "Understanding the Digital Native" (for those who aren't already Digital Natives or who are members but lack self-understanding), given by Dan Fisher, CEO of The Cooper River Group. A link to the three-part  (plus one) series is here.

Incidentally, I receive none of the proceeds of my webinar and I am not otherwise compensated. It’s merely that I love to take abuse from listeners who know more about every subject than do I.

So, if you’ve got an hour and a few extra bucks to spare, come throw a few verbal rotten tomatoes. You might learn one or two things. I mean, stranger things have happened.

We interrupt this commercial message to bring you this late-breaking news flash from our 24-hour radio news source: The U.S. Economy is officially dead.

Watch What You Tweet

Corporate "Tweeters" are a new breed of marketer. Sometimes, being cutting edge is double-edged. A recent Wall Street Journal article demonstrates how being tech-savvy doesn't mean that you're necessarily compliance-savvy.

An eBay Inc. effort to broaden communication through the popular Twitter Web-messaging service highlights the hurdles facing corporate users of online social media.

The online auctioneer launched a corporate blog in April 2008. Two months later, blogger Richard Brewer-Hay began "tweeting" -- posting updates on Twitter -- about Silicon Valley technology conferences, eBay's quarterly earnings calls and other topics.

The growing Twitter audience also attracted the attention of eBay's lawyers, who last month required Mr. Brewer-Hay to include regulatory disclaimers with certain posts. Some followers think the tougher oversight is squelching Mr. Brewer-Hay's spontaneous, informal style.

[...]

Blogs and tweets can run afoul of Securities and Exchange Commission regulations on corporate communications. But sanitizing such posts risks hurting credibility with online audiences.

[...]

Corporate lawyers say companies should devise a social-media policy before adopting blogs or Twitter. "All of the traditional ways that a company can get in trouble for making public statements" apply to the Web, says Lisa Wood, of Foley Hoag LLP.

She urges companies to include the standard disclaimers they use in other communications, as Mr. Brewer-Hay now does. Ms. Wood says companies shouldn't disclose financial information on Twitter that isn't available elsewhere, and should make clear that opinions expressed by others in company-sponsored forums -- like comments on blogs -- don't represent management's views.

It's obvious that we're all feeling our way along with this new social media marketing "stuff." It's a balancing act, with marketing folks worried that the damn lawyers are going to put a stopper in the magic bottle and lawyers breaking out in flop sweat over the immediacy of the communication and the relative lack of control over the conversations that are generated. That said, I think a lot of the risk is either overblown or, where it's real, can be effectively managed. From the number of financial institutions, large and small, I see on Twitter these days, banks better come to grips with the management of those risks. If not, they'll either be shut out or shot down.

Social Media Marketing Legal Risk: The Bark Is Worse Than The Bite

I spent a good portion of last Thursday in Las Vegas among bank marketing professionals and, as hard as it might be for some readers to believe, I found the experience refreshing. Perhaps because of what they do, but more likely because of the type of people who are drawn to the marketing field, many marketing professionals are pleasant and interesting conversationalists. At least, they're nice to your face, which in a world filled with snarky cranks like the author of this blog, is the best you can hope for.

The specific topic of the day's presentations was the use of social media to market a bank's products and services. All of the other presenters were impressive. I was able to speak at length with Jim Craig of 1st Advantage Federal Credit Union in Yorktown, Virginia and Shari Storm of Verity Credit Union in Seattle, and they were both engaging human beings, as well as knowledgeable and impressive speakers. Ms. Storm's also a published author, and I wondered, after hearing her speak and realizing what an active career she has, when she had time to have three children. Effective time management, I suppose.

I, on the other hand, was the wet blanket who told the attendees how many ways I, and my fellow demons from Legal Hell, could "what-if" their imaginative use of social media into a limbo of paralysis and eventual abject failure. Sure, it's a nasty, brutal job, but somebody's got to do it.

Actually, I find the legal risks of the use of social media to be overblown. It's true that, unlike the one-way communication of traditional marketing, where the bank "talks" to the customer or potential customer, in social media, the customer (or potential customer) "talks back" to the bank and, depending on how "social" the media might be, talks to other customers and potential customers. As I said to the audience, you're inviting strangers into your home, and you don't know whether you're getting a witty Oscar Wilde type or a Charles Manson who'll stick the cat in the microwave, pee in the punch bowl, and puke on the Persian rug. The apparent lack of control makes lawyers jerk and twitch like they've got a bad case of Tourette syndrome.

Nevertheless, the legal risks can be mitigated and managed, and it shouldn't be that difficult to do so if the bank makes an upfront commitment to do what's required. Mitigation involves having the right attitude, the right people, and the right infrastructure (policies and procedures, training and monitoring) in place to govern the bank's social media marketing activities. Those speakers and audience members with whom I spoke whose institutions have been in front of the curve in using social media marketing for a "long time" (in social media time, a "long time" is five years) haven't experienced any serious legal setbacks. Of course, the stories they told me indicated that when they confronted situations where things could have turned very ugly, they were able to deftly manage the situation and, in some cases, not merely lessen the potential risk but turn it to their advantage. In other words, they understand how to treat other human beings in a decent and transparent manner, as shocking as that may seem in an age when it's all about the "spin."

I think that much, perhaps most, of the concern about the legal risks of social media marketing by banks arises from the understandable fear of the unknown. The media is relatively new, banks are traditionally conservative, and lawyers are risk mitigators, not risk takers. Thus far, banks are experimenting with the media, and "the jury is still out." In other words, many banks don't yet "get it." Nevertheless, social media is the way through which much of the world is relating to one another, especially among Gen Y, and banks are going to have to learn to embrace the media if they want to effectively reach those who use it. Shari Storm displayed a picture of her three daughters, ages 5, 3 and 1, and told the assembled bankers that the challenge was how to make them and their older brothers and sisters their future customers. It's a huge group of human beings (larger than the Boomers) who are coming of age using social media as second nature.

Legal risks or no legal risks, banks will have to come to terms with it. Perhaps you don't have to be a hare to be in this race, but you sure won't be able to win it as a tortoise.

A Short Break

I'm on a combined business/vacation trip for the rest of the week. I'm speaking in Las Vegas on Thursday morning to a group of bank marketing professionals about the legal risks of banks using social media to market their wares. I'm sure that I'll recognize the employees of banks who've taken TARP money. They'll be the ones with paper bags over their heads. I'm headed out early and staying late in order to take advantage of some much needed downtime. As a result, no blogging until next week, because I promised both my wife and my professional liability carrier: no more blogging while drinking.

Putting Reverse Spin On TARP Marketing

One small bank has taken a lesson from recent snarky marketing campaigns by other banks that didn't take TARP preferred stock investments through the US Treasury Department's Capital Purchase Program and have been playing on the public's anger over "bank bailouts." Millennium Bank of Edwards, Colorado, announced recently that it had received $7 million of capital through apreffered stock purchase by the US Treasury Department through the CPP, and that its receipt of such an additional proves that it's a healthy bank, not a sick one, like...oh...maybe...a bank that didn't get a CPP preferred stock investment.

"We are pleased to participate in the program, which is a reflection of our company's continuing strength," Donald Mengedoth, Millennium Banks' chairman and CEO, said in a statement. "The capital investment allows us to expand our ability to generate quality loans to families and businesses within our communities and support the economy. Further, this allows us to pursue growth and opportunities presented in today’s economic environment."

Millennium Bank has remained well-capitalized by federal banking standards, and the addition of new capital will increase its regulatory capital ratios by approximately 25 percent, officials said.

"It is important to note that the Treasury is providing this program to healthy banks that are well managed and well capitalized," Mengedoth said. "The CPP is not a 'bailout.' As the Treasury notes, only healthy banks that lend to their communities are eligible."

Given the recent public sniping by a few non-participating banks against their brethren who've grasped the brass ring of TARP capital, and the bashing of banks who take the government's money by certain members of Congress eager to play off public anger to their political advantage, I think Mr. Mengedoth's public posturing of the CPP investment is a smart move. If he's attacked, as Plains Capital in Texas was attacked, for participating in this program, he can turn the accusation around and publicly ask whether any bank that decided not to take TARP money did so because it thought it would be turned down. Only "healthy" banks qualify for CPP investments, after all.

In some ways, it's a sad state of affairs that such marketing tactics are necessary. On the other hand, folks like Mr. Mengedoth can honestly state that they didn't start these "spin wars," they're just defending themselves with a little "preemptive strike."

I'm Honestly Shocked

The steady stream of complaints about banks sitting on their money and not making loans to credit-worthy borrowers was temporarily dammed up recently by a diverting report out of Kansas City, Missouri. It appears that in some cases, banks are not lending to those with good credit scores, but to those whose scores are a negative number. Why? Out of the goodness of their hearts, that's why.

Loan officers at the First National Bank of Kansas City defended their decision to lend local man Tim Creamsby $650,000 to open a small stationery store Monday, explaining that, while the business's long-term prospects were poor, the idea was "simply too pathetic and heartbreaking" not to sign off on.

"In order to qualify for a loan of that size, an applicant normally must demonstrate significant financial holdings, have an impeccable credit score, and fill out a number of contracts," First National loan officer Robert Lewiston said. "But when I met Mr. Creamsby and listened to his pitiful story about how he'd worked all his life at an office-chair factory to save up for his dream—his dream to have a little shop where people could buy thank-you notes and maybe pick up some fountain-pen ink every now and then—well, I blurted out the first number that came to mind just to make him stop."

"You see, he had these little drawings of what the storefront would look like," Lewiston added. "Tiny little sketches he drew himself. Christ, that almost did me in."

[...]

Several factors reportedly contributed to their generous offer, most notably having to watch the kind-faced old man pull from his pocket a small, dog-eared slip of paper—worn soft as felt from years of repeated handling—on which he had written a number of potential store names, including "Notable Notes," "The Jottery," and "Creamsby's Sheaves."

"I was about to suggest that he consider a more practical business, like a coffee shop or a hat store, but then he brought out that list of names," bank vice president Nathan Bergeson said while attempting to remove some dust that had gotten into his eye. "I think the bank's going to have to eat this one."

Heartless bankers? Not in KC, MO.

And while we're at it: did you hear that the Obama Administration has rebranded toxic assets as legacy assets? No, really, unlike the previous story, that's not an April Fool's joke, although it IS fairly amusing. At least, John Stewart thinks so (h/t BankThink).

The Daily Show With Jon Stewart	M - Th 11p / 10c
Redefinition Accomplished
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

TARP Free And Proud Of It

Four banks, led by Iberiabank Corp,  were first out of the gate today to announce that they'd paid back their TARP CPP investments. The four repaid the US Treasury over $338 million to redeem referred stock and warrants, and also repaid accrued dividends. Two of the banks, Iberia and Signature Bank, said that the repayment was directly tied to the Treasury Department's after-the-fact imposition of executive compensation restrictions in February.

A February revision to the bailout as part of a federal stimulus package “adversely affected our business model and it became apparent that we should return these funds to the Treasury,” Signature Chief Executive Officer Joseph DePaolo said today in a statement. 

That's a nice way of saying, "Hey Timmy: Take this TARP and shove it!"

According to today's edition of The American Banker, the Gang of Four is only the first group of banks to repay, and (as we predicted) there will be more on the way.

Other banking companies have announced that they will return the capital they received as soon as possible, including the $16.3 billion-asset TCF Financial Corp. in Wayzata, Minn., and the $82 billion-asset Northern Trust Corp. in Chicago.

[...]

Many healthy Tarp recipients have become disenchanted with the program, saying that the political climate shifted from one where they were encouraged to take the money to help stimulate the economy to one where they are being treated punitively.

The cynics in D.C. have queered this program for many banks who otherwise would have participated. Instead of actually leading the public, politicians have bowed before (or worse, actively incited and manipulated) the Howling Herd that can't separate Wall Street "banks" from community "banks." Much of the public apparently believes that the CPP was designed solely to line the pockets of top executives at the corner bank. Instead of emphasizing that the US Government sought out and encouraged banks to take the CPP money in order to leverage it into new lending, or to cushion the banks against losses on toxic loans and, it was hoped, "unclog" a frozen interbank lending market, the pols in  Washington have willfully failed to exercise leadership by clearly explaining these facts or, worse, have engaged in dishonest demagoguery in order to exploit the public's misunderstanding of the program so that blame for the mess we're in could be deflected onto a convenient scapegoat. In that effort, the politicians have been aided by some equally cynical bankers, who've used TARP as a marketing bat with which to beat their brothers over the head.

Daryl G. Byrd, Iberiabank's president and chief executive officer, has complained that the public feels Tarp recipients are troubled and deserve to have new requirements imposed on how they do business.

"When we decided to accept funds under this program, we believed we were the type of healthy bank that could employ the funds in the manner consistent with the goals initially set out by Congress and the Treasury in supporting the expansion of credit to the markets we serve," Byrd said in a press release when Iberia announced its plan to exit Tarp.

"We believe recent actions, interpretations, and commentary regarding various aspects of the program places our company at an unacceptable competitive disadvantage. Our board of directors has determined that continued participation in this program is no longer in the best interest of our company and its shareholders."

What does T-A-R-P spell? "FAIL."

TARP Derangement Syndrome

The successor to "Bush Derangement Syndrome" among the chattering and political classes might soon be "TARP Derangement Syndrome." With the House and the Senate rushing through punitive legislation to punish bonus recipients at AIG, and in the process scooping up a number of other executives and employees of financial institutions other than AIG that took TARP CPP dollars and other forms of federal government aid, the public hysteria to trace TARP dollars through the golden goose's gullet is rapidly approaching ludicrous proportions.

The latest example is the dust-up caused by the Cleveland Plain Dealer breathtakingly breaking the news today that giant Ohio-based thrift Fifth Third Bank, a CPP recipient, had...gasp...conducted a marketing campaign that included a sweepstakes program that distributed $900,000 in prizes. TARP dollars to ordinary citizens in the form of a sweepstakess! Outrageous!

Or so intimates the main steam media, at any rate.

The sweepstakes idea was concocted a year ago, and the contest began before the TARP program was even announced. As Joe Champline, Fifth Third's Vice President of marketing correctly noted, "Once you start a sweepstakes, you must continue it and declare winners."

Not that compliance the legally binding obligations is of concern to members of Congress. Yesterday on NBC's Today show, I heard New York Democratic Rep. Carolyn Maloney being badgered by substitute host David Gregory about the fact that AIG was bound by legally enforceable contracts to pay the bonuses, after Rep. Maloney had asserted to Gregory that AIG's management should not have paid the bonuses. Rep. Maloney, apparently ignorant of the 5th and 14th Amendments to the US Constitution, as well as the difference between government and private parties, and caring not a fig for the concept of "a deal's a deal," said that the government abrogated contracts all the time ("renegotiated" might have been the word that she used), and she gave bankruptcy court as an example. The utter idiocy of that argument as applied to a private party like AIG, as well as her lack of understanding that even the US government can't abrogate private contract rights without due process of law, demonstrates that "Peter Principle" Maloney has reached her highest level of incompetence as a member of the House Financial Services Committee.

In the case of Fifth Third, we had Ohio Republican House member Steve LaTourette, a TARP hater from the get-go, jumping in front of the microphones to bloviate about the matter.

"This sweepstakes might not use a dime of bailout money, and might be a legitimate and successful marketing tool for the bank, but something that passed the smell test prior to the bailout might not afterward..."These institutions should walk on eggshells and really gauge what public reaction to their choices might be, because it's not good enough in this climate to say, 'I promise we didn't use taxpayer money.' "

How would a denizen of one of the rankest environs on the planet, the US Congress, be qualified to judge a "smell test"? I would have thought his entire world would smell like sulfur 24/7/365.

What is "good enough" for guys like LaTourette and the people he represents? What's next for banks that accept TARP or other government aid? Do marketing geniuses like Maloney and LaTourette get to micromanage what is and is not an appropriate marketing expenditure? Is any marketing expenditure appropriate? Better yet, if it's "public outrage" that drives what is and is not appropriate, just put all bank marketing budgets up for a public vote. That's the only truly safe way not to have "public outrage" fuel a public brawl in the public media.

I'm all for having Congress call for the average citizens who won money in that sweepstakes up to Capitol Hill to be grilled by the mouth-breathers there about how the winners spent the money they won in the "scratch off," and/or why they think that they're entitled to keep the dough. Better still, let's pass special legislation that those "winners" who don't return the money to Fifth Third pay a 90% excise tax on the winnings.

How low can we go?