Bank Lawyer's Blog

Banks and Social Media: Banks Lagging Their Customers

Being a blogger about banking law for over six years, I’ve developed an interested in social media use by banks, and I’ve posted about the topic on this blog (when I can tear myself away from the siren call of bashing bank regulators, stealing walkers from the elderly, and stuffing cats in the microwave). In the course of my travels around the country speaking about the legal aspects of this topic, I served on a panel with a smart, engaging speaker named Shari Storm (pictured to the left), a published author of a book on business management principles, mother of three little girls, and also the Chief Marketing Officer for Seattle-based Verity Credit Union. Verity was an “early adopter” of social media as a branding and marketing tool, including the use of blogs that are written by the institution's employees and that are hosted on the credit union's web site. When people ask me to point them to examples of financial institutions that seem to “get it” in the effective use of social media, I always point them in the direction of Verity.

Recently, I became aware of a social media campaign that Shari developed for Verity that involved the credit union’s blog, Youtube.com videos, a contest, and the credit union’s members competing with one another to promote the credit union through social media. I was impressed, and although pure marketing and branding issues are something that I only occasionally address, I asked Shari to give a webinar for BankLawStuff on the campaign and what she and Verity learned about social media through the process, and she agreed. It’s being presented this Tuesday at 11:00 a.m. Central Time. If a reader of this blog isn’t interested in the topic, he or she might pass it along to their institution’s marketing personnel.

Computerworld ran an article Friday about the gap between the desire of consumers to interact with companies through social media and the ability for businesses to do so. Banks and other financial institutions have been notoriously slow to adopt the “new media” as compared to other business that interact with consumers and I don’t see that trend suddenly changing.

"Social media is changing the way businesses, customers and employees interact, and this creates significant opportunities for contact centers and the enterprise as a whole to leverage the integration of these tools into business processes," said Yankee Group analyst Zeus Kerravala in a statement. "As integration of social media improves within the contact center and with unified communications and collaboration, businesses can improve customer interactions and positively impact employee productivity and collaboration."

The study notes that businesses may not be using social networking sites or adopting enterprise 2.0 tools fast enough to satisfy many of their customers.

Yankee and Siemens Enterprise reported that nearly 60% of those surveyed said company outreach through social media would make them more loyal to that company. Most of those surveyed said they want companies to monitor social networks for customer comments and complaints.

What that tells me is that those institutions that have “gotten with the program” concerning social media are opening up a wide lead on those that still start a fire by rubbing two sticks together. I think that gap may only grow wider as banks slug it out for customers in an economy that remains in the doldrums.

And You Don't Even Own Clubs

Great news: "[T]op investment banks are now intending to hire one-third more graduates this year than last. Their remarkable resilience to the downturn, and this year's strong recovery in the financial markets, mean that opportunities still exist in banking for those with the skill and tenacity to get them."

That sure warms the cockles of my heart. How about you?

What they don't tell recruits, however, is that the world of investment banking is full of hidden perils, not the least of which is the risk of a broken heart. From Columbia Business School's Follies of 2006 comes a trailer for a movie about the dangers of office romance in a business that broke the back of the American economy.

Note to politically correct hypersensitive readers: if you're offended, take it up with CBS. Don't hate the playa, hate the game.

Equity Derivatives: A Book Review

In the five years I've been inflicting this blog upon an unwilling world, I've been asked a number of times to review books. Each time, I've refused, for a variety of reasons, most of them having to do with time, specifically the lack of it. Receiving a free book does not somehow magically expand a day by twelve hours.

I broke down recently when offered a review copy of Equity Derivatives, edited by Mayer Brown's Edmund Parker and published by Globe Law and Business. First, the title appealed to my inner geek. In addition, I've performed a fair amount of work in the past on interest rate derivatives, including options, swaps, "swaptions," fowards, caps, collars and other mind-numbing transactions, and I'm genuinely curious to learn about an area of derivatives where I have not spent time.

The book is published by a UK firm. The editor, Edmund Parker, is a London-based derivatives expert (and also the author of Credit Derivatives), and many of the other authors (in addition to Mr. Parker) are also British. Therefore, an American reader will have to be prepared to deal with the minor inconvenience of reading English as it is meant to be written, as opposed to the American version, which we Yanks like to make up as we go along. If "whilst," "amongst," "programme," and "preference shares" throw you off your game, just "butch it up" and get with the "programme." You'll be able to decipher it, rest assured.

In the preface, Mr. Parker states that the intent of the book is to give lawyers, "traders, treasurers, other finance professionals and students" and understanding of "equity derivative products, documentation, and the corporate regulatory and tax issues that arise in different jurisdictions." In my opinion, the book achieves that goal admirably.

This is not an in-depth analysis of equity derivative transactions that would be extrememly useful to experienced legal practitioners looking for insights in negotiating tactics or as to what's generally asked for and given in the way of amendments to the standard form International Securities Dealers Associations (ISDA) documentation used to "paper" transactions. That's not the intent of this book. Rather, it gives an excellent overview of what equity derivative transactions are, the financial instruments used to effect them, the ISDA equity derivative documentation (including a thorough chapter that explains the 2002 ISDA definitions), the corporate and regulatory aspects of equity derivatives, and the UK and US tax aspects. From a lawyer's perspective (which is the only perspective I'm even minimally qualified to share),  this would be an excellent book to give any associate or in-house counsel who is intent on learning what equity derivatives are, as an -in-depth introduction to such transactions. It should also function as a handy reference for those practitioners who might occasionally get bogged down in the details of negotiating the documentation of a particular transaction and need to step back and see the forest for the trees.

This is a tough subject to make simple. As is the case with all effective teachers, however, Mr. Parker is adept at taking transactions that can become quite complex and first giving a bird's eye overview, then breaking down the subject matter into separate, yet connected, broad categories that help the reader digest and retain the subject matter. For example, he begins by breaking down equity derivatives into four "constituent parts" and explains each part. Likewise, he breaks down the types of transactions into three fundamental categories, the additional and inherent risks of equity derivatives into five separate categories, and the purposes of equity derivative transactions into seven basic categories. Throughout the book, by returning to the basic categories when reviewing a specific type of transaction, he, and other authors, guide the reader to a better understanding of the transaction, how  and why it differs from other types of transactions, and, logically, what the additional or different risks might ensue from the specific transaction.

As another example of simplifying the complex, Mr. Brown and his co-author, Mayer Brown London associate Marcin Parzenowski, take the jumble of boilerplate known as the 2002 ISDA Equity Derivatives Definitions, break them down into seven categories, discuss their roles and purposes, and, finally, clarify which definitions are applicable to which types of transactions. Given my first wade through ISDA doumentation swamp in the 1990s, I now wish I'd had available this type of a road map. I might have lost fewer brain cells on my trek.

I found especially useful the charts and diagrams used throughout the book. I'm a visual learner, so perhaps I might find them more valuable than non-visual learners. Nevertheless, I returned to them repeatedly to help me sort through the written explanations. Moreover, there is frequent use of examples of transactions, most hypothetical (on the surface, at least), but some actual transactions. These, too, I found helpful.

With respect to ISDA documentation (the standard for OTC equity derivatives), Mr. Parker and Mr. Perzanowski break the documents down into three basic platforms and provide a good explanation of each platform. Again, there is a good use of diagrams to to aid the reader's understanding. There is also decent guidance provided as to what changes to the standard documentation might be necessary given a particular type of transaction, and, when standard documentation offers the user alternatives, which alternative might be be considered the customary choice. For example, although it is not essential to incorporate the 2006 ISDA Definitions in most equity derivative transactions, the authors make recommendations as to when it is advisable to do so.

I'm not competent to render any opinion as to the merits of the separate chapters on regulation in France, Germany, Italy, Spain or the UK, nor as to the tax aspects of US or UK law. The global trends overview, written by Gide Loyrette Nouel partner Alban Caillemer du Ferrage, is basically a warning against a trend in Europe and the US for greater "transparency" in derivative transactions. In the name of transparency, regulators can kill the goose that lays the golden risk-hedging eggs.

The chapter on US regulation, authored by Joyce Y Xu, Senior Counsel at Simpson Thatcher & Bartlett LP selects four types of equity transactions commonly used by US corporations (structured issuer share repurchases; issuer call spread transactions; registered issuer stock borrow facilituies; and issuer forwards with registered hedges) and discusses the US corporate and legal issues associated with them. As to those four types, the discussion is useful. Once again, diagrams aided this slow learner's efforts immensely. For a banking lawyer, there is no discussion of US banking law applicable to banks who enter into such transactions. To that extent, a bank might wish to consult another source, such as U.S. Regulation of the International  Securities and Derivative Markets.

To reiterate, I found the book a good primer for understanding equity derivative transactions and how they are documented. I'd recommend it to anyone serious about introducing themselves to the subject matter or merely refreshing their memory.