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Back in the good old days – before the financial crisis – there was one sure thing investors could count on to kick off every quarterly earnings reporting cycle. As dependable as the springtime bloom of cherry blossoms along the Potomac, or an ill-advised tweet from US President Donald Trump, was that the quarterly financial results of the largest US banks would be released over Business Wire or PR Newswire on the first day of earnings.
But as we’ve seen by recent events, in a world in which change can occur virtually instantaneously, that dynamic has all but evaporated. It’s not that big banks stopped reporting financial results at the beginning of earnings cycles, but rather – gradually – most of them have stopped doing so via newswires. But why?
Obscure SEC interpretive guidance brings broad and unintended consequences The series of events that led to this seismic behavioral shift began with a relatively obscure, opaque piece of SEC interpretive guidance, published in August 2008. This guidance stated that disclosure as defined by Regulation FD could be satisfied by posting on a corporate website, under certain conditions. At first, nobody paid much attention to this development, aside from the newswires, which rightly saw the potential threat to their business model.
Though seemingly unrelated, what happened next, when combined with that SEC guidance, directly resulted in the disappearance of Big Bank earnings on newswires: the 2008 global financial crisis. After the meltdown, the US government desperately needed to restore confidence in, and accountability to, our ‘too big to fail’ financial institutions, and so in 2010 the Dodd-Frank Act was passed. This legislation placed the banks and lenders at the center of the financial catastrophe under intense scrutiny and subject to significantly more stringent regulation than ever before.
At that point, under relentless government oversight and facing severe legal and civil penalties for non-compliance – along with a PR nightmare – corporate lawyers began to hold sway in the C-suites of these financial behemoths. When these folks realized that the process of distributing earnings required sending this publicly undisclosed, highly proprietary content to virtually anonymous third-party editors at a newswire of choice, the jig was up.
Is there something on the horizon? While Business Wire president, I participated in some painful phone calls during which we were informed that Business Wire would no longer be handling earnings for this or that institution. These were not discussions: they were edicts.
One by one, over the course of almost 10 years, one top 20 bank after another began to succumb to the siren song of what became known as ‘notice and access’ – the practice of notifying the investing public (often, and ironically, by newswire) of the date and time it will have access to a bank’s earnings on that bank's website.
As it stands today, an astonishing 15 of the 20 largest US banks – that’s 75 percent – and eight of the top 10 (80 percent) post earnings on their corporate websites rather than distributing them via a newswire. This has left newswires, once the sole source of this prized content and the financial beneficiaries of long earnings releases that were priced based on length, suddenly feeling like Elvis in Viva Las Vegas as The Beatles were hitting The Ed Sullivan Show: old news.
Whether this development is a leap forward or a lurch backwards is debatable, and probably in the eye of the beholder. Fortunately, an alternative will soon be at hand that may allay the concerns of these mega-banks, allow them to resume the far more transparent practice of broad earnings distribution and maybe even make the lawyers happy.
OK, maybe a bridge too far on that last point. Nonetheless, I encourage you to stay tuned.
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