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Global 100 Banks - Global

More revelations erode trust

It felt like Ground Hog Day for banks. Global banks benefited from improving economic conditions in North America and Europe. Overall brand value for the category rose 15 percent. But even as financial results improved and banks strengthened their organizations, problems surfaced that slowed renewal of trust.

Consumers expected that coming out of the financial crisis, and accepting government rescue, banks would change. And many did, restructuring their mix of consumer, commercial and investment banking, reforming internal culture and improving customer communication.

But even banks that conscientiously attempted to reform were hurt by revelations of past misdeeds and the public rebuke that followed when announcements of quarterly results came with new warnings attached. The public also expressed anger at banks over high levels of executive compensation.

When US regulators reviewed the stress test results that assess a bank’s ability to withstand crisis, it failed the US operations of several European banks and Citi, even as the bank reported its highest annual net income since the financial crisis. These other trends also impacted the category:

Regulations
The growth of post-crisis regulations continued to shape the banking industry, with banks struggling to predict and organize for the implications.

Regionalization
After being stalled by the Euro crisis, the regulatory reform necessary for the formation of pan European banks may now resume.

Disruption
Banks faced disruptive technological changes, like mobile payments and the entry of non-banking entities into the category.

Reorganizing and rebuilding
Geography was an important consideration as banks considered how to restructure and strengthen their businesses. The Dutch-based ING separated its insurance and banking businesses and reduced its presence in the US and South America to focus on its operations in Europe and on certain opportunities in fast growing Asian markets.

ING’s underlying net earnings improved 22.2 percent in 2013. Having repaid most of the bailout received from the Dutch government, and nearing completion of a restructuring strategy, the bank shifted to a posture it termed, “Think Forward.”

HSBC also streamlined. After trimming 63 businesses over the past few years, the bank was well positioned in the fast growing markets and in Europe. HSBC improved profits, dividends and capitalization. Net profit increased 16 percent in 2013.

With the strengthening of Spain’s economy, Santander planned to expand its loans to small and medium-size businesses. Based on the improved economy in Spain and other core markets, including Brazil, Mexico, the US and UK and Continental Europe, Santander reported a 90.5 percent profit increase in 2013.

As many banks narrowed their geographic reach and business focus, France’s BNP Paribas took the opposite approach, deciding to remain in diverse lines of banking and accelerate expansion outside of Europe, particularly to North America and Asia Pacific. BNP Paribas appears in the BrandZ™ Global banking category ranking for the first time this year.

Investment Bank Goldman Sachs rebounded with its highest profit in three years, which drove an increase in stock price. Standard Chartered, heavily invested in fast growing markets, experienced its first profit decline in a decade. Most of its income is generated by business in Asia, Africa and the Middle East.

Restoring trust
Banks attempted to restore consumer trust in the wake of the financial crisis, the Libor scandal about interbank borrowing rates, various trading improprieties and public anger over compensation paid to key executives. ING introduced new corporate values in 2013, summarized as: we care, we are clear and we commit to act with integrity.

Following the turbulence of the financial crisis, a government bailout and a trading scandal, UBS changed leadership and implemented a major strategic shift to focus more on wealth management and less on investment banking. The bank reported a 44 percent increase in pretax profit in 2013. It announced that, starting in 2014, the bank would pay out half of its profits to shareholders.

For J.P. Morgan, 2013 was a year of resolving outstanding legal and regulatory issues in an effort to turn the page on problems lingering since the financial crisis. Overall revenue was flat and net income declined.

Barclays promulgated a statement of purpose, values and behaviors called “The Barclays Way.” It created guidelines for conducting business and interacting with customers to make sure that decisions are based on the best wisdom available and not internal pressures.

Criticism of corporate bonuses hurt this effort, even as the bank argued that recruiting and retaining the best talent, to remain competitive, required high financial compensation.

Insight

Six years after the crisis, many major banks still have to announce multi-billion dollar provisions for the mistakes made in that period. The key question is when will banks become truly sustainable again? The customer-facing part is important, but banks need to deal with their capital base and other structural issues first. Until a bank is fundamentally sound, it can’t solve its long-term problems. The transition to sustainable finance is difficult because it means slower growth, lower profits and is perceived as bad news for shareholders in the short term.

Geoff Beattie
Global Practice Leader, Corporate Affairs
Cohn & Wolfe
geoff.beattie@cohnwolfe.com

People moved to local banks because of the lack of trust they had for larger institutions. But global banks serve a broader purpose, supporting companies as they become global and helping individuals as they become more global in how they live their lives. Companies and individuals want banking relationships that make it easy to build a business or live a life internationally. That seamlessness is the global banks value proposition. Perhaps there will be a shift in the purpose of global banks, and the need for them will continue to be important to generating global growth.

Sana M. Carlton
Head of Client Management, Services
Millward Brown