Lack of contagion no reason for complacency
As long as the safety of their assets is assured, clients are not too concerned about their banks’ reputations. But branding still matters
Some of the world’s biggest pension funds, which often set the trends in portfolio management, are up in arms against the banks.
Dutch pensions leader PGGM and Swedish scheme AP7, two of the mavericks in the institutional space, are among groups examining their options about pursuing legal action against banks accused of manipulating the London Interbank Offered Rate (Libor).
Record fines have already been dished out by regulators to banks including Barclays, UBS and RBS. Several others remain under investigation.
Typically, the banks affected have their fingers in many pies, including investment, retail and private banking. Some also have strong asset management or ETF franchises. Clearly the reputations of the banks have been affected.
Yet how extensive is any brand contagion from one business area to another? If a bank has been collared for letting a few dodgy characters run riot fixing rates, does this reflect on the processes in place in other parts of the bank? Does it mean private clients should be less keen to house their assets there?
The notion of brand contagion is a powerful one and clearly there is some precedent that it can effect clients’ decisions.
UBS, for example, has just finished recovering its reputation among rich clients. It was hit by substantial outflows when problems in the investment banking division threatened the stability of the bank. This was also not helped by a situation in Switzerland following the crisis, where the bank was in a prolonged dispute with US authorities about tax and secrecy. Clients were therefore worried about safety of assets for two different reasons, enough for them to switch bank.
Similarly clients at French bank Neuflize withdrew substantial assets in 2008 when it became clear that integration with Fortis would not take place due to the Belgian bank’s imminent collapse. They moved large amounts to other banks with strong brand names, the likes of BNP Paribas and HSBC. But as soon as stability was assured, most of the 17,000 families who bank with the old-school French bank, moved their money back to Neuflize. Others followed when news of this revival spread.
Yet if we look at the top 20 global private banks by assets under management, there are very few changes in the rankings compiled by Scorpio Partnership. UBS, fast regaining its reputation, has once again seized pole position as the world’s leading wealth manager. Spain’s Santander recorded a freakish 66 per cent growth, but only due to internal re-organisation.
Most banks are growing their assets under management because the market is growing, not necessarily because they are particularly good at what they do. Only Citi and Pictet, two institutions particularly concerned about brand, image and service levels are achieving growth of more than 20 per cent.
This ties in with the findings of Jim Prior, CEO of leading branding consultancy The Partners. Unlike global consumer companies such as Nike, BMW or Apple, most financial providers have similar propositions with little to differentiate themselves. Many branding campaigns have little effect, he says, while adverse publicity in investment banks will not generally hurt the private banking franchise.
If scandals are uncovered, as they have been in the Libor case, they seem to have little effect on private client flows, unless the safety of assets is in question.
But this is not a reason to do nothing about branding and become complacent. Those banks which engage their clientele with high service levels, performance and an innovative approach stand to gain. This is particularly true in the case of smaller wealth managers. In these cases, several key hires, modest investments in due diligence and technology, coupled with a handful of innovative product launches can work wonders.
