Distrust and disgust are driving more and more customers away.
In response to the financial crisis, a third of retail respondents to an Interbrand Corp. survey said they had waning confidence in their banks and wanted to switch financial institutions.
When citing reasons for choosing their primary bank, "trust and confidence" moved from No. 4 in Interbrand's 2007 survey to No. 2 in this year's edition, behind the mainstay of "convenience and location."
"Banking has become less of a commodity," said Andy Bateman, the chief executive of Interbrand New York. "People are now basing their decisions more on emotions about who they can trust, and the role of the brand has jumped in importance."
Conducted in March and released late last month, the survey of 2,000 retail customers of 32 top banking companies (including investment banks and credit card issuers) shows that people who have already switched tended to have higher balances and, as such, had more to lose if their bank went under.
Bateman said firms with the most negative press were the most vulnerable. On Interbrand's "net affinity" scale — the difference between the number of customers with positive sentiments about their bank, and those with negative — Citigroup Inc. rated the worst, with a minus-13% rating.
Bank of America Corp. did not get a ringing endorsement from customers but still managed a 2% rating. JPMorgan Chase & Co. got 3%, and TD Bank, which, along with its Canadian parent, Toronto-Dominion Bank, has been perceived as healthier than many of its U.S. competitors, rated 6%.
(Interbrand asked customers to rate selected financial institutions.)
Likewise, Chris McDonnell, a vice president at Greenwich Associates in Stamford, Conn., said business customers care more now than before about their bank's brand. In the firm's Market Pulse survey of roughly 700 small and middle-market businesses, conducted last month and set to be published this month, 65% of respondents said bank brand is now equally as important or more so than price when selecting a bank, and 79% rated brand equally or above product availability.
More business customers are switching banks in response to changes in the perception of a bank's brand, McDonnell said. In a Greenwich survey conducted in December and released in January, nearly half of small businesses and 40% of middle-market ones said they were seeking a new provider or looking around for compelling offers.
"The banks that have the most significant marketing challenges are the largest, highest-profile organizations, as well as the smaller providers that may have had a lot of CRE on their books and are less stable," McDonnell said.
He would not name the institutions with which respondents had the most concerns, but he said respondents had positive perceptions about regional firms like Atlanta's SunTrust Banks Inc., BB&T Corp. in Winston-Salem, N.C., and Zions Bancorp. in Salt Lake City.
Roughly half the respondents said they would consider switching if loan terms and conditions were more flexible.
In both surveys, retail and business customers alike said they prefer a firm that communicates its true health and whether its in a position to help customers through the economic downturn.
And of course, bankers must not let customer service levels slip, no matter how much they are distracted by credit issues, respondents of both surveys said.
"Establishing trust takes time, and it's got to be built on every single action — how a customer's phone calls are treated, how associates deal with customers if they can't pay their mortgage, how a bank deals with credit card fees," Bateman said. "It's not about marketing — you've got to behave your way out of this."
Experts agree that the most vulnerable companies are those that have taken the most reputational hits over the past six months. Giants such as Citi and B of A fall into this group, experts say, but so do plenty of smaller players, particularly those that have been overly distracted by huge losses on real estate loans or are hiking fees to compensate for their losses.
"Bank of America and Citigroup, with all of the terrible publicity they've received, are natural targets," said Charles Wendel, the president of Financial Institutions Consulting Inc. in New York. "Both have image issues that they have to deal with and concerns not only about their viability, but also their commitment to the markets they serve."
B of A did not return calls for comment. A source close to Citi said it has noticed a recent rise in confidence among its customers. And Elizabeth Fogarty, a spokeswoman for the New York company, said it has started initiatives to attract and retain clients, including a customer referral program. Current customers receive a cash bonus if any of their referrals open a checking account, and the new customers also get a cash bonus.
Wendel said firms with customer loyalty issues are not always the big-name ones. Though he would not identify specific institutions, he did say that a number of management teams at regionals have held numerous internal meetings on how to appease regulators, without paying as much attention to customer service or revenue generation. As such, customer loyalty at these institutions has waned considerably, he said.
Experts say institutions that can tout their health, such as JPMorgan Chase and U.S. Bancorp — and especially those that eschewed government capital, like Hudson City Bancorp in Paramus, N.J. — are in a much better position to steal away customers from their more embattled competitors.
But Gordon Goetzmann, a managing vice president at First Manhattan Consulting Group, said even firms perceived to be in better shape may face customer defections, depending on how well they integrate recent acquisitions.
Most notably, JPMorgan Chase is integrating the banking operations of Washington Mutual Inc. in Seattle, which failed in September. Wells Fargo & Co. is integrating its December acquisition of Wachovia Corp. in Charlotte, and PNC Financial Services Group Inc. is integrating National City Corp. in Cleveland, which was bought in November.
Goetzmann says major customer runoff may not be immediate; rather, he expects significant runoff to occur in the next three to five years, as the Federal Deposit Insurance Corp. closes more and more institutions, with acquirers integrating their banking operations — and the growing pains that come in the process.
"Usually, runoffs are masked during the first year after a deal is announced, but once accounts are actually switched over and overlapping branches are closed, then there's a lot more runoff," he said. "Some acquirers beat the odds on that, while others royally mess it up."
Tom Kelly, a spokesman for JPMorgan Chase, said that so far there has not been much customer runoff since the Wamu acquisition. The $2.1 trillion-asset New York company has been able to pick up additional customers in the West as it completes the integration, Kelly said, though he would not say how many.
"Wamu was a damaged brand there, and so we've been doing a lot of advertising to create brand awareness of Chase Bank," Kelly said. "We went from zero branches to 708 in California alone, so we're putting out ads that we're 'California's new bank.' "
Fred Solomon, a PNC spokesman, expressed confidence that customer disruption — and therefore runoff — would be minimal as the company completes its integration of Nat City.
"PNC has an established record of seamless integration that has served customers well," Solomon said, and it has retained more than 90% of the customers of recent acquisitions.
Wells said officials were not available for comment.
Goetzmann said customers may also be defecting from troubled firms that are now charging higher fees for things such as automated teller transactions and overdrafts or are cutting back on loans or restricting terms, even to their best customers.
Over the past couple of months First Manhattan has noticed that more customers are becoming dissatisfied with the relationship they have with their institution, he said. "The source of the dissatisfaction is people getting nickled and dimed and being underhanded by a lot of the bank's polices."
Rilla Delorier, chief marketing officer at SunTrust, said managers there caught the drift that people were particularly upset over the idea of bank fees as the economy weakened, so the $179.1 billion-asset company is now waiving charges on transactions conducted at non-SunTrust ATMs and is giving overdraft "mulligans" — forgiveness on one transaction each year.
"People are really looking at their statements now for the first time in a long time, and they want to know where their money is going," Delorier said.
The initiatives, along with other marketing efforts, have helped SunTrust attract new customers, she said, though she would not say how many.