Looking at banking brands, one might ask whether the current financial crisis has so shaken our confidence that their loftier promises are no longer credible or even relevant. Regaining basic trust is the overriding challenge, but what is the prognosis for the long-term value of these brands?
Although bank stocks have lost enormous value over the past year, it is less clear that bank brands have suffered to the same extent. To explore this, my company took a sample of 23 leading financial services firms and looked at their one-year performance trends through three different lenses: stock value change, brand value change per Financial Times' Top 100 Brands list, and underlying brand-health trends from a study we conducted with our proprietary brand tracking data. The combination yields both expected and unexpected results.
As expected, a strong positive correlation was seen between stock price changes and estimated brand values. This supports the claim that brands are key components of enterprise value for major banks.
Less expected was the enormous difference in ranges: stock price moves ranged from declines of 50% or more for the hardest-hit banks, to increases of up to 40% for those with less exposure to the current turmoil, many of these in developing markets. The corresponding brand value movements ranged from modest declines of 10% to 15% to significant increases of more than 80%.
This mismatch could simply reflect an optimistic bias in brand valuations, or may not fully account for recent brand damage due to the intensification of the crisis. However, there is strong evidence that the major brands are holding up better than the current panic suggests.
Over time, estimates of brand value have been very stable, showing much less volatility than stock prices, and have typically aligned well with premiums paid for intangible assets in financial sector transactions (the recent distressed sales aside).
It seems fair to conclude that the entire sector's stock prices reflect near-term systemic fears, but there are indications that leading investors are betting on an eventual recovery once a structural resolution takes hold.
The brands in our sample collectively gained 18% in value even as their owners lost 22% on average in stock price. Unsurprisingly, the largest and most visible franchises appear to be the most durable.
While some brands have been acquirers and others have been targets in recent transactions, it is reasonable to expect that the best known will survive in some form, with new owners looking to use these brands to enter new sectors and solidify their reputations. Ongoing sector consolidation will favor the largest groups with global brand stature in the world's integrated markets.
To probe differences in consumer perception for banks that had performed well versus those that had not, the sample was split in two based on observed stock price and brand value trends. The better-performing group showed almost flat stock performance year on year and average brand value gain of 35%, while the poorer-performing group's stock declined an average 37%, with essentially no change in average brand value.
Our brand personality profile for each group was generally similar in both '07 and '08, suggesting that consumers view the sector as fairly homogeneous and the players as similarly affected by the crisis. Only modest moves in average brand strength and stature were seen for both groups, but there were some specific perceptual differences.
Brands in the better-performing group were seen as simpler and easier to understand, engendering more trust and reliability than the other group. This group was also seen as more approachable and less arrogant than the other. Both groups were seen as caring less for customers, but the weaker group much more so.
As reliability and trust moved noticeably in opposite directions for the two groups, it is clear that restoring these foundational elements is the first priority. Almost all banks have been making significant efforts to regain market confidence through structural actions such as raising capital, selling noncore assets, or shutting down risky businesses.
However, this alone will not re-establish the strong customer relationships necessary for a vibrant brand. Banks must differentiate through personal service and responsiveness, delivering durable solutions through user-friendly points of touch — and their brands will quickly recapture what made them successful in the past. This has been proven time and again by today's market leaders, whose long-standing brand reputations have been pivotal in successfully transcending past crises.