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Your Bank’s Marketing:
Does It Ad Up?

Flipping through the pages of a major metro newspaper, or surfing channels on television, it’s hard to miss the bank ads that are aimed at comforting, amusing, or encouraging consumers.

Advertising is a major tool banks are using to put a more positive spin on recent industry and economic woes, and to retain or win over customers concerned by the current financial environment. The 100 largest U.S. retail banks typically spend about $2 billion a year on advertising, according to research from the Aite Group. And, while ad budgets have been diminished due to widespread belt-tightening, banks have been taking pointed if varied approaches to get across their message.

Perhaps the most popular tactic among banks has been to underscore the longevity and stability of their company, and the industry as a whole. KeyBank has been running print ads that boast the tagline “Proven Over Time,” to underscore the Cleveland-based bank’s near 200-year [founded 1825] lifespan. Minneapolis, Minn.-based U.S. Bancorp took a similar tack with its so-called “Bank Solid. Bank Safe. Bank U.S. Bank.” campaign. The ads featured a picture of a thick tree with an extensive root base and the tagline “Our roots run deep,” citing that the bank has been in business since 1863. These advertisements often prominently highlight low-risk products such as money markets and certificates of deposit, which offer a stable interest rate.

Advertising can play an even more pivotal role in helping banks retain customers and convey a sense of continuity to clients and prospects. After WaMu’s sudden and turbulent takeover last fall by JPMorgan Chase & Co., the merging banks promoted themselves as a team that would be stronger and more stable, while still offering the same services and products each had become known for: “WaMu & Chase. Safe & Secure.” ads proclaimed: “Free checking. Now with free peace of mind.” Other ads simply used the tagline: “WaMu, now part of Chase.”

“From a Chase perspective, we have been focusing a lot of attention on the new market in the Pacific Northwest,” said Christine Holevas, spokeswoman for Chase. “We’re making a concentrated effort to raise awareness… But we don’t stray too far from what matters to Chase customers. We have a really great customer base [from WaMu] and it’s important to keep them and provide them a steady ship.”

After TD Banknorth and Commerce Bancorp merged last spring [2008], the combined bank launched a multimillion-dollar ad campaign across print, branches, and the Internet, featuring talk show hosts Regis Philbin and Kelly Ripa. (In one television spot, Philbin is lying on a couch bemoaning his dislike of change, and then coming around to the idea of being comfortable with it; a voiceover at the end of the ad announces that TD Bank and Commerce are merging, and uses the TD name in combination with Commerce’s popular motto, “America’s Most Convenient Bank.”)

According to findings from a recent Nielsen IAG study released in April 2009, banks are wise to keep a strong profileu201355% of consumers who say they have seen more advertising for their financial institution also say they have “complete confidence” in its financial health and soundness.

While the tried-and-true approach of emphasizing a bank’s solid foundation has been widely embraced, it may be bordering on overdone, says Michael Kristof, president and creative strategist for Kristof Creative, a Mount Juliet, Tenn.-based ad firm that has worked with Wachovia Corp., Citizens Bank, and PNC Financial Services Group. “The problem with the ‘secure’ approach is that it’s what is expected,” he explains. “And when everyone starts to say it, no one believes it.”

As a result, many banks are trying to inject some humor into their ad campaigns u2013both to offer levity in these trying times and to stand out in the crowd. Just before the 2008 holiday season, FirstBank of Lakewood, Colorado placed ads in print and stores touting inexpensive Christmas gifts featuring generic art that the bank suggested customers could photograph and frame to give as gifts.

Other banks have tried to make their “safe and sound” messaging a little funnier to attract attention. Sterling Savings Bank of Spokane, Washington ran a series of print ads featuring its so-called “Really Boring” money market and CD accounts. Underscoring the stress of the recent stock market crash, the accompanying copy read: “Had enough excitement? Now more than ever you need a bank that is responsible. Practical. So safe it’s almost boring. You need Sterling Savings Bank.”

The bottom line is, use whatever makes people stop and think about what they just saw. “Humor can make advertising more memorable,” Kristof says. “If banks can inject some humor, they can alleviate some stress.”

-Karen Epper Hoffman

The Rising Use of Online Banking

It’s widely held that online banking is no longer considered a niche channel. By understanding who is and isn’t using online access, banks can work to increase adoption, better serve their clients, and reduce the costs of routine customer service, according to a new study by Gartner Inc.

In December 2008 and January 2009, Gartner surveyed 3,988 consumers ages 18 or older in the U.S. and the U.K. on attitudes and behaviors related to retail payments, banking, and investment services. A total of 47% of U.S. adults and 30% of adults in the U.K. reported using online banking in the previous month.

“Over the past several years, online banking has been seen as a way of appealing to more affluent and younger clients,” said David Schehr, research director at Gartner. “However, what is becoming clear is that the overall level of consumer Internet use and the increasingly narrow segment of nonusers-particularly in the U.S.-are shifting the dynamics of who is using online banking and what they seek from it.”

The survey showed that just over half of all higher-income consumers in both the U.S. and the U.K. utilize online banking. In comparison, 35% of Americans in lower-income households use online banking, but only 17% of those in lower-income British households use online banking.

The most frequently cited reasons for not using online banking were channel-related, that is, simply preferring to use other channels, with 61% of U.S nonusers and 58% of U.K. nonusers selecting this as an important reason for not utilizing online banking. Forty-one percent in the U.S. and 38% in the U.K. said security was the most important reason for not banking online. The importance of access or technology as issues were substantially lower. It is also worth noting that simple inertia plays a role in nonuse, as a substantial number of nonusers (25% in the U.S. and 31% in the U.K.) cited no single factor as important, yet they did not use online banking.

“Focusing on how the two main factors for nonuse-channel and security-link to the key demographics of income and generations provides clues for banks working to increase online acceptance,” said Schehr. “Compared with younger consumers, preboomers, who are 63 or older, are more explicit in their reasons for not using online banking-they are comfortable with other channels, such as the branch, and they are worried about the security of online banking. In a way, this creates a great opportunity to convert these nonusers to users, since the causes of their concerns can be more directly confronted and addressed.”

Banks Goodwill Impairment Increases

Goodwill impairment more than doubled during 2008 from 2007 levels for a cross section of U.S.-based enterprises-a trend that could have implications for organizations that previously made acquisitions and have goodwill on their balance sheets, according to a recent KPMG report.

The study analyzed goodwill impairment for public companies from January 2005 to December 2008 and identifies those industries that may have been more heavily affected. Based on financial information from more than 1,600 U.S.-based public companies, KPMG says that goodwill impairment charges in its data set rose to $340 billion in 2008, more than double the $143 billion recorded in 2007 and nearly four times 2006’s $87 billion reported figure.

Goodwill is an intangible asset that arises from acquisitions where the amount paid for the assets of a company are over and above the fair value of the identifiable net assets of that company. According to the Financial Accounting Standards Statement No. 142, goodwill is not amortized but is instead tested for impairment at the reporting unit level at least annually.

“When KPMG began looking at goodwill in mid-2008, certain industries appeared to be only modestly impacted by the growing impairment trend,” said Palatnik. “Our new data shows that goodwill impairment charges have spread to more industry segments.”

The number of companies in the study recording goodwill impairment charges more than tripled from 2007 through 2008, rising to 268 from 85. Additionally, total goodwill impairment charges at year end more than quadrupled those of the third quarter of 2008.

“The higher impairment charges at year end may partly be due to the fact that many companies’ December fiscal year end coincides with their annual goodwill testing procedure,” said Palatnik. “However, nearly one in five companies in the population studied took an impairment charge in 2008.”

The study found that, in the past year, the hardest-hit industries in terms of actual dollar impairment charges taken were banks, which accounted for almost 23% of the total goodwill impairment charges, followed by materials, energy, media, and technology hardware and equipment. But the study also notes that other segments of the economy, including pharmaceuticals and food and beverages, took significant goodwill writedowns in 2008.

According to the study, the median goodwill impairment charge by industry also continued to rise through 2008. For example, the banks included in the data set recorded a median charge of approximately $411 million in 2008, up from just over $49 million a year earlier.

A full copy of the results of the study can be accessed at www.us.kpmg.com/valuationservices.

Returning To a Growth Economy

The country’s economic recession will end during the third quarter, but high unemployment and large federal deficits will linger, according to the Economic Advisory Committee (EAC) of the American Bankers Association.

“The economy will return to growth but not to health,” said Bruce Kasman, committee chairman and chief economist for JP Morgan Chase, New York. “Growth in the coming quarters is likely to gather momentum but will not prove sufficiently robust to undo much of the severe damage done to our labor markets and public finances,” he said.

The EAC noted that consumer spending stabilized in the first half of 2009. This appears to be allowing businesses to reduce costs and inventories significantly and is setting the stage for moderation in both layoffs and in investment spending cutbacks. Coupled with support from policy stimulus and an improvement in financial market conditions, these developments have made it likely that the overall economy will expand in the second half of the year. The improvement in financial market conditions is broad-based and includes narrowing credit spreads, rising equity prices, and increased issuance of corporate bonds and securitized debt.

The group forecasts that inflation-adjusted GDP will finish a third straight quarterly decline and return to positive growth in the third quarter, picking up to over a 3% pace by the second half of 2010.

Significantly, the committee sees an end to the three-year downturn in the housing market.

Lower prices and low mortgage rates have greatly improved the affordability of homes,” said Kasman. “A recovery in the housing sector will be an important contributor to economic growth.”

The committee sees housing starts rising later this year and home values moving modestly higher in 2010.

However, credit conditions remain tight and the bank economists feel that jobs will continue to be shed. Unemployment is expected to peak at 10% and remain at or above 9.5% through next year. As a result, the group predicts that households will remain cautious, increasing spending at under a 2% pace over the next four quarters.

“The combination of lingering drags on labor markets and restrained recovery in consumer spending means that growth momentum will build only slowly,” said Kasman. “We do not see growth returning to a trend pace until mid-2010.”

Budget deficits are expected to remain well above $1 trillion this year and next. However, the committee forecasts that the ten-year Treasury bond yield will stay in the 3.75-4.25% range through next year because core inflation is forecast to fall towards 1%, restraining pressure on rates. Nevertheless, the committee expressed concern over the rising trend in federal debt and the implications for inflation risk beyond 2010.

The Federal Reserve is expected to hold short-term interest rates at their current level in response to falling core inflation and an elevated unemployment rate.