On John Dillinger, Banks & the Crisis in Consumer Confidence

In a recent interview, Johnny Depp — who plays notorious Depression-era bank robber John Dillinger in the new film Public Enemies — said that it was because the banks were so unpopular in the 1930s, that the criminal became “a hero of the people.”

The producers must be rubbing their hands with glee at the propitious timing of the movie’s release. According to a recent Gallup Poll, Americans’ confidence in U.S. banks reached a new low in May. Only 20% report that they have “a great deal” or “quite a lot” of confidence in banks, while 35% have “very little” confidence.

Gallup first began asking Americans about their confidence in banking in April 1979. Prior to this year, the combined "great deal" and "quite a lot of confidence" numbers had not fallen below the 30% of the recession of the early 1990s … so the early April 2009 reading of 18% who have a great deal/quite a lot of confidence in U.S. banks represents a new low.

However, even as confidence in U.S. banks in general has plunged, many Americans continue to express confidence in the main or primary bank where they do most of their banking business. Over the last four weeks, 60% have said they have a great deal (27%) or quite a lot (33%) of confidence in their main bank. Only 12% expressed very little confidence in that bank.

A Question to Bankers: What’s Up with Your PR?

I recently read an interesting article in Advertising Age about the marketing challenges facing financial services industry in the post-TARP world and how banks are responding.

Some customers are asking whether Citibank is a safe place for their savings,” writes reporter Beth Snyder Bulik. “So what is Citibank doing? Running ads in the Wall Street Journal about its microfinance capabilities in Texas and India.”

It’s just one example of the tone-deaf marketing messages coming from some banks that don’t answer worried customers’ real concerns … Is my money safe? Can I trust you? Will you be here tomorrow?

According to Ad Age, the top 10 banks and credit-card companies cut their ad budgets by a more than 25% in the fourth quarter of 2008 and nearly 40% December compared with those same periods in 2007. This represents a tremendous opportunity for banks and other financial services institutions to step into the void and claim it for their brand.

As our CEO, Ken Makovsky, wrote recently, public relations “is significantly less expensive than advertising and much more credible. We’re talking about a modest investment in time and money that delivers a major return on investment.”

Inventors: Leverage the Power of Specialized Thinking

Apparently, there’s never been a better time to be an inventor. According to Doug Hall, in his recent BWSmallBiz column, “Inventors, Pick Your Industry,” big companies are desperate for new ideas. Procter & Gamble, for instance, now gets more than half its ideas for new products from outside inventors. Five years ago, that number was closer to 20 percent.

Like our founder, Ken Makovsky, Hall believes that a specialized, sector-specific approach is the best. Here is his list of the top 10 industries that provide the “most fertile ground” for inventors:

1. Finance, credit, commercial banking and other financial services head the list, with gross margins topping 50%. (“Of course,” says Hall, “recent events show this may not be a good time to enter the financial-services industry.)
2. Landlords (47%)
3. Recording/movie industry (more than 40%)
4. Computer software publishing (40%)
5. Specialized manufacturing equipment (40%)
6. Bakeries and tortilla makers (31%)
7. The “sin” industries, such as breweries and gambling (30%)
8. Soft drinks (27%)
9. Publishing, both the online and old-line (27%)
10. Pharmaceutical and healthcare industries (25%)

Hall’s list was based on research undertaken by mathematician Greg Lemmon, who evaluated the profit margins in more than 200 industries. Those sectors with the highest margins, he reasoned, should offer the best opportunities for people who are interested in licensing an idea, innovation or invention in return for a royalty payment, which can be 25 percent of the gross profits.

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Finally … Some Good PR in the Banking Sector

Talk about bad public relations! Only 21% of affluent consumers are confident in U.S. banks, according to a recent Gallup survey — the lowest level of consumer confidence in banks in three decades.

The growing financial crisis is taking its toll on everyone. According to a recent Wall Street Journal piece by Robin Sidel, 7.3 million American homeowners will default on their mortgages between 2008 and 2010, about triple the usual rate. Some 4.3 million of those will lose their homes.

The essence of good crisis management is doing the right thing and doing it quickly. Chase did precisely that when it announced its aggressive plan to modify the terms of $70 billion in mortgages for as many as 400,000 borrowers who are — or may soon be — behind on their payments, by moving them into loans with lower interest rates, smaller principal amounts or other more-affordable terms.

Said Charlie Scharf, CEO of Retail Financial Services at Chase: “It doesn't make sense for us to wait [to address the problem]. … We've heard loud and clear and are listening to what some of the thought leaders around the country are saying.”

John Taylor, chief executive of the National Community Reinvestment Coalition, called Chase’s announcement “a gutsy move.” We couldn’t agree more. Not only is Chase doing the right thing, it’s demonstrating and increasing the pressure on other lenders to help take some part of the burden off distressed borrowers. It’s a terrific example of proactive public relations and crisis management.

A Word to the Wise

“Mind the gap,” warns a recent article in the Financial Times earlier this month. FT columnist John Plender offers substantial evidence that “income inequality in the U.S. is at its highest since that most doom-laden of years: 1929.” And, I would add, it doesn’t bode well for the image and reputation of retail and investment banks and hedge fund and private equity firms.

Here are just two of the gasp-inducing indicators Plender cites, which were the result of an analysis of Congressional Budget Office figures by Jared Bernstein of the Economic Policy Institute:

• Between 1979 and 2005, the pre-tax income for the poorest households grew by 1.3% annually and middle incomes grew by less than 1%, while the income of households in the top one percent grew by 200% pre-tax and — even more shockingly — by 228% post-tax.

• The result of this lopsided distribution of income growth was that, by 2005, the average after-tax income for the bottom fifth of households was $15,300; for the middle fifth $50,200; and for the top 1%, just over $1 million.

The subprime mortgage crisis and the collapse of the American housing market has left negative equity in its wake … also anger about a system that gives banking executives huge bonuses when the economy is booming, while taxpayers pick up the bill when banks fail.

This is certainly a public relations challenge, but it’s not just a PR challenge. It’s a fundamental operational issue that also needs to be addressed by the entire financial services industry — including banks, investment banking, hedge fund management and private equity firms and their professional associations — to avoid regulatory backlash … or worse.