Many of the world’s top financial brands took a beating in 2008, but not every bank suffered. The Banker’s Top 500 Banking Brands listing puts a financial value on the leading brands and ranks them accordingly. Philip Alexander reports.

Global banking is a damaged brand. In the year since The Banker last teamed up with Brand Finance, the leading UK-based independent brand valuation firm, to bring you the Top 500 Banking Brands, the aggregate value of those 500 names has fallen by about one-third.

This is hardly a surprise – the FTSE Global Banks Index dropped by more than 57% during the course of 2008 amid large subprime-related write-downs and a declining economic outlook – and market value is a vital component of brand value. A good reputation has rarely been more important for banks than it is today, as they battle to replenish strained capital from a dwindling pool of alarmed investors.

The events of 2008 serve as a stark reminder that for some brands, survival itself will be in doubt in 2009. Lehman Brothers is removed from the rankings altogether this year as it has ceased trading under its own name. But remnants of Belgian bancassurance group Fortis still operate under that brand – now worth just one-tenth of its value a year ago.

However, investors are just one of four stakeholders considered in this ranking, which assesses overall brand value, explains David Haigh, CEO of Brand Finance. “We typically look at customers, staff, suppliers and business partners, in addition to financial providers and investors,” he says.

The cost of capital for a bank is therefore one of a broad set of indicators used to compile an overall brand value (see methodology below). Others include the projected growth of business and client base for the bank, which is itself influenced not only by customer perceptions, but also by expected economic performance in its key markets.

Growth stories

Although economic growth is set to slow globally, the rates in emerging markets such as China and Brazil are still forecast to exceed those of most developed markets. This has lifted banks from these countries, such as ICBC and Bradesco, well up the rankings.

It is not only the largest regional banks that have benefited. Smaller brands in emerging and developed markets alike have outperformed the heavyweights.

“The top 100 banks in the table account for 84% of the total decrease in brand value across the top 500 as a whole,” says Rupert Kemp, Brand Finance analyst. “In the final 100, there was actually a small increase of 1% in brand value, as they were less damaged because of their more cautious strategies.”

However, there are some situations in which bigger still means better. As more institutions need state capital injections and public finances become stretched, banks that were already state-owned and supported before the crisis have often attracted greater confidence among ­customers and business partners in the worst-hit markets, such as Russia.

State-owned giant Sberbank, which controls the majority of Russia’s deposit base and therefore has by far the best access to funding, has seen its brand soar 31 places to 25, as well as entering the top 10 commercial banking brands globally.

Moreover, in banking groups that use multiple legacy brand names, the larger holding company has often performed better in the turbulent environment than its subsidiaries. Therefore, Royal Bank of Scotland drops 15 places to 41 in the rankings, but its sub-brands – NatWest and Citizens – have both suffered much sharper falls.

Similarly, the merger of Australia’s Westpac and the smaller St. George bank has seen the former rise five places in the rankings. But the latter, which has not been rebranded, slumps from 77 to 96.

Rationalisation push

“As we go into a recession, we may tend to get rationalisation of brand portfolios as people cannot support so many brands. We have already seen some of the risers in the table resulting from acquisitions that were immediately rebranded,” says Mr Haigh.

The methodology this year has been enhanced to provide a more detailed breakdown of brands in ­different banking activities, such as retail, commercial, wholesale and credit cards (see page 16). In addition, unlisted or state-owned banks such as Rabobank in

the Netherlands or the German Landesbanks – which were previously excluded due to lack of data on market capitalisation – have now been incorporated into the rankings through new measurement ­techniques.

METHODOLOGY

The methodology employed by Brand Finance in this Top 500 Financial Brands listing uses a discounted cash-flow technique to discount estimated future royalties, at an appropriate discount rate, to arrive at a net present value (NPV) of the trademark and associated intellectual property: the brand value. The steps are:1. Obtain brand-specific financial and revenue data. The revenue was then segmented into the following revenue streams: retail banking, commercial banking, wholesale banking, insurance, asset management and credit cards. 2. Model the market to identify market demand and the position of individual banks, in the context of all other market competitors. Three forecast periods were used:

  • Estimated financial results for 2008 using the Institutional Brokers Estimate System (IBES) consensus forecast.
  • A five-year forecast period (2009-13), based on three data sources (IBES, historic growth and gross domestic product [GDP] growth).
  • Perpetuity growth, based on a combination of growth expectations (GDP and IBES).

3. Establish the royalty rate for each bank. This is done by:

 

  • Calculating brand strength – on a scale of 0 to 100 – for each product and service area, according to a number of attributes, such as brand presence, emotional connection, market share and profitability.
  • Determining the royalty rate for each of the revenue streams mentioned in step 1.

4. Calculate future royalty income stream.5. Calculate the discount rate specific to each bank, taking account of its size, geographical presence, reputation, gearing and brand rating (see below).6. Discount future royalty stream (explicit forecast and perpetuity periods) to a NPV, ie, the brand value.Relief from royaltyBrand Finance uses a ‘relief from royalty’ methodology that determines the value of the brand in relation to the royalty rate that would be payable for its use were it owned by a third party. The royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand. The brand earnings stream is then discounted back to an NPV. The relief from royalty approach is used for two reasons: it is favoured by tax authorities and the courts because it calculates brand values by reference to documented, third-party transactions; and it can be done based on publicly available financial information.Brand ratingsThese are calculated using Brand Finance’s ßrandßeta® analysis, which benchmarks the strength, risk and future potential of a brand relative to its competitors on a scale ranging from AAA to D. It is conceptually similar to a credit rating. The data used to calculate the ratings comes from various sources, including Bloomberg, annual reports and Brand Finance research. Below are the brand rating definitions:Brand rating StrengthAAA    Extremely strongAA    Very strongA    StrongBBB–B    AverageCCC–C    WeakDDD–D    Failing Note: The AAA to A ratings can be altered by including a plus (+) or minus (–) sign to show their more detailed positioning.

 

Click here to view the Top 500 banking brands

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