One of the side effects of the financial crisis is that it has woken banks up to the importance of their brand. Traditionally, many banks had assumed that their brand represented old-fashioned values such as trust and stability and that they needed to do little more to enhance it. Customers were happy to place their savings in the bank, knowing that they were perfectly safe and that they could sleep easy at night.
Now suddenly the world has changed and the reality that even banks with longstanding brands can experience difficulties has shaken depositors' perceptions. The upside is that while some traditional brands may need a bit of rebuilding, the field is wide open to convince customers to switch brands or try a bank that they may not have previously considered.
But with branding, all the pieces have to be in place - products and services, technology, employee buy-in, as well as strength and stability - to gain the maximum leverage.
The Banker's Top 500 Banking Brands shows that the brands that tick all these boxes, such as HSBC and Santander, are holding and improving their position in the ranking. HSBC remains in number one position and Santander, in moving from fourth to third place, has more than doubled its brand value.
Despite all the criticism it has received from some quarters, Goldman Sachs has improved its position considerably, moving from 17th to seventh place, suggesting that customers take a rather different view of the brand than the one portrayed in certain sections of the media. In investment banking circles, Goldman Sachs remains the brand to emulate.
The other continuing trend is the increasing strength of emerging market brands. Brazil's Bradesco has moved from 12th place to ninth, Banco do Brasil from 36 to 26 and State Bank of India has made a huge leap of 34 places to 36th position. The big Chinese banks - ICBC, China Construction Bank and Bank of China - have retreated slightly in terms of placing, but have all increased their brand values.
Santander's growing prominence stems from a decision taken in 2005 to go for a single global brand, although the switchover in particular countries depends on local circumstances. María Sánchez del Corral, the group's head of global branding, marketing and corporate advertising, says: "We have shown that having a single brand reinforces our reputation for strength and solvency, it attracts clients and encourages their loyalty and it makes recruiting and retaining talent easier. A single brand has huge synergies and saves on advertising and sponsorship costs." Santander's sponsorship of motorsport's Formula One was selected as it is a sport that translates across national borders and is aspirational in character.
Santander's switchover from Abbey to Santander in the UK in January is an example of how circumstances can hasten a move in branding. "Changing the brand was always the aim, but our strong showing in the credit crisis gave us the credibility we needed to go ahead", says Keith Moor, the bank's director of brand and communications in the UK.
HSBC launched its single-brand strategy back in 1998, but still managed to end up with numerous permutations of its logo -"messy architecture", as Tracy Britton, head of HSBC group marketing, describes it.
"We decided to organise our offerings around propositions relating to five basic consumer segments," she says. "As a global brand, you evolve, you don't take sharp turns," she adds, explaining how the famous advertising campaign displaying its international knowledge will move on to the next stage.
In a way, the development of the Facebook-using, internet-savvy global consumer is playing to the strengths of banks such as Santander and HSBC and helping to keep them at the top of the ranking. But staying at the front is always a challenge and is the result of considerable branding forethought that permeates each institution.
METHODOLOGY
The methodology employed by Brand Finance in this Top 500 Banking Brands listing uses a discounted cash flow (DCF) 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 in this process are to:
1. Obtain brand-specific financial and revenue data. The revenue was then segmented into the following revenue streams: retail banking, commercial banking, wholesale/investment 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 2009 using Institutional Brokers Estimate System (IBES) consensus forecast.
- A five-year forecast period (2010 to 2014) based on three 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 zero to 100 - according to a number of attributes such as asset strength, emotional connection, market share and profitability among others.
- Determining the royalty rate for each of the revenue streams mentioned in step one.
- Calculating future royalty income stream.
4. Calculate the discount rate specific to each bank, taking account of its size, geographical presence, reputation, gearing and brand rating.
5. Discount future royalty stream (explicit forecast and perpetuity periods) to a net present value - ie. the brand value.
Royalty relief approach
Brand 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 a net present value. 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 ratings
These are calculated using Brand Finance's ßrandßeta analysis which benchmarks the strength, risk and 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.
Brand ratings definitions:
AAA -- Extremely strong
AA -- Very strong
A -- Strong
BBB-B -- Average
CCC-C -- Weak
DDD-D -- Failing
Valuation date: All brand values in the report are for the year ending December 31, 2009.
Click here to download the complete Top 500 Banking Brands list