With the announcement that some of SVB’s assets – including its customer-facing brand – will be acquired by First Citizens Bank, brand valuation experts, Brand Finance, believe SVB has critical assets that could take flight to a brighter future if previous weaknesses can be mitigated. Despite the brand being valued at US$2.8 billion as recently as January, First Citizens Bank now has some serious work to do to restore faith and value in the SVB brand.

This will take skillful brand curatorship and some tough commercial decisions. However, SVB could still have a very significant brand value if taken into intensive care. Any rehabilitation must start by addressing the reputational trauma of recent weeks and understanding the critical levers that can support a relaunch.

Reputation describes the perceptions of a brand, which gives it power and drives its value. It is based on both real and perceived performance or products and services and affects all stakeholders’ perceptions and behaviours which could have material consequences for the brand in question.

Under accounting rules, reputation itself does not satisfy the criteria to be measured as an asset. And as such Brand Finance considers reputation a core component of Brand Strength and Brand Value. Therefore, changes in reputation, or rather the risk arising from negative perceptions of all stakeholders on the fundamental operations of a business, can and should be measured through its impact on the brand itself.

In the case of a serious reputational event, a fundamental question to ask for the owner of any brand is whether the brands reputation is damaged to such an extent that it would be better to discard it and start over with a new brand. Alternatively, if management believe that the brand is salvageable, then what steps are required to mitigate further brand erosion and rebuild trust and credibility among stakeholders. Drawing on the database valuations spanning 27 years, and a global market research program spanning multiple countries and industries, Brand Finance can observe actual changes to reputation, brand strength and brand value for several brands from a series of significant reputational events:

BP Deepwater Horizon (2010):

For example, most people are familiar with the Deepwater Horizon Oil Spill of 2010, for which Oil and Gas giant BP was responsible. The Deepwater Horizon oil rig exploded leaking nearly 5 million barrels of oil into the ocean – polluting water, destroying beaches, and killing wildlife. The spill is widely regarded as one the worst environmental disasters in US history. As a consequence, BP agreed to pay a record $19bn in fines, which remains the largest corporate settlement in US history. The total estimated clean up costs, charges, fines and penalties incurred by BP are estimated to have exceeded $65bn. In the immediate aftermath BP’s share price more than halved – and still has not recovered the share price value since. In the same year, at next valuation BP lost 30% of its total Brand Value.

Another interesting finding from the research Brand Finance conducts is that despite it being 12 years since the initial oil spill, BP has the lowest reputation of any Oil & Gas brand operating in the US market. This indicates that BP has failed to address its poor reputation, which arguably contributes to its suppressed share price performance since.  

How to evaluate reputational risk and damage?

The following data is from a case study on reputational risk measurement for a banking client recently conducted by Brand Finance. For the sake of anonymity, we will be referring to this client as “Brand X”.

To answer the question of how to quantify and manage reputational risk for a brand, one first needs to establish a comprehensive evaluation and valuation of a brand from which to measure reputation events against. Brand Finance does this through a benchmarked scorecard framework called The Brand Strength Index ™, which in turn forms a key element in the Brand Valuation methodology.

The Brand Strength Index consists of a series of metrics that underpin a brand’s health across a range of stakeholders. These metrics include but are not limited to emotional and functional drivers of choice, familiarity, consideration, NPS, reputation, ESG, market share, volume, and price premium. These metrics are benchmarked by industry on a global basis (underpinned by a global market research programme) and condensed into one comprehensive score expressed out of 100.

Once a base reputation score is established, a scenario analysis can be run, in which the extent of reputational damage can be estimated and modelled against other metrics within the Brand Strength Index and ultimately brand value:

Reputation Scores (banking):

Scenario Analysis:

Results:

In the case of this specific bank in question. A scenario in which a severe reputation issue occurred, and the issue was subsequently handled poorly by the bank, a total decline in brand value of 26% was estimated. 

Silicon Valley Bank:

With Silicon Valley Bank, Brand Finance conducts a brand evaluation and valuation on an annual basis. As of the 1^st of January 2023, Brand Finance evaluated the SVB brand with a BSI score of 65/100. This is underpinned by market research conducted in the US. The BSI informed the final brand valuation figure of $2,769bn.

Having established a point of departure, we can now attempt to quantify the impact on reputation from the collapse of SVB. Given the uncertainty over whether the SVB brand itself has a future, Brand Finance is working on the assumption that immediately before the official closure of the bank, if the board has put in place adequate reputational risk governance procedures, then the brand would still have a future ahead of it. Without extensive market research across a wide range of stakeholders it is difficult to adequately quantify the extent of the reputational damage incurred due to poor governance. Therefore, certain tools can be utilised in place of market research to extrapolate reputational damage and measure the potential impact of a reputational event. Take social listening for example, the graph below displays net social sentiment online for SVB over the 12 months immediately prior to its collapse. Net sentiment refers to AI enabled opinion mining online, which analyses conversations to determine an emotional state. We can see that net sentiment declines significantly as the crisis unfolds in the mainstream media.

Extrapolating these results to metrics within the Brand Strength Index (such as reputation, governance, consideration, credit ratings etc.) can give a reasonable indication of the potential negative impact on brand health and on brand value. A conservative estimate has SVB declining in Brand Strength from 65 to 35 (-45%) and declining in Brand Value from $2,769bn to $1,214bn (-56%).

Reputational Red Flags that should have been assessed before the fact:

In the case of SVB, there was a myriad of red flags widely reported, which could and should have been assessed against through the lens of brand evaluation and valuation. All of these issues could have been modelled through the impact on the key metrics within the Brand Strength Index to determine potential impact on the SVB brand and business.

1. SVB took customer deposits and invested in bonds with significant interest-rate risk. So, when interest rates increased, the value of their bond holdings declined.
   • However, SVB and other financial institutions are not liable to report under fair value because the argument is that these losses are not realised until the bonds mature. They did disclose in a footnote a loss of $16bn (which is placed against common equity of only $11.5bn indicating the bank was in fact insolvent).
2. Risky loans being offered / under reporting of loan loss provisions. SVB only reported allowances for credit losses of $636m on a loan portfolio of “$74bn, so under 1%. Many of the bank’s loans are too risky as they are with enterprises such as private equity firms, venture capital funds and start-ups.
3. SVB operated without a Chief Risk Officer for 10 months in 2022.
4. The Federal Deposit Insurance Corporation has a $250K insurance limit, of which a reported 90%+ of SVB’s deposits were sitting.
5. The type of clientele that SVB were dealing with (venture capital funds, angel investors, start-ups and scale-ups) tend to be those that chase whatever is in vogue at any given time. In short, there is inherently significant risk of a downward spiral such as a bank run caused by word of mouth in the industry, as happened in the case of SVB.

Reputation Risk Management:

Ultimately reputation risk events can be mitigated with appropriate governance in place. Good governance will also account for appropriate responses once a reputational risk is identified. The following 4 pillars of reputational risk management (and associated questions) can help an organisation manage and mitigate reputation risk effectively:

Reputation for the banking industry hit an all time low after the global financial crisis, and banks have largely taken good measures to regain public trust since then. However, when compared to other industries, banking reputation still lags significantly. Recent events threaten to run further, and banks need to carefully research and measure how vulnerable they are to reputation risk, which may not be merited by the facts but could still lead to panic among customers and investors leading to existential risk.

A few days ago, the UK Advertising Standards Authority (ASA) – the UK advertising watchdog, banned a series of climate-orientated adverts by HSBC for misleading the public. The adverts were centred around the message, “climate change doesn’t do borders, neither do we” in reference to the bank’s tree planting and net zero financing goals. However, the watchdog concluded that the adverts failed to disclose material information regarding HSBC’s financing of projects that many experts argue contribute to the climate crisis.

Now, whether the adverts accurately portrayed reality, or indeed mislead the public is not for us to say. However, we can explore why HSBC - and other UK banks - are choosing to advertise around the theme of being green.

First, if we look at data from Brand Finance’s UK consumer banking survey, which includes 2 green metrics for banks:

Unsurprisingly there is a strong correlation between how brands are rated for “Caring about the Community” and “Caring about Sustainability.”

Interestingly, banks that position their offering around community (and not necessarily around being a traditional bank) such as The Cooperative Bank, Nationwide Building Society and Coventry Building Society are performing well in the community metric. Whereas Neo banks without the physical footprint and historic baggage of traditional banks are over indexing in the sustainability metric. HSBC is performing poorly in both metrics.

Some readers might look at the above data and think that it is not necessarily a significant issue that a bank scores poorly on certain green metrics given the nature of the services a bank provides. This contrasts with industries such as automobiles where emissions can be assessed directly by the consumer. However, if we look at Brand Reputation for UK banks among UK consumers, we see that green scores are correlated with overall reputation:

Reputation – UK Banking

HSBC is languishing in 18^th place with an average reputation score of 6.2, whereas the likes of Nationwide, Starling, Revolut, Monzo and Coventry Building Society have the highest reputation scores among all banking brands. Therefore, it is no surprise that HSBC is attempting to rectify the situation by running advertising campaigns around green positioning (Although, the fact that The Cooperative Bank has a relatively poor reputation suggests there is something other than green perceptions driving reputation scores for that brand).

Anecdotally, there appears to be a connection between green perceptions and reputation. However, one must pose a more commercially minded question when it comes to green metrics – does a banking brand’s green efforts impact consumer choice and drive business performance? Is the commercial performance of the bank likely to be affected because it has low consumer perceptions around sustainability and community?

To answer that question, we can once again look at the data. Running a regression analysis, typically known as “Brand Drivers,” allows us to see which brand attributes are the most important in driving consumer consideration, and by extension customer acquisition.

Drivers of Brand Consideration - B2C banking

Given the role of banks in the Global Financial Crisis it is interesting that “open and honest” ranks third in attributes driving consumer choice, behind “good value for money,” and being “easy to deal with,” but ahead of having “excellent websites/apps” and “great service.” “Sustainability” and “community” are ranked 2nd and 3rd last respectively when it comes to correlation with brand consideration, only ahead of “caring more about profits than customers” which is negatively correlated with consideration. This then indicates that performance on green metrics is not necessarily driving consumers decision making when it comes to which brand to bank with.

Finally, if we examine HSBC’s performance more extensively using an Importance vs Performance graph:

As mentioned earlier, HSBC does not perform well in the community and sustainably metrics. But those metrics are not the most important when driving consumer choice, regardless of whether consumers might insist they care very much about “sustainability”. What the data does indicate, is that HSBC underperforms for the most important metrics in the eyes of the consumer: value for money, open and honest, Great service, and excellent websites and apps. It is under performance here that is leading to lower consideration and reputation for HSBC among UK consumers.

This data is a classic example of consumers stated good intentions to support causes like sustainability, being overtaken by more pragmatic concerns. When push comes to shove, a bank offering better rates, service or products will generally win greater market share. One may argue that there is often a gap between stated (or derived) importance and actual consumer behaviour. Fortunately, we have actual data supplied by the current account switching service in the UK, which tracked net current account gains over the same period of Brand Finance’s banking research (October – December 2021):

As you can see from the table, the brands the perform poorest in the derived importance metrics (HSBC) has the lowest net current account gain out of all participating banks. The banks the perform the best in the same attributes (and therefore have the highest brand consideration) – Nationwide, Starling, and Monzo, have the highest net current account gain.

What About Business Banking?

Many retail banking brands in the UK, HSBC included, have not yet worked out how to credibly differentiate themselves on sustainability. However, this does not mean they have not been trying. HSBC for example conducted an extensive worldwide study in 2021, with the firm Mintel, to uncover insights and deliver green banking products to consumers. HSBC say that the study led to new products being launched and future products being put into development.

One could argue that HSBC's recent adverts were focussed on the brand’s B2B services – highlighting for example how the bank had committed to investing $1 trillion in helping clients transition to Net-Zero. So perhaps green positioning is important in the B2B space?

Drivers of Brand Consideration – B2B Banking

According to research conducted by Brand Finance (and supported by further qualitative research) B2B customers are much more concerned about a banking brand’s credibility in green metrics. The B2B space perhaps provides more credible ways a brand can demonstrate green credentials (funding of green projects or underwriting green bonds for example) than in the consumer space, which is why we see greater importance placed on green metrics among B2B customers. There are other stakeholders for the business of course, which should not be ignored. Attracting and retaining good talent and adhering to the requirements of the investor community are all reasons to take part in sustainable projects and market your credentials.

However, perhaps more focus should be placed on the green credentials of the actual products and the banks in question, rather than those of the bank’s customers. For example, many banking brands continuously refer to net-zero financing goals or the issuance of green bonds, but this is aimed at the activities of the project being funded or of the specific client in question, and not at the green credentials of the bank themselves.  

What about the profitability of the banks?

Finally, the true motivating factor for a bank on whether to pursue sustainable practices or not is surely driven by profits. If we look at the Return on Equity (ROE) of UK banks in the 2021 fiscal year:

Profitability appears to indicate mixed results when it comes to sustainability perceptions. For example, HSBC is more profitable than Nationwide – despite Nationwide having the best reputation in the market, as well as the highest net account acquisitions. Whereas the likes of Starling, Halifax and Co-operative bank are highly reputable and highly profitable. HSBC themselves are unlikely to be too concerned about the volume of accounts switching away from the bank, as the hypothesis here is that these are very low value customers, with low deposits and uncomplicated banking needs (and so are not a priority for them). These results would advocate for why the importance of strong governance and regulation is necessary to enforce good sustainability practices in the UK banking industry.

Ultimately, brand-building needs to focus at the intersection of emotional advocacy and rational proof points. Too little emotional advocacy and the brand is under leveraging the power of good advertising, but not enough rational proof points and a brand might be viewed as inauthentic by the customer (not to mention other key stakeholders). What the above analysis does confirm is that there is an opportunity for all banking brands in both the B2C and B2B space to credibly show their credentials in the green space and differentiate their brands products and services from those of their competitors.

From Villain to Hero

Banking brands are by no means reputational leaders. In fact, according to research conducted by Brand Finance in 2020, the banking industry on aggregate ranks joint last out of 20 industries surveyed globally:

Since 2008-09, banks have not done themselves any favours. From fictitious-accounts¹ to money-laundering² there have been numerous instances of some of the largest banks in the world behaving in a less than flattering manner.

Apart from the widespread scandals, anecdotally everyone has a story about long queues in branches, less than satisfactory customer service levels, and pain points around loan applications.

However, over the past 12 months, and since the onset of the COVID-19 pandemic globally, we have seen banking brands play a hugely significant role in helping businesses and consumers overcome the effects of the virus - distributing government-mandated funds, extending credit, reducing fees, and being considerate to customers. The net result is a greater feeling of goodwill for banks among consumers. We have measured an average increase in the reputation of banking brands in 27 of the 29 countries surveyed by Brand Finance ³

Due to strong regulatory measures put in place by governments, central banks, and the Basel Committee on Banking Supervisions (BCBS), the global banking industry is far better equipped to provide the necessary support to the economies in which they operate than during the Global Financial Crisis.

For example, looking at the average Tier 1 Capital (which is a core measure of a bank’s financial strength) and focussing on the countries with the largest banking industries in the world, we can see the banks operating in each country have increased Tier 1 Capital substantially since 2009 (except for the UK):

Reputational Threats

Despite being better equipped financially to deal with the current crisis, banking brands do face a large threat posed by the onset of COVID-19 and the consequences of the pandemic in various ways including:

• Persistently low-interest rates
• Stronger regulation
• Increased competition from fintech and challenger banks
• Overhauling expensive legacy systems.

Banking brands have been operating in a much more challenging environment in recent years. Although the average profit per banking brand has recovered since immediately after the Global Financial Crisis, there are still many significant external pressures.

This squeeze on profits is exasperated by the role the industry has played in supporting local economies. Because many banking brands have extended large lines of credit to distressed consumers and businesses, they are at risk of loan repayments not being made.

For example, within the Brand Finance Banking 500 2021 report, on average US banks have increased loan loss provisions by 130% year-on-year:

Why is reputation improving?

Reputation across the banking industry is rising for the first time since Brand Finance begun its Global Brand Equity Monitor. Assessing the same 10 countries as above, Reputation scores have increased by an average of 4%. It may be argued that this is not a significant increase, yet what is significant is that of the 29 countries researched by Brand Finance, 27 are experiencing reputational increases in the banking industry.

Using research across more than 500 brands worldwide, Brand Finance has used statistical analysis to identify 3 key areas that determine reputation among banking brands, these are:

1. The ability to meet the customer’s needs
2. Practising ethically and sustainably
3. Innovation

Research scores within each of these categories have improved year-on-year on average across the entire industry.

So, what does the ability to meet the needs of the customer entail? According to the research, the following attributes are crucial among consumers when selecting a banking brand:

• Being easy to deal with
• Having a good website and app
• Accessibility
• Good levels of customer service
• Good product range
• Good value for money

These are all relatively intuitive when thinking about what the customer desires and it appears banking brands (spurred on by the pandemic) are performing better in this regard.

Ethical practices are a natural fit in determining reputation and consist of caring about the wider community in which the bank operates in, being transparent, being committed to sustainability, and being fair to all people. Again, government-mandated or not, banking brands are scoring better in this regard because of the pandemic.

Innovation has been the major buzzword in the banking industry in recent years (and in many other industries). However, innovation for innovation’s sake can be counterproductive.

The reason digital banks perform exceptionally well in Brand Finance’s Global Brand Equity Monitor is that their innovations enable them to meet the customers’ needs in an efficient and effective manner. This ability has come to the fore throughout the pandemic, where banks with greater digital capabilities are better placed to serve customers through innovation.

Indeed, the onset of the pandemic has forced brands that were previously falling behind in digitalisation and innovation to invest and act at speed or risk losing market share.

DBS bank (6^th strongest banking brand in the world⁴) reacted extremely quickly when the virus first began spreading in Singapore, by launching a digital relief package, enabling many retailers to set up on online marketplace in just three days.

As another example, Maybank (8^th strongest banking brand in the world) launched an entirely digital 10-minute approval process for SME financing during the pandemic, and to date has approved 99% of all its processed loan repayment extensions.

Why Reputation is Important

The five most reputable banking brands indicated by the research are: Revolut (UK), DBS bank (Singapore), Post Office Savings Bank (Singapore), Maybank (Malaysia) and Capitec Bank (South Africa). Each of these banking brands are among the strongest brands in our study. According to Brand Finance research, Reputation (and the main drivers of Reputation) is highly correlated with brand consideration.

Examining the ability of a bank to meet customer needs, we can see that the banks that outperform in reputation also outperform in brand consideration:

Why is brand consideration important? Brand consideration is highly correlated with brand usage (market share), where increased consideration is a lead indicator of usage:

Our research shows that while building brand reputation is important for any brand (not least those in the banking industry), in the banking sector, focusing on the core offering of identifying what the customer needs and continuing to service those needs, is one of the main avenues to do so. However, a more important KPI is building brand consideration, which is driven primarily by meeting the needs of the consumer.

Brand consideration can be aided by innovation, which is not in itself a key driver of brand consideration but plays a crucial role in the ability of a bank to connect with its customers during a pandemic. If a banking brand is to come out of the other side of the pandemic in a stronger position in the market, it should use similar research, analysis, and data points in order to help guide key decision making, not just in the marketing department, but throughout the entire business.

Brand Finance Banking 500 2021

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