Marketing, Front & Center

Investors frequently ask me what I look for in a bank. I cite among my top criteria facility in marketing. Now with the industry in peril and massive consolidation likely at hand, this is truer than ever.

Despite how obvious this seems to me, I’m always amazed at the ongoing resistance to the notion of marketing and the vital role it plays banking. It’s not everywhere mind you. Many bankers have embraced marketing and are sophisticated practitioners. The there’s still a lot of hold-outs though who believe that for banks, marketing is nothing more than a distraction and a side show.

Sometimes these guys remind me of old guard telephone company employees who are still waiting for Ma Bell and black rotary phones to come back.

‘The fact is, there’s ample evidence that marketing is the tip of the spear for successful depositories.’

This evidence comes in the form of consolidation. You don’t see many auto or media or consumer products companies merging with any degree of success. One reason for this are the risks associated with product integration. Just ask Daimler’s Dieter Zetsche.

But in banking the industry is consolidating with apparent ease. And the reason for this is the relative absence of product integration issues. Every bank has checking, CDs, and savings. With very few exceptions, they all have branches. And every bank has some combination of consumer, business or real estate lending. None of these products are proprietary and any banking organizations can offer these services.

To my way of thinking, this is tantamount to admitting that the products and services banks offer are basically commoditized. And if you believe this, then it’s not too great a leap to suggest the only difference between Bank A’s checking and Bank B’s is the positioning of the product in the consumer’s mind. What position this product occupies, or does not is attributable solely to marketing.

The fact is that marketing in banking is not new, and has been a driving force in the business since it’s earliest days. In 1870 The Second National Bank of New York opened the first “Women’s Department” catering exclusively to women. The department was predicated on the notion that while many women did not work, they nonetheless had a significant influence on the family’s finances.

In the 1890s banks began offering so-called school banking programs which enabled students to open accounts through their schools. By 1930, some 36 million children were enrolled. It’s probable, that some of these schoolchildren are still banking customers today.

And let’s not forget that one of the largest banks in the country, Bank of America, was started on what was basically a marketing segmentation ploy. That is, forerunner The Bank of Italy, opened in San Francisco in 1904 to address the needs of immigrant Italians.

So in many ways marketing is imprinted on the genes of banks. Given the low to no barriers to entry, it has to be. But getting back to the concerns of investors, what can and should be a source of concern for investors and acquirers however is when it’s not imprinted on the genes of the bankers themselves.

Word Play

With everything that’s happening on Wall Street and now Washington, there’s no shortage of words.

Commentary is everywhere. And it’s taking all shapes and forms. Vitriolic diatribes, analytical prescriptions, darkly social satire.

What’s interesting to me however is that despite the volume of commentary, much of its tone and tenor turns on one or two absolutely vital words. To wit, the near ubiquitous use of the word “government bailout,” to describe the plan proposed by Treasury Secretary Henry Paulson.

To me, the senators and congressmen who used the word bailout have done a disservice to their constituents. Using the word bailout, to me, is like swinging a machete. It’s much too simplistic. A bailout does not describe – in any way that informs – the nuances of the predicament that that we find ourselves in. Really, the folks who used, and continue to uses the term bailout, to me, simply want to play the blame game.

And this has hurt us all as Congress has been unable to reach consensus on the right direction. In a way, who could blame them? Even if they understood the necessity of the plan, with their constituents calling in and overwhelmingly denouncing a “bailout”, how do they vote for it?

And from my perspective as a private equity investor, I don’t see anyone on Wall Street getting bailed out. In fact, some of them have been the biggest losers. Hank Greenberg has lost approximately lost $5 billion on his AIG stock this year. Many of the people so closely associated with the current crisis – Stan O’Neal and John Thain of Merrill Lynch, Richard Fuld of Lehman Brothers, James Cayne of Bear Stearns – have lost hundreds of millions. These men lived by the sword and right now they are dying by the sword.

So the word bailout is troubling to me. Because its enabled its users to engage petty rivalries, when in fact access to credit is a national asset. Preserving this asset benefits all of us, in particular the small businesses, mom and pop operations, families who use credit cards, or who buy homes, or cars.

One of the problems with something that always been there your entire life is that you begin to think it’s free and that it exists, well, because it exists. I think the folks who believe we are bailing out Wall Street fall into this camp. The fact is there’s enormous infrastructure behind the credit that we all access and use so frequently. Ensuring that infrastructure survives is not a bailout. It’s just a simple necessity.