• by Karlene Lukovitz  @KLmarketdaily, May 16, 2007

One might assume that financial institutions would tend to have greater-than-average awareness that a strong corporate brand can contribute millions--even billions--of dollars to a company's stock price and market valuation.

The reality, however, is that with relatively few exceptions, banks are quite literally not capitalizing fully on the power of building brand equity.

On the whole, the banking industry is actually less aggressive about leveraging brand equity than many other industries, according to CoreBrand, a global brand strategy and communications firm. Since 1990, Corebrand has been using annual surveys of 12,000 top financial decision-makers and financial data in a proprietary statistical model that enables tracking brand equity valuations for over 500 companies in 45 industries, and releasing its Directory of Brand Equity on a quarterly basis.

The firm's recently released five-year comparative summaries of how specific industries stack up show the banking industry's brand equity as a percentage of market capitalization at 4.63% in first-quarter 2007--virtually the same level as in 1Q 2002, but down from 5.76% in 1Q 2004 and 5.11% in 1Q 2006.

To put recent years' performance in perspective, the averages across all tracked industries also showed an upswing between the first quarters of 2002 and 2004, followed by declines in subsequent years. This, says CoreBrand CEO James Gregory, reflects the fact that brand equity's average contribution across industries "ebbs and flows," reflecting in large degree the status of the more dominant factors, such as interest rates and currency fluctuations, which account for about 80% of corporations' stock performance.

Also, banking is not at the bottom of the barrel in terms of this benchmark--as of 1Q 07, 18 industries had lower percentages, including insurance (4.54%), furniture/home furnishings (3.99%), semiconductors/equipment (3.33%), power/electric utilities/natural gas (each less than 2%) and, at dead last, educational services (0.23%).

On the other hand, 30 industries have higher percentages than banking, including front-runners home appliances (16.05%), motor vehicles (14.75%), restaurants (13.33%), toiletries/cosmetics (13.28%) and retailers (11.54%).

Furthermore, the banking industry's brand equity numbers have consistently lagged those of the cross-industry averages, which were 7.49%, 7.57%, 7.22% and 6.79% for the first quarters of 2002, 2004, 2006 and 2007, respectively.

Among the 14 largest of the more than 60 financial institutions tracked, nine did not match or exceed the 6.79% first-quarter 07 cross-industry average. Worst brand equity performers among the biggies were National City Corp. (0.16%), Huntington Bancshares (0.34%), Fifth Third Bancorp (1.16%), KeyCorp (1.26%) and PNC Financial Services Group (1.38%).

The five exceeding the cross-industry average were J.P. Morgan Chase & Co. (12.46%), Bank of America (10.54%), Wells Fargo & Co. (10.49%), The Bank of New York Co., Inc. (7.24%) and Wachovia Corp. (7.15%).

Between first-quarter 2002 and 2007, J.P. Morgan Chase had the largest brand growth (up 3.87 percentage points). Gregory attributes most of this, however, to the merger of the two institutions: "This is one time when merging the names of two companies seems to be creating more overall value for the combined entity," he says.

Bank of New York (soon to merge with Mellon) was close behind, with 3.84 percentage point brand equity contribution growth. Given that financial analysts don't generally rank this bank as a "sexy" stock, and that its branding efforts do not leap out as being exceptional, its brand equity performance is "a bit hard to explain," acknowledges Gregory. "Certainly, they've had steady performance and consistent profitability, and sometimes clear brand messages will result by dint of strong management," he notes, pointing out that Fortune ranked the bank first in its category on its "Most Admired" list for 2007.

But to Gregory's thinking, Wachovia, which has grown brand contribution to market cap by 3.26 percentage points since 2002, is the stand-out in terms of branding efforts. After First Union and Wachovia merged in 2001, management "chose the less well-known of the two brands because it was distinctive, crafted a new corporate identity, then built a brilliant campaign, one market at a time," he observes. "This is important because it enabled them to leverage their media-buying power to 'own' each market, rather than try to cover every market at once, and also enabled them to build the brand in a measurable way."

Wachovia's first-quarter brand equity contribution of 7.15% represents $6.5 billion, "and they still have plenty of room to grow," he says. "This is a classic case of doing it right and the huge dividends available to those who do invest in their brands."

The banking industry by its nature "is financially oriented, not marketing oriented, which is why they sometimes struggle with branding," Gregory adds. "Most innovative marketing ideas can be easily copied by competitors, which is why so much bank marketing lacks distinction. However, a carefully crafted brand cannot be copied, which is why brand building makes so much sense in this commodity industry."

On the flip side, Gregory points out that Huntington Bancshares and National City, the two institutions that saw most erosion in brand equity contribution, have done little to promote their brands during the past five years. And while Bank of America's equity contribution percentage is high among banks, it has remained relatively flat for the past five years. "Despite their significant size, they're getting very little leverage from their brand," he says.