Banks just can’t seem to escape negative publicity these days.
Customer satisfaction and with it consumer loyalty at U.S. banks is trending downwards, with a six percent decline since 2007, according to the latest J.D. Power and Associates 2009 Retail Banking Satisfaction Study.
In 2007, 59 percent of customers complained about dismal service at banks, while in 2009 the number of frustrated customers increased to 65 percent, J.D. Power said.
“The challenge that banks face is most clearly underscored by findings from the recently released 2009 Purchase Funnel Special Report, which shows that 30 percent of customers cite questionable ethics, financial instability or poor reputation as key reasons for specifically avoiding a particular institution when shopping for a new bank,” Michael Beird, director at J.D. Power, said in a recent press release.
The highest customer satisfaction scores were given to TD Bank N.A. in the mid-Atlantic region, Commerce Bancshares Inc. in the Midwest region, Wells Fargo & Co. in the U.S. West, and People’s United Bank in New England, among others.
Shopping for the Soundest and Strongest Bank
Wells Fargo and Winston-Salem, N.C. based BB&T Corp. were given top-notch ratings by small and midsized clients in the J.D. Power study, while others had lost customer trust to differing degrees.
Small and midsized companies concerned about the survival of U.S. banks are shopping for banks without reputational issues that have a strong balance sheet, keep their prices at reasonable levels, while providing transparent and customer-friendly service, according to a June Greenwich Market Pulse survey. Greenwich is a Stamford, Conn. based financial services research firm.
Banks should “Stop trying to nickel-and-dime their loyal customers just because banks made bad business decisions and are now desperate in their attempts to raise capital,” responded survey participants when asked how banks can improve their brand reputations. “Now is the time the banks should go out of their way to help their small business clients, not try to tighten the screws on them.”
More than 50 percent of small companies and almost 50 percent of midsized firms have lost confidence and worry about the reliability of their banks. Extreme caution is used before these companies approach a bank for a loan or other business transactions.
“These findings demonstrate just how severe the breakdown in trust has become in commercial banking,” Steve Busby, a Greenwich consultant, said in a statement.
Escaping TARP
Using the Troubled Asset Relief Program (TARP), U.S. government has invested in 532 banks, according to an April Quarterly Report to Congress by the special inspector general of TARP.
The U.S. Treasury earned $4.5 billion in dividends by June from the preferred bank shares it holds.
According to the report, JPMorgan Chase paid $472 million by the end of February, the highest amount paid, followed by Citigroup Inc. and Wells Fargo with $372 million each, and Bank of America Corp. with $273 million.
The April report also details full repayment of the TARP funds by Signature Bank, Old National Bancorp., Iberiabank Corp., Bank of Marin Bancorp., and Centra Financial Holdings Inc., totaling $353 million.
In a vote of confidence in the financial sector, last week the U.S. Treasury stated in a press release that it is allowing 10 of the largest banks to repay the government $68.3 billion.
The 10 banks include JPMorgan, Goldman Sachs Group Inc., Morgan Stanley, U.S. Bancorp., Capital One Financial Corp., American Express Co., BB&T Corp., Bank of New York Mellon Corp., State Street Corp., and Northern Trust Corp.
JPMorgan CEO Jamie Dimon summed up the bank’s feelings best, saying in a statement that “Paying back TARP at this time is the right thing for JPMorgan Chase, and it’s the right thing for our country … We feel it’s best for our government to be able to use these funds for other critical purposes.“
Taxpayer Shortchanged?
But the banks are not out of the woods yet. The government is still holding stock warrants of the banks, which allows it to buy shares over a 10-year period at a fixed price called the “strike price.” If the strike price is above the stock price, the government will lose money, or be “out of money” and if it is below the stock price, it will gain or be “in the money.”
At June 10 closing prices, only 15 percent (35 banks) out of 234 stock warrant arrangements are in the money, according to the Pew Charitable Trust, an independent not-for-profit charitable trust based in Philadelphia.
Pew’s research team claims that the U.S. Treasury uses a different method to calculate the warrant price than it publishes on its Web site, which could result in a larger loss to the government.
