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VIDEOTrendspotting: Investing in the Big Banks Now
By
Carol Kopp
May 19, 2010 10:00 am
How's that public relations campaign going?
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The suddenly garrulous CEO of the formerly secretive Goldman Sachs (GS) has already logged an appearance on The Charlie Rose Show as well as interviews on Bloomberg Television and CNBC.
Turns out his firm has a new public relations guy: Mark Fabiani, but better known by his nickname, Master of Disaster. He’s got his work cut out for him this time.
You already know enough about the still-unfolding events that led Goldman Sachs and the other big banks to the point that they're all turning to Masters of Disaster to repair their images with the public.
The interesting question now is whether their seriously damaged public image will affect their businesses, and therefore their stock prices, in the months ahead.
Professional stock traders surely will invest in any stock that they believe will go up. Social consciousness is for suckers.
But can the banks continue to grow their bottom lines if everybody else, that is, the great consumer public, thinks they’re not trustworthy? Well, no. Not if the banks depend on the public to buy their services.
Goldman Sachs, for one, wouldn’t give a hoot about its public image if it wasn’t seriously scared that the political climate will force Washington to impose tougher regulations. Just for the record, the firm’s approval rating, according to a recent NBC News/Wall Street Journal poll, is 4%.
But the other big names have other problems looming because, unlike Goldman, they really are banks. Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) collectively do business with approximately 38% of the American public.
Pollster John Zogby, in a recent column for Forbes magazine, says his poll results suggest that 9% of American adults have taken some of their business away from the big banks and given it to smaller community banks or credit unions, as a protest against their business practices.Moreover, 32% of the respondents said they were thinking about it.
Weirdly, it's the one issue that unites liberals, conservatives, and libertarians. They’re all mad as hell and they’re not going to take it anymore. The liberal Huffington Post started the Move Your Money campaign last year, stressing that smaller banks invest more in their local communities. But it also appeals to Tea Party conservatives enraged by the taxpayer bailout of the banks.
Moreover, some state governments may jump on the bandwagon. Legislatures in Maryland, Massachusetts, Minnesota, and New Mexico all are considering bills that would move more state money into community banks, on the grounds that local banks invest more of their money in other local businesses.
As in any boycott, each contribution is infinitesimal, and the real impact is difficult to measure at this stage.
Plain logic suggests that it matters. Citi alone now has 200 million customers in 140 countries. It runs 1,000 bank branches in the US and has 5,800 ATM machines just in 7-Eleven stores. It spends a lot of money getting those customers, keeping them, and up-selling them from checking accounts and car loans to mortgages, credit cards, small business loans, and personal investment products.
And now, thanks to the magic of the Internet, regular folks are being reminded that their dinky local bank has the same services and the same balance protection, very likely at a lower cost.
Granted, the big bankers have more immediate worries right now. But it’s a good bet that this is one that will continue to plague them after the dust settles.
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