Tag Archives: bank

Financial institution financials reveal differences in marketing spend intensity

A review of reported marketing/advertising expenditure by leading financial institutions revealed the following trends:

  • 2011 spend levels: Five FIs (JPMorgan Chase, American Express, Citigroup, Bank of America and Capital One) each spent more than $1 billion on marketing in 2011.
  • 2010-2011 trend: Of the 12 FIs included in the review, six increased marketing spend by double-digit percentages in 2011, led by Citigroup (+43%) and Capital One(+40%). Four FIs reduced marketing spend in 2011.
  • 2007-2011 trend: Taking a longer-term view, we see that although Citigroup and Capital One had very strong growth in 2011, spending was actually down relative to 2011, indicating that these banks’ recent strong growth is more of a return to historic norms. JPMorgan Chase, Wells Fargo and PNC all had strong growth between 2007 and 2011, but each of these FIs had made a big bank acquisition during this period.
  • Marketing as a percentage of revenues: To eliminate the effect of merger and acquisition activity, and get a gauge on marketing investment intensity, we also looked at marketing as a percentage of net revenuefor 2007 and 2011.
    • American Express has the highest level of marketing spend intensity, with its 2011 marketing expenditure representing 10% of net revenues in 2011, up 70 basis points from 2007
    • Other leading FIs for marketing investment intensity are Discover (no branch network, national credit card operation) and Capital One (regional branch network, national credit card operation)
    • Among the regional national banks, JPMorgan Chase has the highest level of marketing intensity (3.2%), ahead of Citigroup (3.0%). Chase, which has both an extensive branch network and a national credit card operation, actually increased marketing intensity by 33 bps from 2007 to 2011. Citigroup has a limited U.S. branch presence, but again has a national credit card franchise.
    • Bank of America’s market spend intensity fell from 3.5% in 2007 to 2.4% in 2011
    • Wells Fargo maintains significantly lower marketing spend levels than its national bank competitors, with a marketing spend intensity of 0.7% in 2011.  However, it was recent named as the leading U.S. bank in The Brand Finance Branding 500 rankings, indicating that topline marketing spend does not necessarily correlate to brand strength.  However, it should also be recognized that, unlike some of the other leading banks, Wells Fargo’s operations are mainly concentrated within its retail banking footprint.

 

In terms of setting optimal levels of marketing investment in 2012, financial institutions face competing forces. On the one hand, many FIs have established cost containment programs with defined targets, and this will put downward pressure on marketing spend. On the other hand, the above table shows that many FIs have reduced their marketing intensity levels in recent years. With signs of economic recovery now emerging, these FIs may need to increase their marketing investment to compete effectively in a growing market.

Strong growth in commercial lending by large U.S. banks

Much of the coverage of U.S. banks during the 4Q11 earning reporting period focused on their continued struggles to generate revenues, with some noninterest income categories under pressure. However, most of the big banks did show signs of growth in lending, with commercial lending at the forefront.

The table below looks at y/y and q/q changes in average non-CRE commercial loan portfolios for some of the leading U.S. banks.  Of the 12 large banks listed below, eight enjoyed double-digit average commercial loan growth over the past year.

In reporting quarterly financials, most banks indicated strong potential  for additional commercial lending growth in 2012, although most were at pains to point out that this is dependent on continued economic recovery and improving business confidence.

Of course, the strong growth in 2011 follows declines in loan portfolios in 2008 and 2009, and relatively anemic growth for many leading banks in 2010.  Due to acquisitions and changes in organizational structures, long-term comparisons are not always relevant, but in many cases, leading banks have a long way to go to build average commercial loan portfolios up to pre-financial crisis levels.  And banks also need to recognize that, while an improving economy, should boost overall commercial lending, they will need to make significant investments in marketing and sales to maintain and even build their share of the commercial loan market.

Larger banks gaining in small business lending

EMI recently carried out an analysis of current FDIC data on the C&I loan portfolios of U.S. banks.  This analysis revealed the following trends:

  • Large banks (with more than $10 billion in assets) had the strongest growth in their total C&I loan portfolios between 3Q10 and 3Q11.  This is consistent with recent financials from the largest banks, most of whom have reported strong growth in commercial lending in recent quarters

  • Looking at small business loan portfolios (defined as C&I loans of less than $1 million), at first glance the trend is more consistent: larger banks still outperform their smaller counterparts, but the gap is much narrower than for C&I loans.

  • However, when we drill further into small business loan portfolios, we see that the largest banks grew their portfolio of very small business loans (original amounts of less than $100,000) by 5%, while the other three bank segments experienced loan portfolio declines in this category (note that this loan category has a high concentration of small business credit card loans).

There are now some indications that small business lending will grow in 2012.  Will larger banks continue to outperform smaller banks in overall loan portfolio growth? And will loan growth continue to be concentrated on the smallest category of loans, or will it be extended to loans of $100,000 to $1 million?