December 1, 2010
If mighty WikiLeaks can't hurt the banks, something more mundane might just do the trick: lenders' frosty relationship with their cash-strapped customers.
Half of bank customers who fell behind on loan payments or otherwise suffered a so-called negative credit event over the past two years did so for the first time ever, according to a study released Wednesday by the Deloitte Center for Financial Services.
Deloitte dubs this depressingly large group -- amounting to 11% of all bank customers, according to the survey -- the "first-time defaulters." The consulting firm says they represent a substantial new challenge for bankers.
Grappling with rising costs, tighter regulation and an unusually uncertain economic outlook, the banks need to hang onto as many good customers as they can for when the economy rebounds, lending resumes and banker pay can at last rise to a halfway respectable level.
"While they are trying to minimize credit losses, they also do not want to lose customers who may become profitable in the future once they have worked through crisis-induced problems," the survey says. "How can banks better predict whether a customer's credit impairment is likely to be temporary or permanent?"
The problem, Deloitte says, is that even if banks can figure out the answer, disgusted customers may have walked in the meantime.
Delinquent customers have an overwhelmingly poor impression of their banks, the survey said. Fully 41% of the 5,000-odd survey respondents rated their interaction with their lenders "poor," Deloitte said. More than half suggested the banks didn't hold up their end of the bargain when it came to "offering me constructive solutions," while 43% doubted the banks' "willingness to listen to my concerns."
Nearly two-thirds said they are unlikely to borrow again from the same institution in the future.
"This dissatisfaction may strongly encourage them to look elsewhere when borrowing in the future," Deloitte said. "The care and attention shown to these first-time defaulters now – and when they are on the path to becoming creditworthy customers again – may well determine who they do business with in the future."
Good riddance, the banks might well say. But now is not exactly the time to be saying that.
By all accounts the banks are facing a major profit squeeze in coming years thanks in part to the red tape unfurled by this summer's Dodd Frank Act. Analyst Meredith Whitney predicted last month that 5,000 branches could close over 18 months as lenders shed poorer customers.
What's more, the banks are still backing up politically. Even as profits are starting to recover, bankers are under pressure for their failure to lend into a somnolent economy. No one has forgotten or forgiven the backlash provoked by the government rescue of the Citigroups (C) and Goldman Sachses (GS) of the world at the end of 2008, the bonuses racked up by bankers doing their own bidding or the industry's utter failure to respond to a mortgage crisis that is partly of its own making.
The banks are such red meat that a publicity-seeking ex-hacker can hammer the stock of the biggest U.S. bank, Bank of America (BAC), simply by threatening to smother us all in documents showing unethical behavior -- as if that isn't what everyone expects by now.
The bottom line is unhappy customers now may well translate into unhappy and -- could it be? -- unemployed bankers later, Deloitte says. It seems a little too good to be true, but you can always hope.
If mighty WikiLeaks can't hurt the banks, something more mundane might just do the trick: lenders' frosty relationship with their cash-strapped customers.
Half of bank customers who fell behind on loan payments or otherwise suffered a so-called negative credit event over the past two years did so for the first time ever, according to a study released Wednesday by the Deloitte Center for Financial Services.
Deloitte dubs this depressingly large group -- amounting to 11% of all bank customers, according to the survey -- the "first-time defaulters." The consulting firm says they represent a substantial new challenge for bankers.
Grappling with rising costs, tighter regulation and an unusually uncertain economic outlook, the banks need to hang onto as many good customers as they can for when the economy rebounds, lending resumes and banker pay can at last rise to a halfway respectable level.
"While they are trying to minimize credit losses, they also do not want to lose customers who may become profitable in the future once they have worked through crisis-induced problems," the survey says. "How can banks better predict whether a customer's credit impairment is likely to be temporary or permanent?"
The problem, Deloitte says, is that even if banks can figure out the answer, disgusted customers may have walked in the meantime.
Delinquent customers have an overwhelmingly poor impression of their banks, the survey said. Fully 41% of the 5,000-odd survey respondents rated their interaction with their lenders "poor," Deloitte said. More than half suggested the banks didn't hold up their end of the bargain when it came to "offering me constructive solutions," while 43% doubted the banks' "willingness to listen to my concerns."
Nearly two-thirds said they are unlikely to borrow again from the same institution in the future.
"This dissatisfaction may strongly encourage them to look elsewhere when borrowing in the future," Deloitte said. "The care and attention shown to these first-time defaulters now – and when they are on the path to becoming creditworthy customers again – may well determine who they do business with in the future."
Good riddance, the banks might well say. But now is not exactly the time to be saying that.
By all accounts the banks are facing a major profit squeeze in coming years thanks in part to the red tape unfurled by this summer's Dodd Frank Act. Analyst Meredith Whitney predicted last month that 5,000 branches could close over 18 months as lenders shed poorer customers.
What's more, the banks are still backing up politically. Even as profits are starting to recover, bankers are under pressure for their failure to lend into a somnolent economy. No one has forgotten or forgiven the backlash provoked by the government rescue of the Citigroups (C) and Goldman Sachses (GS) of the world at the end of 2008, the bonuses racked up by bankers doing their own bidding or the industry's utter failure to respond to a mortgage crisis that is partly of its own making.
The banks are such red meat that a publicity-seeking ex-hacker can hammer the stock of the biggest U.S. bank, Bank of America (BAC), simply by threatening to smother us all in documents showing unethical behavior -- as if that isn't what everyone expects by now.
The bottom line is unhappy customers now may well translate into unhappy and -- could it be? -- unemployed bankers later, Deloitte says. It seems a little too good to be true, but you can always hope.
Closed November 2010
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