Cross/Multi asset

Smaller banks to benefit from sub-prime fallout, study finds

Since the collapse of the US sub-prime mortgage market in August 2007, the performance of banks in the US, Europe and Asia has shaken some companies’ confidence in their reliability as sources of essential funding, according to a new study.

In a February survey, research and consulting firm Greenwich Associates asked nearly 300 large companies in Asia, Europe and the US to name the corporate banks they do business with and to describe how each firm’s handling of the current market turmoil has affected its reputation.

Perhaps unsurprisingly, the study found that the banks that have incurred the biggest write-downs on exposures to troubled credit products have suffered the biggest hits to their reputations. Goldman Sachs and JP Morgan appear to be the only firms whose reputations have been enhanced by their performance throughout the crisis.

“The one interesting outlier to this classification scheme is Société Générale,” said Robert Statius-Muller, consultant, Greenwich Associates, in a statement. “The significant decline in Société Générale’s reputation among companies around the world is attributable to the actions of a single ‘rogue trader,’ as opposed to its overall performance throughout the credit crisis.”

Greenwich Associates asked companies to indicate how the performance of individual banks during the crisis would affect how much business they did with them in the future.

“Companies’ responses to this question can be taken in one of two ways,” said Jay Bennett, consultant, Greenwich Associates. “On the one hand, for some of the hardest-hit firms, like Citigroup and UBS, the fact that 15-25% of their corporate clients expect to shift some of their business to other firms as a result of market events should be cause for serious concern. On the other hand, most companies who say these firms’ reputations have taken a hit are not yet planning to pull any of their business, which suggests that these organisations have an opportunity to restore their trust and preserve these relationships.”

The research results also suggest that the global crisis could represent a big opportunity for those mid-sized or regional banks that have steered clear of credit-related write-downs and losses. Companies in the US say the events since August 2007 have enhanced the reputations of regional banks, such as Wells Fargo, and foreign banks with relatively small US franchises, such as Royal Bank of Scotland/ABN Amro and BNP Paribas.

European companies say the same about banks such as Nordea, ING and Santander, which are viewed largely as regional players. In Asia, between 10% and 20% of companies say that, as a result of the current market turmoil, they plan to increase the amount of business they do with regional banks such as the Bank of China, ICBC and Calyon.