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RRC To Issue US Bank Reputation Ratings; Money Centers Flop> 16:25 EST 03/04 --Reputation Ratings Much Lower Than Financial Ratings By Mark Pender NEW YORK (MktNews) - Rating Research LLC will introduce reputation ratings for 21 U.S. banking institutions this week, showing weak confidence in the nation's leading money center banks. JP Morgan Chase -- assessed on seven intangible categories including
financial stability, customer focus, and ethical behavior -- scored near
the bottom of the group. Citigroup, Bank of America, Bank One and Bank
of New York did little better. At the top of the group were Cincinnati-based
Fifth Third Bancorp and Chicago-based Northern Trust. Wells "The money center banks do not achieve a high level of reputation strength. The leaders in our survey tend to be very tightly managed regional players and specialty players, " said Dory Gasorek, chair of the firm's rating committee, who noted that these smaller players excel in ethical behavior and suffer little bad press. There were no 'AAA' ratings awarded in the overall group, with the bulk receiving a medium-quality 'BBB' rating. The lowest ratings were 'BB', reflecting "reputation weakness" by RRC's definition. RRC, conducting perhaps the first systematic analysis of banking reputation, found that financial ratings (generally 'AA' to 'A') were significantly higher than suggested by the banks' reputations, an anomaly not apparent in other business sectors analyzed by the firm. RRC attributes the discrepancy to credit protection provided by the industry's safety net, which includes federal deposit insurance and Bank for International Settlement regulations. RRC said the regulations underpin capital and risk management and keep the banks' financial performance ratings inside the investment grade category. But unlike financial performance, RRC says there is no "safety
net" for reputation. Less than a third of industry executives are
"personally willing to invest in" the group on average, and
only 21 percent are "personally Based in Bedminster, New Jersey, RRC is a joint venture of Opinion Research Corp and the Ratrix Group. The firm has previously issued reputation rankings on the nation's retailers, drug makers and utilities. The banking survey centers on consumer banking, the dominant business for most of the survey sample. RRC's business plan is to fill the need for objective, quantifiable analysis on corporate intangibles. "I think reputation has really been much more front and center because of a lot of the scandals. I think as people understand the various aspects of a company's reputation, there will be much greater demand for sources of information that are reliable and credible about the non-financial side of companies," said Jeffrey Resnick, the firm's research chief. Gasorek said the ratings can help issuers of debt and equity discuss the intangible characteristics of underwriters -- "and discuss them in a way that is unbiased, based on an independent source of information. And traders can turn to Rating Research to paint a unique window when assessing the long-term prospects of these companies." RRC believes that a good reputation will in the long run translate into superior business performance, though this relationship has yet to be quantified. The firm, however, has found early evidence in its pharmaceutical study that reputation strength may have a relationship with the success or failure of a company's merger-and-acquisition ambitions. RRC's business practice is different from that of traditional rating agencies, which since the 1970s have been charging fees to issuing clients. In contrast, RRC proposes to receive fees from the users of its survey, not from the subjects of its survey. Respondents are asked to rank those firms with which they are highly familiar on a range of intangible characteristics. To protect the objectivity of the survey, respondents are not asked to rank their own firm. RRC's banking survey is based on the detailed responses of 421 senior executives (producing 956 company profiles) and 62 financial analysts (389 company profiles). RRC believes financial stability is a key asset for overall reputation. Below average financial stability is significantly harming the overall reputations of large banks such as Citigroup and JP Morgan Chase. Citigroup and JP Morgan Chase also received poor scores for ethical behavior, as did US Bancorp and PNC Financial, the latter suffering from specific regulatory questions. RRC said ethical scores in general, which rate honesty and corporate transparency, were hurt by general allegations against the sector of corrupt research and money laundering. RRC noted that the emergence of research scandals may be tied to the 1999 demise of Glass-Steagall, which limited non-banking activities such as investment management and securities underwriting. Ethical scores for Citigroup and JP Morgan Chase were specifically hurt by their association with discredited energy firm Enron. JP Morgan Chase suffered a bad beating in the survey, even receiving a slightly less than average score on familiarity despite its enormous size and household name. The low familiarity rating perhaps reflects uncertainty following its 2001 merger of Chase Manhattan Bank and Morgan Guaranty Trust, a prominent example of the countless combinations that have blurred the geography of the sector. "The anecdotal comments in the research suggest that it doesn't quite know what it wants to be between the private/investment banking operation of JP Morgan and the commercial operation of Chase, " said Gasorek. Financial analysts were least willing to invest in JP Morgan Chase, which ranked 19th overall in "perception as an excellent company." In other findings of the survey, Northern Trust, Fifth Third and BB&T Corp scored highest on behavioral measures of "perception as an excellent company" and "personally willing to invest in." On the other side of the tracks are PNC Financial, KeyCorp, and US Bancorp, which received the lowest reputation strength scores. RRC said these firms consistently rank in the lowest tier on most reputation dimensions. RRC also noted that convergence of products and services is limiting
the ability of many of the banks to charge premium fees. Most banks offer
"a fairly commodity-like product line" that limits, not only
fees, but RRC believes reputation ratings are significantly less volatile than
financial ratings, changing not in reaction to a single event, such as
a merger or a security issuance, but changing in reaction to a long host
of ***MARKET NEWS INTERNATIONAL NEW YORK 212 669 6430*** Reprinted by Rating Research LLC with permission from Market News International. |