Banks struggle with consumer jitters

The run on Bank of East Asia (BEA), Hong Kong’s third largest lender, on 24 September was the first local example of this, with consumer concern triggered by the bank’s large exposure to the bankrupt investment bank Lehman Brothers.

In addition, insurance giant AIG has called a PR pitch to rebuild employee and consumer confidence after its brush with bankruptcy. It is believed that several public relations agencies, including GolinHarris and Edelman, are taking part in the current review. Fleishman-Hillard, the agency which has worked regularly AIG, is not thought to be playing a role.

The BEA run, which started in Hong Kong then spread to Singapore, was partly caused by text messages passed among consumers. BEA responded through chairman David Li, who denounced the text messages as “malicious rumours”. Hong Kong tycoon Li Ka-shing bought shares in the company to signal his continued faith in the operations, and Hong Kong financial secretary John Tsang dismissed the rumours as unfounded.

However, one financial source argued that the bank could have acted quicker. “BEA really underestimated how widespread the rumours were, and could have responded a lot faster.”

Both the BEA and AIG examples demonstrate that concerns about the global financial markets are filtering down to a personal level - even in Asia, which has sometimes considered itself immune to the cold caught by the US financial markets.

“Consumers are jittery and nervous, and are waiting for an impact at a local level,” said Damien Ryan at Ryan Financial Communications. Notably, many of the worried clients were elderly people, who have experienced the crippling effects of financial collapses in their lifetimes.

Reports from around Hong Kong noted that BEA tellers at individual branches were left essentially weapon-less against the onslaught of questions and concerns they had to face during the extended opening hours.

“One critical component to successful communication is making sure that the messages an institution wants the market to hear ring loud and true internally first,” said Adrian Overholser, CEO at Halo Associates.

The current situation is also accentuated by higher trust levels in banks among Asian consumers. “Banks receive more support from governments in Asia, so consumers have developed a higher level of confidence in them,” explained Hoffman Agency MD Chris Tang.

The BEA example also showcases the difficulty of the credit crunch, as banks contend with a highly complex global situation and at the same time with concerned and confused consumers.

“Banks are certainly facing a credibility gap,” said a source. “Obviously the banks want to see where the chips fall before saying anything about how safe they are”.

In the interim, they are vulnerable to rumours, such as those which crippled Bear Stearns earlier this year.

Financial institutions recognise this, but appear unsure of how to manage the speculation. Several media organisations have pointed out that many institutions have attempted either to evade or decline requests for comment.

To weather the current crisis, banks will have to ensure a low risk profile - and communicate this fact. “To regain credibility, banks will need to find simple and transparent ways to communicate this lower risk profile and do it consistently. There’s no magic wand here. It will take time.”

While the BEA bank run calmed after two days, observers noted that no bank is immune from jittery sentiment. “No one can compartmentalise the banking sector as being an insulated ‘local’ industry - it is part of a global financial system which is currently in the middle of a perfect storm,” said Gavin Anderson Asia chief executive officer Richard Barton.

“As such there is no silver bullet that communicators can fire to solve the crisis of confidence currently enveloping the market.”

While Asian banks appear to be better protected than those in the US, analysts note that it would be unwise to rely on this in terms of communications strategy.

“Given all the recent news of bankruptcies and bailouts, you would think it a misfortune for which every bank should be proactively prepared,” said a source.

“If, as a customer, the only time you hear from your bank is when it’s in trouble, it’s already too late.”