Sunday 17 January 2010

When Branding Comes to the Rescue of J.P. Morgan Chase

There were three highlights in the financial world during the past week. One was the testimony given on Capitol Hill by the chairmen of several of America's leading financial institutions. Blame, responsibility, contrition and political gamesmanship were all wrapped into a riveting questions-and-answers extravaganza. The second was a speech given by Paul Volker, the former legendary Chairman of the Federal Reserve Bank. The third were the quarterly earnings reported on Friday by the bank J.P. Morgan Chase.

An IP angle to these three events came to me almost by accident, upon listening to a podcast broadcast interview with David Malpass, formerly the Chief Economist of Bear Stearns. During the interview, the question arose about the future of banking and the discussion turned to whether there should be a return to a two-bank structure. The first type of bank is the retail or utility bank, an institution that takes deposits and makes loans, all with presumed low risk. The second type is the investment bank, one that takes much greater risk by engaging in financial trading and the like. Such a division had been roughly mandated by the Glass-Steagall Act, a piece of US legislation crafted in the early 1930s and repealed in the late 1990s.

What does this have to with IP? The answer is found in an observation made by Malpass into question asked about whether it was feasible to conceive of a return a Glass-Steagall world. His reply, at least with respect to J.P. Morgan Chase, was fascinating. He observed that the bank was in some sense preparing for such a possible eventuality. It was doing so by branding it services. Namely, the bank branded its retail services under the "Chase" name, while it branded its investment services under the "J.P. Morgan" name.

Just to put the bank in perspective. As noted by Wikipedia,
"JPMorgan Chase & Co. is one of the oldest financial services firms in the world. It has operations in 60 countries. It is a leader in financial services with assets of $2 trillion, and the largest market capitalization and third largest deposit base U.S. banking institution behind Wells Fargo and Bank of America. The hedge fund unit of JPMorgan Chase is the second largest hedge fund in the United States with $32.893 billion in assets as of 2009. Formed in 2000, when Chase Manhattan Corporation merged with J. P. Morgan & Co, the firm serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and governmental clients."
In other words, while the bank in principle maintained both retail and investment banking under one corporate roof, in effect it was using a dual branding strategy that seems to address two goals. The first is to send separate and distinct messages to two quite distinct types of banking customers. One is the retail customer, who can find comfort under the venerable Chase name, long identified with retail banking services. The other is the institutional customer seeking investment services and who feels equally at home at the bank, relying on the J.P. Morgan name that hearkens back nearly a century to its eponymous founder.

The second goal is to hedge the bank's bet against the possibility of a return to a Glass-Steagall regime. In such a situation, a bank that tries to brand both its retail and investment services under a single brand will find it quite difficult to disentangle the two services in the public eye, should it be required to do so. The beauty of the branding strategy of J.P. Morgan Chase is that it seems to address this problem head-on in a promising way, if the bank is ever required to split into two.

J.P. Morgan Chase has been widely praised for its resilience during the Great Recession and its chairman, Jamie Dimon, has been well-nigh iconized for his leadership. Add, perhaps, to the enlightened management of the bank during these troubled times the adoption of branding strategy attuned to the bank's needs.

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