Many Americans -- this writer included -- have had the experience of being treated shabbily by their bank. But most of us, when confronted by mysterious fees or deceptive marketing practices, have little recourse beyond closing our accounts and taking our (admittedly modest) business elsewhere.
Not so Richard X. Bove, disgruntled Wells Fargo (WFC) customer and influential bank analyst. When Bove finally got fed up with his treatment at the hands of a Wells branch in Tampa, he not only moved his money to JPMorgan Chase (JPM), he turned his experience into a research note.
But Bove's report was a highly counter-intuitive response. It wasn't a scathing indictment of Wells's indifference to customer satisfaction; instead, it suggested that too much attention to the concerns of account holders like him might actually hinder a bank's pursuit of profit. The New York Times reports: "What really matters, [Bove] now believes, is pushing products and managing risk."
Which explains why, around the same time he switched to Chase -- where he says he enjoys the level of service he used to get from Wachovia, which Wells bought in 2008 -- Bove upgraded his recommendation on Wells Fargo stock to a buy.
Says Bove: "I'm struck by the fact that the service is so bad, and yet the company is so good. Whatever it is that drives people to do business with a given bank, in my mind, now has to be rethought."
Indeed, the story of Wells since its purchase of Wachovia suggests that customer satisfaction and success with investors are not necessarily linked. The Times notes that Wells recently passed JPMorgan Chase to become the country's biggest bank by stock market capitalization; at the same time, J.D. Power & Associates gave Wells below-average customer service ratings in seven out of the 11 regions where it does its surveys.
"In Florida," says the Times, "where Mr. Bove lives, Wells was 10th out of 11th banks." So he probably wasn't imagining the slights.
The knee-jerk answer is both, but few would doubt that there's a trade-off in these days of limited resources. The best line of action might be to do just enough for customers to keep revenue at levels that will ultimately please shareholders. You don't want to spark a mass defection, but you don't want to spend unnecessarily on keeping retail customers happy.
Wells, of course, denies any deliberate lack of attention to retail customers, but Bove seems to believe that things might be different behind the scenes: "Spending time solving problems with people is not selling products," he said. "It's wasting time."
Analyst Dumps Wells Fargo for Bad Service, Upgrades Its Stock to a Buy
With 10,000 lawsuits against them, you knew they'd be on the list somewhere. JPMorgan estimates it faces up to $3.315 billion in litigation after taxes, beyond what it has already paid out or reserved against. That adds up to 8.8% of the $37.612 billion JPMorgan is expected to earn in 2012-2013.
In 2011, JPMorgan's noninterest expense included $3.2 billion of litigation expense, mostly for mortgage-related matters, compared with $5.7 billion of litigation expense in 2010, according to Nomura's report
Citigroup estimates it is on the hook for up to $2.6 billion in litigation after taxes, beyond what it has already paid out or reserved against. That adds up to 9.9% of the $26.364 billion Citigroup is expected to earn in 2012-2013.
Citigroup faces a variety of regulatory inquiries and class action lawsuits related to its mortgage origination practices. The private lawsuits will not be included in a National Mortgage Settlement, reached last month with 49 state attorneys general and the federal government. Bank of America (BAC), JPMorgan, Wells Fargo (WFC) and Ally Financial, the former GMAC, were also part of the settlement.
Bank of America estimates it faces up to $2.34 billion in litigation expenses after taxes, beyond what it has already paid out or reserved against. That would equate to 10.9% of the $21.455 billion the bank is expected to earn in 2012-2013. The bank faces lawsuits related to mortgage originations and servicing, as well as for alleged failure to disclose its knowledge of ballooning losses at Merrill Lynch ahead of its eventual acquisition of that company.
The $2.34 billion figure, however applies only to "those matters where an estimate is possible," according to the bank's annual 10-K filing with the Securities and Exchange Commission.
Regions Financial estimates it faces up to $221 million in additional litigation costs after taxes, or 12.9% of estimated $1.707 billion in 2012-2013 earnings.
Regions is also on the hook for any litigation related to its Morgan Keegan brokerage unit, which it agreed to sell to Raymond James Financial (RJF) on Jan. 11.
Synovus faces just $39 million in potential litigation costs after taxes, above what it has written down or reserved against. However, that equates to 14.5% of the bank's estimated $270 million in 2012-2013 earnings.
As is the case with Bank of America, however, Synovus's estimates relate only to "those legal matters where [the company] is able to estimate a range of reasonably possible losses," according to its 10-K.