I recently received a letter from my bank (so did Pierre-Louis who makes his opinion known in the next post – is this now a first or a second mover advantage here…). This, I mean the letter form the bank, itself can be reason for worry, but of a very different kind. In this case the “Head of Wealth Management & Business Banking” (no, I do not have any wealth!) as well as the “Regional Head” wanted to let me know the following:
“For some time now our bank has been heavily impacted by the turbulence in the financial markets and our substantial US real estate exposure. We fully understand your concern and disappointment over the information we have been providing during the last few months, and we thank you for your continued loyalty in these difficult times [..] We have also markedly improved our financial and risk management and repositioned the Investment Bank. In conjunction with these measures we have added more experienced professionals to the Group Executive Board and Board of Directors [..]”
Now if anything this makes me worry even more than I did before. How bad must it be that a bank writes to it’s clients (in my case, a client which does not really have any savings) to reassure them that the little savings they have, are actually save with them! Something that should be normal becomes worth pointing out in these days! The fact that “more experienced professionals” have been hired is not really comforting me.
“[..] In the first quarter we were able to achieve acceptable results in most business areas [..] ”
Now let me look at this again: “acceptable…in most business areas”. What is this supposed to mean now? If anything then this should alarm me even more. Given the big losses of my bank (which are primarily due to a few particular business areas), this tells me that the other areas did “acceptable”? What does this mean? Losses were acceptable, or did they make gains but below expectations? This sounds not very motivating and does not help a lot in addressing the issue raised in the first paragraph (“..disappointment over the information we have been providing..”).
“[..] It is important for us that you are able to form your own opinion about the current situation and the measures we have initiated […]”
Well, to build the own opinion one needs to rely on information which generally can not be gathered by the individual himself as of the mass of the available (mis-)information. Hence, a bank, like a central bank, should have a high incentive in clearly communicating its actions/policies. In particular, it is important to leave no room for interpretation, at least not towards the downside. This becomes extremely important in times of “turmoil”. When economic conditions are weak, believes have a big role to play. If coordination on the good outcome fails self-fulfilling crises can be the outcome and turn today’s “minor” solvency/liquidity problem into a bank run, which ex-post verifies believes.
Though, I certainly regard the letter I received as intentionally good, it lacks the use of the right wording in its realization since it left me more worried than reaffirmed in the strength of my bank. If times would be even worse, such a piece of information could achieve the opposite of its intention. Luckily, we live in Switzerland….but then again, Swiss Air went bankrupt as well!