[Authored by MBA Candidate Jamie Shanks] Mortgage lenders have a hard road ahead of them. They are faced with the task of repositioning their product and company image in both directions of the supply chain. Customers of lenders no longer have faith that lenders such as Countrywide, Bank of America and JP Morgan have their best interest at heart due to the loose underwriting standards which dominated the industry for years. Suppliers (in this case the suppliers of capital, i.e. investors) no longer trust that lenders are accurately reporting the underlying asset which is being packaged and sold on the secondary market.
Struggling lenders, such as the soon to be acquired Calabras, CA giant Countrywide Financial, have continued to run TV and newspaper spots pushing some of their more exotic products such as home equity loans and home equity lines of credit. Yet none of the troubled companies have begun campaigns which attempt to reposition their fallen product in either the mind of the consumer or those on Wall Street.
It seems that the sub-prime mess may have opened up opportunities in many markets for those brave enough to take it. However, the first step will be for a large lender to acknowledge their mistakes and wrongdoings (outside of hundred million dollar writedowns) and begin to shift the consumer perception of their product and industry through a different kind of advertisement. It will be interesting to see the first company that tries to gain a competitive advantage in repositioning its products and services by distancing itself from the likes of Countrywide and Bank of America.
Wells Fargo is one such institution that has viewed the subprime shake up as an opportunity. There have been talks of the bank acquiring a regional bank and taking advantage of the deep discount which such an acquisition would offer. However, Wells Fargo can only take advantage of such an opportunity due to their band equity and positioning in the market. Wells Fargo is the country’s oldest bank and has a reputation of playing it safe during times of volatility when other institutions are putting it on the line. This brand image which the company strives to promote and protect has resulted in the company being the only US based financial institution to maintain its AAA bond rating. As such, the company can obtain financing at a much lower rate than many of its competitors; this allows the company to issue debt to fund such an acquisition whereas many competitors cannot. Clearly, brand equity and brand identity are crucial pieces to Wells Fargo’s past and future.
Jamie Shanks, MBA Candidate