The FINANCIAL — Confidence in the management team is the most significant consideration for sophisticated parties when investing in the banking industry, according to a new survey released today by Affluent Dynamics, an independent research firm.
The survey examined views of 150 professional financial advisors (FAs) and 150 high-net-worth investors (HNWIs) regarding the banking industry.
The survey data suggests the subprime mortgage collapse and current credit crunch, seen as the top two concerns surrounding the banking sector among both FAs and HNWIs, have also led to a loss of faith among investors in the ability of banks to steward their best interests. As such, investors are deemphasizing market share and brand, and instead are reverting back to considerations related to trust when evaluating banking institutions.
The majority of respondents (66 percent of FAs and 59 percent of HNWIs) cite a strong management team as the main criteria considered before making an investment decision.
“The current subprime fallout is not only a financial issue, but is indicative of the largest crisis of confidence in the banking industry since the corporate scandals earlier this decade,” said Neil Benedict of Affluent Dynamics. “To many investors, the subprime decline and use of off-balance sheet financial vehicles is highly reminiscent of pre-Sarbanes Oxley financial chicanery.”
This theme of a strong management team continues when sophisticated financial community members evaluate the greatest influences on corporate reputation. A majority of the respondents cite management track record as having a significant impact on corporate reputation (59 percent of FAs, 63 percent of HNWIs).
Benedict commented, “This study supports the thesis that in times of crisis, companies are carried on the backs of senior management teams who are seen as perseverant, experienced, visionary and appropriately cautious.”
Additionally, a majority of the respondents place great emphasis on disclosure level (58 percent of FAs and 61 percent of HNWIs) and transparency (49 percent of FAs and 54 percent of HNWIs).
"The importance respondents placed on a strong, honest, visionary management team is timely and interesting,” Benedict said. “From the findings, it’s clear that to recover investor confidence in the wake of the recent market turbulence, banks will need to adopt practices that will improve transparency and disclosure, and provide proof that the senior management team is positioning the organizations well for the future.”
Affluent Dynamics conducted the online survey in October 2007. The surveyed examined perspectives on a number of issues relating to relating to the banking sector with a sample of 300 elites, including 150 professional financial advisors and 150 active individual investors with $1 million of investable assets or more who specifically invest in the banking industry.
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