What's in a brand? Any investor who follows the Dow Jones Industrial Average (DJINDICES:^DJI) knows how important a strong brand can be, and how damaging it is when a company's brand becomes tarnished. The index has undergone many changes over the years, and many of these changes were enacted in response to the diminished value of one brand or the strengthening of another.
When the automobile became a common sight on city roads, the Dow responded by adding the strongest auto manufacturers to its exclusive list. The rise of a consumer culture prompted the Dow's inclusion of the most popular department stores. Companies that developed and marketed advanced technology have found a place in the Dow's ranks in every era, from the Electric Age onward. Branding mattered then, and it matters even more today.
Today, we'll be taking a look at the brand behind JPMorgan Chase (NYSE:JPM), a Dow component since 1991 and Interbrand's 32nd-most-valuable global brand of 2012, to better understand how it was built and how it's helped create one of the world's largest companies.
Building brand value
Thanks to a decade's worth of data from the Interbrand consulting firm, we can analyze JPMorgan's branding successes (or failures) over the past 10 years relative to some more standard corporate measures. We'll also dive into some of JPMorgan's pivotal public moments to see how those moments helped build a brand to stand the test of time.
Over the last decade, JPMorgan's market cap has grown 117%. Its annual revenue (with its most recent trailing-12-month revenue serving as 2012's result) has grown by 181%. The company's latest brand value is 26% greater than it was a decade ago. JPMorgan's brand value is virtually stagnant next to its skyrocketing profitability, which has outpaced all these changes by a wide margin -- but that stagnation may help explain why its market cap has failed to keep pace. In the past decade, JPMorgan's P/E ratio has shrunk by 70%, much more than the 27% reduction in price to book value that's happened over the same time frame.
Behind the brand
Interbrand is quick to point out JPMorgan's stumbles this year, particularly the London Whale trading debacle. The bank's revelation "that its traders may have intentionally tried to hide the full extent of the historic losses" has brought regulators down on its head, and the "fallout from these events has severely undercut [CEO Jamie] Dimon's sterling reputation and credibility," according to Interbrand's summary. Despite JPMorgan's swift rebound and subsequent record net income for the third quarter, the market has yet to reward Dimon's efforts beyond simply returning its stock price to pre-Whale levels.
JPMorgan may have the most recognizable banking brand in the United States, thanks in no small part to the legendary status of founder and namesake John Pierpont Morgan, who established the bank in 1871. By the time Bank of America (NYSE:BAC) was founded in 1904, Morgan had already engineered two of the greatest corporate mergers in American history. He helped form General Electric (NYSE:GE) by financing the union of Thomas Edison's original company and the Thomson-Houston Electric Company in 1892, and also financed the colossal United States Steel (NYSE: X) monopoly merger in 1901, creating the world's first billion-dollar company.
Morgan's influence was so powerful that he is credited with singlehandedly arresting the 1907 financial panic, making him a sort of Federal Reserve of one, several years before the Fed was first organized. You probably have some idea of what J.P. Morgan looks like, even if you've never seen his picture -- Rich Uncle Pennybags, the Monopoly mascot, bears more than a passing resemblance to the older Morgan.
The Morgan name and image form a powerful brand in the American consciousness, although fewer people today would be as familiar with its heritage as customers were a century ago. JPMorgan hired a new CMO this year to manage and grow its venerable brand in the aftermath of a rare scandal, and Interbrand says she'll need to help "instill and project a more trustworthy culture that better guards its legendary returns."
JPMorgan already has a big leg up on image rehabilitation over Bank of America, which was the target of a popular Bank Transfer Day movement last year, and which continues to earn among the lowest customer satisfaction ratings in the industry. JPMorgan's brand is so powerful that most of its customers haven't even found out about the London Whale or any other issues, and its Chase retail banking brand claimed the highest big-bank satisfaction rating (59%) in a Harris Poll survey released last month. Bank of America doesn't quite get there, but the surprising loser of this survey was Wells Fargo (NYSE:WFC), which had a lower satisfaction rating (47%) than Bank of America (48%). Other surveys, such as the J.D. Power Retail Banking Satisfaction Study, place Wells Fargo higher than either JPMorgan or Bank of America in some regions, but all regions placed Bank of America at or near the bottom of the heap, always below both large competitors.