Banking on Goodwill Through Hurricane Sandy!

This post is syndicated at The Motley Fool Network: http://beta.fool.com/malayappan/2012/11/09/banking-goodwill-through-hurricane-sandy/16075/

Last week, on Oct. 29, Superstorm Sandy tore through the New York Tri-State area (New York, Connecticut and New Jersey) with a vengeance.  This was the second time that the area, and Connecticut in particular, was affected right before Halloween, prompting cancellations of trick or treating.  Last year in 2011, the area was slammed by a freak snowstorm that caused enormous damage in Connecticut and some parts of New York, but appeared to have largely escaped notice by the media. The area actually suffered quite a bit in 2011, more perhaps than many people realize. 

Unprecedented Response from Businesses

Hurricane Sandy, or “Superstorm Sandy” as it was called, evoked a totally different reaction.  The response from everyone - media, government, social organizations and concerned folks around the country - was overwhelming.  It is what you might expect in any natural calamity.  However, this response included a little-talked about difference.  Businesses such as banks, insurance companies, and online retailers like Amazon (NASDAQ: AMZN), tripped over each other trying to assure us that our welfare and well-being was uppermost in their minds, and that they would do everything in their power to ensure a painless experience!  Banks and credit card companies such as Citibank (NYSE: C), American Express (NYSE: AXP), JP MorganChase (NYSE: JPM), and others told us that they would be extraordinarily gracious and helpful to us in this time of need.  They offered extremely generous terms that included waiving late fees, overdraft fees, and other unprecedented actions.  I had to pinch myself to make sure this was all for real!

I don’t know how or why this all started, except that a trickle turned into an avalanche.  First, my insurance company sent out the following note:“If you suffer a loss as a result of this storm, you can file a claim anytime day or night.”  Sounds reasonable, I thought.  That was reassuring, although it is a service they already offer.  Next came an innocuous message from Walgreen(NYSE: WAG) saying, “Be Hurricane Ready – We have your emergency essentials right around the corner.”  Well, I would have thought they would be stocked on those things.  Also, since I had subscribed to their alerts, I didn’t mind that they reminded me.  Later, I received this message from Citibank:

We hope you and your family are safe. We also would like to make you aware of services that are always available during any emergency situation.

Please know we are ready to provide financial recovery solutions should you be in need of assistance, including access to cash and waiving fees, if you have been impacted by the storm. We encourage you to contact customer service and we will work to help with your individual needs.

As always, thank you for banking with Citi.

Now, that was interesting!  Citibank was going to waive fees? Provide access to cash? What exactly did that mean?  Before I could dwell upon it, emails started streaming in to my email inbox.  The other banks that I have a relationship with started sending similar messages.  JP Morgan Chase sent out the broadest ranging message of them all:

Earlier this week, we announced we will waive or automatically refund a number of fees through October 31st for our customers in Connecticut, Delaware, Maryland, New Jersey, New York, Pennsylvania, Virginia and the District of Columbia. As the storm cleanup continues,we are extending those waivers through Thursday, November 1st, and to customers in Massachusetts, New Hampshire and Rhode Island. Those fees include:

Overdraft Protection Transfer, Extended Overdraft, Returned Item and Insufficient Funds Fees for deposit accounts.

Late fees on credit cards, business and consumer loans, including mortgages, home-equity, auto and student loans.

Wow!  That kind of blanket gesture was unprecedented at least for me.  I am not sure if this kind of proactive gesture was extended in other previous calamities such as Hurricane Katrina or Hurricane Andrew.  Judging by the fact that the average Overdraft Fee is in the $30 to $35 range, this gesture is by no means small.  Other fees are in a comparable range, and those who could benefit from this “hurricane forgiveness” will likely be thankful to the banks.  The question is, how big of a hit was this to the banks?  The most likely answer is “small.” The question that we really need an answer to is, “why;” the answer to that will help us as investors.

Reasons for the Goodwill Gesture

Consumer belt tightening post-2008 likely means that extending such enormous goodwill posed little risk to the banks.  However, I am sure that the anticipated benefits were huge.  Most consumers are taking steps towards not putting themselves on the “fees radar” of banks and taking proactive steps to avoid paying unnecessary fees under any circumstances.  So, this untimely storm would have not unduly disrupted the banking life of most customers targeted by these companies. 

In addition, consumers are getting information and protection from the Consumer Financial Protection Bureau, a new consumer watchdog setup under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  The agency’s charter is to “protect families from unfair, deceptive, and abusive financial practices.” It is likely that financial companies want to stay ahead of the game by preempting investigations and generating goodwill. 

Non-financial companies like Amazon, Walgreen, and others likely want to show that they care enough by proactively reaching out.  They reached out to those consumers that they have a relationship with and likely generated further business through goodwill.  In any case, the cost to these companies was likely minimal.  However, the fact that they chose this natural disaster to demonstrate their commitment to their customers is an important milestone.  It was done without much fanfare, and sets up future expectations. 

So, why didn’t they do it sooner?  Two words: Social Media!  LinkedIn (NYSE: LNKD) andFacebook (NASDAQ: FB) would have been abuzz with a flood of messages if they had screwed up or appeared insensitive in a time of need.  Imagine thousands of wall posts from consumers gouged by a plethora of fees just because they could not get to the bank to deposit a check or get to the post office to drop off a payment.  That might help them earn the goodwill and trust necessary to generate additional business.  Bottom line – a small investment in goodwill brings huge returns!

Banks might have recently earned a reputation as sleazy, untrustworthy businesses that took advantage of consumers when the going was good.  However, they are taking steps to redeem themselves and are ramping up on their efforts to repair relationships and increase retail banking revenue and this is one of their first steps.  I rate JP Morgan and Citibank as buys.