Keeping you connected to today’s UK Financial Services Market

Welcome to the first edition ofviewpoint, Harris Interactive’sUK financial services newsletter. In this edition we take a look atconsumers’ perceptions of the financialservices industry given the crisis theindustry has faced over the past 18months. In addition, we explore howthe industry has and continues toadapt and change as it seeks todevelop and restore levels of trust andconfidence. We hope you find this newsletter informative and useful. If you wish tofind out more about the work we dowithin the financial services industryplease get in touch.Susan Vidler: Head of Financial

Sevices ResearchFrances Green: Financial Services

Director

Arguably the financial servicesindustry has just been through themost turbulent 18 months in itshistory. We have experienced thenationalisation of Northern Rock,bailouts of Royal Bank of ScotlandGroup and Lloyds Banking Group aswell as the bonus payment scandal.There has also been intense mediacoverage claiming the banks’behaviour has fuelled the recessionthrough their failure to lend and topass on interest rate cuts. In April 2009 public perceptions ofthe industry were so poor it triggered some activists to raise ahigh profile demonstration duringthe London G-20 summit, but howdoes the wider UK population feel?

How much confidence doconsumers have in financial institutions? And what can be doneto resurrect the situation? In orderto gain a deeper understanding werecently placed some questions onour UK omnibus survey. An outpouring of emotion Whereas the demonstration in theheart of the London financialdistrict encompassed a wide rangeof highly charged emotions, interestingly within our survey themost prominent feeling heldtowards financial institutions wasone predominantly of disappointment closely followed byannoyance, scepticism and powerlessness.The more highly charged emotionssuch as anger and disgust scoredsignificantly lower (although stillhigh), at around a third with 1 in 5feeling bitter and hostile. In starkcontrast less than 1 in 10 identifiedwith a positive feeling.

Page 1Perceptions of the

Industry

Page 2-3How can Faith be Restored?

Current Perceptions of the Industry: One in five feel bitter and hostile

Figure 1: Feelings towards financial institutionsQ. Which of the following words would you use to describe how financial institutions make you feel?

(Base: 2,124)

Page 2A Slump in Confidence

January 2008Global stock markets suffer biggest falls sinceSeptember 11thFebruary 2008 - Northern Rock is nationalisedBank of England cuts interest rates by a quarterof a percent to 5.25%Government announces Northern Rock is to benationalisedMarch 2008Nationwide predicts UK house prices will fall bythe end of the yearApril 2008 - 100% mortgage disappearsMoneyfacts reports that 20% of mortgagesproducts were withdrawn in the UK in 7 daysLast 100% mortgage disapears (ABBEY)Bank of England cuts interest rates to 5%Bank of England announces plan which allowsbanks to swap mortgage debt for securegovernment bondsRBS announces plan to raise money fromshareholders with £12bn right issue - thelargest in UK corporate history

Credit Crunch Timeline

Continued on page 2...For more information on our financial services research practice visit: http://www.harrisinteractive.com/europe/industries_financial.asp | PAGE 1

Disappointed48%

Annoyed44%

Worried 35%

Frustrated38%

Sceptical43%

Angry34%

Disgusted32%

Powerless 40%

Grateful2%

Reassured2%

Confident1%

Valued1%

Secure2%

Satisfied3%

Optimistic3%

Proud1%

Net negative: 83% Net positive: 10%

ISSUE 1 - AUGUST 2009

viewpoint

The behaviour of financial institutions and the negativeemotions they have driven, clearlyexplain why since 2006 confidencehas slumped across the whole ofthe financial services sector. During these worrying economictimes the importance of confidence and trust between acompany and its customers cannotbe overestimated. This is particularly true in the financialservices sector where a generallack of consumer knowledge meanscustomers need to ‘trust’ theadvice they are given, and the

institutions that give it. This canmake financial decision makingparticularly intimidating for theconsumer.This has led to the media andindustry commentators urgingconsumers to self-educate andshare their experiences online. The proliferation of this information has helped to makeconsumers increasingly savvy,arguably more sceptical andcertainly more demanding.Therefore the challenge now forfinancial institutions is to re-engagethe consumer and restore faith.

Issue 1 | August 2009

A Slump in Confidence: High street banks suffer the biggest fall

Nationwide announces first annual fall in houseprices (1%)June 2008Barclays announces plans to raise £4.5bn inshare issue to bolster balance sheetJuly 2008BCC suggest that UK is facing a serious risk ofrecessionJust 8% of HBOS investors agree to take up thenew shares offered in its £4bn rights issueAugust 2008Nationwide reveals UK house prices have fallen10.5% in a yearAlistair Darling warns the current downturn willbe 'profound and long lasting'September 2008 - Takeover of HBOSOne year rise in stamp duty announced, from£125000 to £175000FTSE sees steepest weekly decline since July 02Lloyds TSB announces takeover of HBOS - willhold one third of UK savings and mortgagemarketFortis partly nationalisedBradford & Bingley nationalisedOctober 2008 - Financial stimulus to banksGuaranteed deposits in UK banks increased to£50,000Bank of England cuts rates to 4.5%Figures from ONS show the UK is on the brinkof a recessionUK government announces details of £50bnrescue package for banking systemUK government announces plans to pumpbillions into RBS, Lloyds TSB and HBOSNovember 2008Bank of England cuts rates from 4.5% to 3%VAT cut from 17.5% to 15%December 2008FTSE 100 closes down 31.3% since the beginning of 2008 - biggest annual fall in itshistoryBank of England cuts rate from 3% to 2%(57year low)January 2009 - UK enters recessionBank of England cuts interest rates to 1.5%UK government announces plan to guarantee£20bn of loans to SMEsUK officially enters recessionFebruary 2009 - Bank bosses apologiseBank of England cuts interest rates to 1%Bosses of RBS and HBOS apologise for theirbank's failureMarch 2009 - Quantitative easing announcedBank of England announces £150bn of quantiative easingApril 2009G20 summit in LondonUK budget revealed - it is extremely pessamisticJune 2009UK unemployment rises to 7.1%Nationwide announces house prices rose by0.9% in June, however Halifax insist they fell by0.5%

Credit Crunch Timeline...continued from page 1

For more information on our financial services research practice visit: http://www.harrisinteractive.com/europe/industries_financial.asp | PAGE 2

Source: BBC website

viewpoint

Meeting customer needsThe simplest method of restoringconsumer faith is to deliver products and services thatgenuinely meet customer needs andaddress their concerns.With the UK economy now startingto stablise1 and with base rates at

their lowest since records began,financial institutions need to recreate confidence and do so in away that recognises consumers havechanged as well as ensuring theyare treated fairly. This, in part, can be achieved byalleviating customer concerns and

How can Faith be Restored?Meeting customer needs and changing behaviour....

Continued on page 3...1. National Institute of Economics & Social Research

Nov-06 Apr-09Nov-08 Q. How much confidence do you havein each of the following?

%wi

that

least

some

confi

denc

e

Base: Nov-06 (2000), Nov-08 (1962), Apr-09 (2124)

InsuranceCompanies

GovernmentCredit CardCompanies

PersonalAdvisors

FSAHigh StreetBanks

Bank ofEngland

N/A

N/A

N/A

79

3749475258

5054565163

54

7679

55616368

Issue 1 | August 2009

For more information on our financial services research practice visit: http://www.harrisinteractive.com/europe/industries_financial.asp | PAGE 3

by offering products and servicesthat genuinely meets both theirrational (product driven) andemotional needs (reassurance andpeace of mind).

Concerns depend upon a numberof factors, such as product holding,their age or life stage. For example, those over the age of 55are significantly more likely to be concerned about the returns ontheir savings, the value of theirinvestments and pensions.

In comparison, those aged between35-44yrs are more likely to beconcerned about job security andpaying household bills. Change behaviourThe behaviour of financial institutions will be key to instillingthe necessary trust in order tochange perceptions. Financial institutions need to listen tocustomers in an empathic mannerand be understanding of the

situations they find themselves in.Financial institutions also need todemonstrate they are open, transparent and act honestly. Our research has highlighted howthe industry’s behaviour over thepast 18 months has undermined

trust and confidence across theindustry. To recover from this position financial institutions need to strive to understand:• What drives the customer relationship both rationally (satisfaction based) and emotionally(trust, commitment)? • What behaviours do consumerswant financial institutions to exhibitto rebuild confidence and demonstrate trustworthiness?• How can financial institutionscommunicate trustworthiness in away that is relevant and emotionally compelling to today’sunimpressed consumers?Understanding the personally heldvalues of consumers which under-line choice in this market place, willallow financial brands to positionthemselves more effectively anddevelop powerful communicationsto re-build the missing trust.

For further information related to this article, such as the background data, or to suggest new topics for inclusion please email financial@harrisinteractive.net or call +44 (0)161 615 2300

“Don’t be greedy. Act responsibly with people’s money.Don’t base financial reward onactions that deprive others of interest/savings. Change the internal environment to one of service and trust rather than avarice”

“Offer high interest rates on savings accounts. Be more flexible with mortgage repayments for customerswho are struggling” “Very little, they could

try trusting their customersand lending money toreasonable people. To do

this they need to makepersonal contact again”

" “Be transparent, no fat salaries, not give out more in

loans than they have in savings, don'tloan more than 90% of the value of ahouse, don't agree fat pensions for topbrass, give more in savings interest to

encourage people to save/plan for the future”

Fig: a

Fig: c

Fig: b

Fig: d

Figures a,b,c,d - Verbatim ResponsesQ: What can financial institutions (banks,building societies, insurance companies,credit card providers etc.) do to ensurepeople trust them?

Article by Philip BrooksAssociate Director Financial Services Research

Q. Which of the following areyou personally worried about?(Top 5 concerns for each age group)Interest rates on savings

Inflation / rising pricesThe value of your savings / investmentsPaying household billsThe value of your pensionJob security / being made redundant

27% 64%28%33% 44% 48%22% 30% 59%37% 43% 33%19% 35% 52%30% 42% 9%

18-24(base: 247)

35-44(base: 377)

55+(base: 756)

viewpoint...continued from page 2