Volume 66: Casino Suisse loses billions. Xupermask isn’t very.
1. Casino Suisse loses billions. Fires two people.
tl;dr: Archegos debacle highlights hypocrisy in banking brands.
While you may not have noticed, the big scandal in banking last week was the spectacular collapse of Archegos Capital, the family office of now ex-billionaire Bill Hwang.
What happened is relatively simple, even if the financial products involved are complex. Very large banks loaned very large sums of money in a very risky fashion to a very shady character so that he could gamble on the stock market. When the market moved against him, he couldn’t cover the bets, which forced the banks to unwind his positions in a stock firesale that led to the loss of billions, most notably, and in a distinct case of deja vu at Credit Suisse, which lost $4.7 billion.
To put this in perspective, the business unit of Credit Suisse that was lending the money earns roughly $1bn a year, which means that in a single deal and over just two weeks, they lost the equivalent of 4 years worth of revenue and roughly ten years worth of P&L contribution.
What’s truly remarkable about the whole sordid mess is just how dodgy Bill Hwang is, having previously been fined $44m by the SEC in 2012 for insider trading and then banned from trading in Hong Kong in 2014, and the sheer amount of risk that had to have been taken for a collapse of this magnitude to happen in the midst of a bull market.
This neatly brings me to the hypocrisy of banking brands, and Swiss banking brands in particular. You see, while they like to spin the image that they’re the safe custodians of our money, that they operate conservatively and carefully, and that they’re the very paragons of trust, all of the evidence suggests the opposite. That in fact, these businesses are more than willing to risk vast quantities of depositor funds and shareholder capital on bets we only get to see when they go as spectacularly wrong as this one did.
For the full weight of this disconnect, I suggest you look at the Credit Suisse “code of conduct and cultural values.” About halfway down the page, you’ll find a framework the consultant working on their brand hammered out in the back of an Uber on the way to the client meeting, and below that you’ll see their values, which they clearly pay zero attention to, but neatly spell out the word IMPACT. Blegh.
Now don’t be fooled. While the heads of the Investment Bank and Risk/Compliance lost their jobs, they’re nothing but the sacrificial lambs in this. There’s no way a bank like Credit Suisse would be putting 4 years’ worth of a business unit’s revenue on the line without those at the top knowing about it and approving of it. This means this isn’t a one-off aberration but a cultural malaise from the top that’s driven largely by greed, jealousy of apex predator Goldman Sachs, FOMO, and the fact that in 2008 we demonstrated that privatized gains and socialized losses are just fine as long as the losses are spectacular enough to risk the entire financial system (which this deal was not, thank goodness).
What’s most worrying in all of this is that it might be another canary in the coalmine of what’s to come. If big banks are making bets as risky as this on the way up and when interest rates are at zero, which it looks like they are, then goodness knows what might come out of the woodwork if the market starts to turn in the other direction.
One thing I do know is that the public appetite for another bailout of bankers is precisely zero.
2. “I don’t believe in brand” is exactly what your competitors want you to say. Expect to be dominated.
tl;dr: The right response for brand skeptics.
After working in the branding field as long as I have, a common theme is being asked to “convince my CEO” that investing in the brand is warranted by companies exhibiting obvious brand weakness.
It’s often a tough thing to do, not because the data isn’t clear, but because minds have already been made up. It’s a rare brand skeptic who magically changes their mind when presented with over a century’s worth of evidence that building a brand creates value.
The most closed-minded in my experience tend to come from an engineering, accounting, or increasingly, a product background. People who pride themselves on their decision-making rationality yet can’t articulate why they drive a BMW when rationally a Toyota will ferry them from point A to point B more cheaply and more reliably than a BMW can.
Equally, rather than looking at brand data rationally, these executives are actually making a subjective and emotional choice to reject the value of building their brand with little curiosity for the alternative.
So, rather than waste time persuading someone who doesn’t want to believe in the data, what’s vastly more interesting is the competitive disadvantage their subjective and emotionally-driven rejection puts them in. A competitive disadvantage the competition will be more than willing to exploit with prejudice. Let’s walk through a few observations of what happens as a result of not building your brand:
Somewhere in excess of 90% of all purchase decisions are made with brands people have already heard of. If the first time a prospect has heard of you is when your salesperson calls, you’re at a competitive disadvantage.
In any given market, only around 10% of people are ready to purchase at that moment. If you believe you should invest all of your marketing efforts in precisely targeting that fleeting and dynamic 10%, you’re at a competitive disadvantage. (See point 1, above)
If you complain that a competitor in your market is “sucking all of the oxygen out of the room,” you’re at a competitive disadvantage.
If you have to constantly discount your product to make the sale and your competitor does not, you’re at a competitive disadvantage.
If your performance marketing models and email list have been fully optimized for ROI and your growth has stalled, you’re at a competitive disadvantage.
If you think the only marketing metric that matters is ROI, you’re at a competitive disadvantage.
If your competition does something that’s taken them 6 months to prepare and you insist on spinning up your entire company to respond in a weekend, you’re at a competitive disadvantage.
If you believe advertising is unnecessary because “Tesla doesn’t advertise,” and you don’t have a social media savant as a CEO, you’re at a competitive disadvantage.
If you think your product is so good it will sell itself, you’re at a competitive disadvantage.
You invest in your brand to dominate the space you are in or stop someone else from doing the same. Ergo, not investing in your brand means you should accept that ultimately you will be dominated by others who do.
This is why it’s easy to spot those gaining an advantage from brand strength versus those suffering competitive disadvantage caused by brand weakness, even if they refuse to accept it as such.
So, the next time an exec expresses derision when the “B-word” is mentioned, ask them why they think it’s OK to put the company at a massive competitive disadvantage and be dominated by the competition? Because that’s what they’re really saying.
3. Xupermask: the Army & Navy Special of our day.
tl;dr: Badly named mask ready just in time for pandemics’ end.
During the early part of the last century, Gibson guitars created the Army & Navy Special, a small, cheap, and robust guitar designed for soldiers fighting on the frontlines of Europe during World War 1. And while it remains collectible today, the problem back then was the war ended before it was released in 1918.
This week, Honeywell, in collaboration with perennial creative partner to the world’s most boring corporations, and serial failure at launching tech gadgets, Will.i.am, announced their own version of the Army & Navy Special, the Xupermask. A fancy new mask costing $299 that’s coming to a drop near you just in time for the pandemic to end.
Referring to it as the first in a new category of “smart masks” (it isn’t), one can’t help thinking this is a product that solves a problem that doesn’t exist. Not because we don’t need facemasks. That will likely continue for at least a while longer in most places, but because of all the additional crap you’re paying for. It has “whirring fans and a HEPA filter” but isn’t medical grade. It has Bluetooth headphones, which most people already own, and it has an LED light for nighttime, but the last time I looked, so did my cellphone.
It’s hard to look at this and not laugh. An industrial company trying to drop a fashion object like they’re Supreme, a sold-out pop-star with a terrible record of crap tech gadgets, and a designer who makes astronauts look like “half-finished Power Rangers” all working together on a mask that might have been mildly interesting about 6 months ago.
I’ll be too busy searching for ketchup to wait for the drop. I’m sure it’ll be a huge success.