Tuesday, October 5, 2010

A Series of Mistakes in a Bank Name Change

As I’ve been catching up with the world since my book release two weeks ago, I finally caught up with the story of the New Century Bank name change. New Century Bank, a small five-branch community bank based in Phoenixville, Pennsylvania, in my local area, with no particular history as far as the public was concerned, announced a name change April 26, taking on the name Customers 1st Bank.

The name change announcement came on a Monday morning following the Friday failure of a bank also called New Century Bank, but located in Chicago. The timing and wording of the announcement strongly suggest that New Century Bank executives wanted customers to imagine that it was the bank that had failed and been taken over that weekend. Later in court, however, executives stated that they had chosen the name change to distance their bank from the stories of bank failures. If this is true, however, they got the timing all wrong, and selected their new name incorrectly.

Among the problems with the name Customers 1st Bank was the fact that “Customer First” was a name a direct competitor was using for its consumer banking services. This was a smaller local bank, Alliance Bank. The public perception created by the name change was probably the thought that New Century Bank had failed and had been acquired in liquidation by Alliance Bank.

None of that had happened. New Century Bank, though it had not been profitable, had not failed, and it never had any association with Alliance Bank. The timing of New Century Bank’s name change, the weekend of the headlines about the New Century Bank failure, was a mistake, if the objective was to distance the bank from the bank failure story. It did the opposite — it put the bank in the middle of a bank failure story that had nothing to do with it. The selection of a new name already recognizable to local banking customers was also a mistake. The combined effect of these mistakes was to attach the impression of failure to a bank that previously had been seen as a startup.

Trademark issues aside, Customers 1st Bank is a surprising weak name from a marketing standpoint. “First” is, of course, one of the most common words in bank names, usually in the form “First National Bank of ____.” Thus, when you see the name “Customers 1st Bank,” you may translate it mentally to “1st National Bank of Customerville,” or something similarly artificial. The result is the impression of a bank every bit as contrived and tentative as New Century Bank actually is — and that’s not the impression that the bank wanted to make. The bank could have discovered all this by doing a routine marketing study, of course, but from court documents, there was no marketing research prior to the name-change decision, only a logo design and a few minutes of conference-room discussion.

The reason we know this is because Alliance Bank immediately took action to stop the name change. Alliance Bank sent a cease and desist letter to New Century Bank four days after the announcement, and New Century Bank compounded their previous errors by not responding. A court case followed almost as quickly as such things can happen, and on July 27, a judge issued a preliminary injunction ordering New Century Bank to stop using its new name and destroy all the marketing materials that contained the name.

I read the judge’s opinion and cannot find any fault with it. If New Century Bank had been permitted to continue using the name Customers 1st Bank, it would have been benefiting from several years of advertising and marketing efforts of its direct competitor, exactly the kind of thing that trademark laws are designed to prevent.

As an emergency measure, New Century Bank changed its name to Customers USA Bank, then to Customers Bank, essentially putting a red dot over the “1st” in the middle of the name. This too may be a mistake, as courts often order larger changes in trademarks than this after such a direct conflict between two trademarks. By changing the name only partially, New Century Bank may hope to save face in the eyes of its customers, but it could pay greater damages to Alliance Bank in the end. It also risks having to change its name a fourth time, but as we have since found out, that may happen anyway.

New Century Bank had planned to change its official name to Customers 1st Bank at a meeting in August, but that vote, obviously, never took place. And now, New Century Bank is planning a reorganization in order to form a bank holding company. This is a move that makes plenty of sense, now that it has acquired the deposits and assets of failed banks in two neighboring states. But the plan to form a holding company makes all the prior discussions essentially moot. The holding company will be a new company, so the bank can give it any name it chooses, but not, obviously, a name that is subject to a pending legal action.

This is a story that may end with another name change. The haphazard expansion of New Century Bank, with little attention to operations, is a pattern commonly associated in the past with a bank that is expecting to be bought out by a large regional bank after a few years. If that comes to pass, that would be the fifth name change for the bank’s customers to keep track of — obviously, not at all what the bank had in mind when it set this sequence of events in motion.

The current situation of needing to form a bank holding company need not have come as a surprise, given the bank’s ambitious business plan. For those who imagine that bank executives are careful strategic thinkers by nature, the New Century Bank name-change story is a cautionary tale that tells you that this may not always be the case.