By Michael Applebaum

Let's face it: There have been better times for the financial services industry. After a disastrous 2007, the sector is nowhere near recovering from the rapid decline of the housing and credit markets. UBS, Citigroup and AIG are among the companies worst hit, each having suffered recent quarterly losses of several billion dollars. This year brought two stunning developments: JP Morgan Chase's buyout of rival investment bank Bear Stearns; and Bank of America's pending offer to snatch up Countrywide, the nation's largest mortgage lender, for a mere $4 billion.

The rough conditions have slashed some marketing budgets, as well. In 2007, overall spending in the insurance industry was up just 6.1%, to $3.58 billion; it was up three and five times that amount in 2006 and 2005, respectively. Spending by banks likewise was up last year a relatively modest 6.3%, to $1.35 billion.

And the Hits Just Keep on Coming
Look for an increasingly hostile climate toward banks and mortgage lenders to fuel the growing number of class-action lawsuits by consumer groups and investors seeking to recoup losses on bad credit loans and home foreclosures. The groundwork for congressional hearings has already been laid in the 2008 presidential campaign, with its rally cry to stop "predatory lending" practices. Meanwhile, the International Monetary Fund is predicting nearly $1 trillion in credit-related losses this year, about half due to the subprime mortgage meltdown. "Home equity credit lines are drying up, and the big lenders are tightening their credit standards," said Mark Broderick, senior analyst at research firm Guideline, New York. "But we won't hit bottom until home prices recover, and that may take a long time."

Hot Trend: Empathy
Where some see dire hopelessness, some marketers spy an opportunity. Banks in recent years were notorious for their esoteric marketing messages that vaguely hinted: "We know what it's like to be you." Now, the race is on to say to customers: "We feel your pain—and we're doing something about it."

Citibank last month resurrected its "Never Sleeps" tagline as part of an estimated $20 million new global ad campaign. The company hopes to use the print and TV ads to restore its image as a trusted financial institution by reassuring customers that Citi is working for them "around the clock."

"Banks are taking an active approach versus standing idly by," said Andy Bateman, CEO of consultancy Interbrand, New York. "The worst thing that financial companies can do right now is go quiet."

Banking on the Unbanked
The banking industry calls them the "unbanked." In certain political circles, they're known as the "undocumented." Whatever you call them, banks are now starting in earnest to target the millions of migrant workers in this country for entry-level products, such as prepaid debit cards that can be used for check cashing (minus the fees), purchases and ATM withdrawals. It's a risky strategy. Bank of America has been excoriated for its plan to offer credit cards to people without Social Security numbers or credit histories (aka illegal aliens). Critics last fall charged the company with "unpatriotic greed" —interest rates on the card were as high as 21%—and "aiding and abetting terrorists," while some Talk Radio callers dubbed BofA "Bank of Mexico." Ouch.

The Bank as Nanny
It remains to be sees how "big" this will be: Banks are trying to counter Americans' abysmal savings rates with programs like Wachovia's Way2Save, which automatically transfers $1 from customers' checking accounts into their savings accounts each time they use their debit card or pay their bills online. This may sound a bit like forced discipline—overdraft protection, anyone? —but Wachovia estimates the average customer can save more than $600 in the program's first year and almost $2,000 by end of year three. Some 600,000 customers have signed up since January, per Wachovia. "At a time when consumers are worried about the economy and their job security, it's important that [we] show an understanding of those concerns through introducing new products that meet consumer needs," said Frank Sottosanti, director of marketing at Wachovia.

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