RUTH SUNDERLAND: Banks serve up a raw deal
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Banks are serving a raw deal, says RUTH SUNDERLAND: More than a dozen years after financial crisis, customers and shareholders are paying the price
- Confusion about what and for whom the banks are
- The pre-crisis, pre-pandemic model is clearly no longer fit for purpose
- Not clear at all what the replacement should be
- Hope was a new kind of fintech and banks that would become challengers would slow down
More than a dozen years later, British banks have still not recovered from the financial crisis, let alone Covid ā and their customers and shareholders are paying the price.
A quick look at the price charts tells the story. Shares in Lloyds, Barclays and NatWest peaked in 2007 prior to the meltdown, then went into freefall and failed to regain lost ground.
There have been all sorts of dilutions, bailouts and the like, but nevertheless UK banks’ share price is in stark contrast to JP Morgan’s in the US. Barclays’ lackluster performance is especially interesting because, like JP Morgan, it picked up some cheap assets, in its case from the smoking demise of Lehman Brothers.
Store closure: The banks seem to have failed to understand that customers who prefer old-fashioned branch banking deserve decent service
Banks have built up much larger capital buffers in case a new crisis breaks out. But investors are pricing their stocks well below intrinsic value. The core, however, is confusion about what and for whom the banks are. The pre-crisis, pre-pandemic model is clearly no longer fit for purpose, but it’s not at all clear what the replacement should be.
It is fair to argue that banks, having benefited from a bailout, have a responsibility to society, not just to their shareholders.
NatWest, the most egregious of its behavior as RBS under Fred Goodwin, has embraced this vision under boss Alison Rose. The bank, in which the government still has an interest, calls itself ‘purpose-led’ and is eager to help social problems such as gambling and financial abuse. Goodwin’s grandiose headquarters in Gogarburn was symbolically transformed, first into a food bank and then into a welcome center for Ukrainian refugees. Commendable, sure, but profit maximization? Could be.
Lloyds is on a very different path, courting āhigh value customersā who it hopes will buy more of its products.
This gray idea ā formerly known as ācross-sellingā ā has never worked in the past. It also risks alienating customers who are perceived as “low value” and fobbed off with inferior service.
The banks seem not to have understood that customers who prefer old-fashioned branch banking deserve decent service. So the closure of branches continues. HSBC is taking an ax to 100 sites this year.
On my local high street, which once had a cluster of banks and building societies, a TSB branch clings on as the only survivor.
If there is no convenient branch, trying to call is a priceless experience. A senior executive, in an unguarded moment in conversation, described customers who were bold enough to try to call as “abusing the phone.”
The implicit view – that a desire to talk to a human being is unacceptable customer behavior – is extraordinary.
The hope was that a new breed of fintech and challenger banks would pick up the slack. Reality has disappointed. Metro was recently fined for misleading investors about its capital. TSB, which presented itself as an ethical alternative to the Big Four, has been hit with a Ā£50 million fine for IT errors.
Revolut failed to file the accounts on time and operates under a Lithuanian banking license. Even Starling, which says it will quadruple its profits this year, has been accused of being too prolific handing out government-backed Covid loans.
The financial crisis has led to a massive diversion of energy from innovation and growth into one of the greatest bank repair jobs of all time.
It was necessary, but the opportunity cost was enormous. It has also been a long time coming, but unfortunately for investors and customers, the effects are still being felt.