Do High St banks have a social responsibility? Strictly Business debate

More than a dozen years later, UK banks have still not recovered from the financial crisis let alone Covid – 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, after which they went into free fall. More than a decade later, they have failed to regain lost ground.

Investors are now valuing UK bank stocks well below net asset value, meaning that the capital buffers built up since the crisis may not be as solid as they would have us believe.

Of course there have been all kinds of dilution, bailouts and the like, but nevertheless the course of British banks is in stark contrast to that of JP Morgan in the US.

The lackluster performance of Barclays is particularly interesting in this context because, like JP Morgan, it managed to acquire cheap assets, in its case of the smoking demise of Lehman.

At the heart of the banks’ problems, however, is the confusion about what and who they are for.

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.

Having benefited from a taxpayer bailout, it’s fair to argue that banks have a responsibility to society, not just their shareholders.

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NatWest, the most egregious of its behavior as RBS under Fred Goodwin, has fully embraced this vision under current boss Alison Rose.

The bank, in which the government still has a share, calls itself ‘purpose-led’ and is happy 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 “high value customers” who it hopes will buy more of its products.

This gray idea – formerly known as cross-selling – 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 rightly want to modernize, but seem to have failed to understand that customers who prefer old-fashioned banking still deserve decent service.

So the wave of branch closures continues. HSBC is taking an ax to a quarter of its network this year, more than 100 sites.

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 rather extraordinary.

While traditional lenders struggled, it was hoped 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 £50 million fine for IT errors.

Revolut has failed to file its accounts on time and operates under a Lithuanian banking license as it does not yet have one in the UK.

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.