Analysis: Time for a return to old-style banking?
ALL the big names in British banking have been in the spotlight in recent months and years, for various reasons. Whether it’s because of bailouts, rate rigging, money laundering or credit ratings, it’s been a rocky road for some of the most famous brands in the world. But with a number of new players making a bid to grab a piece of the action, will we soon be seeing a return to the old way of banking? ADAM AIKEN takes a look at some of the problems that have hit the industry, as well as some of the players who are fighting back.
: : HSBC: If there was one major UK bank that most onlookers thought had emerged from the past few years with its reputation intact, it was probably HSBC. It did not have to be bailed out by the taxpayers, unlike some of its high-street rivals, and most people regarded it as a rock within a shaky system.
All that changed over the summer, when the bank found itself embroiled in a money-laundering investigation. HSBC was strongly criticised in a report by a US Senate committee. The bank’s chief executive, Stuart Gulliver, said the bank had set aside more than �440m for fines after the “shameful and embarrassing” report, which claimed HSBC had ignored regulatory measures designed to prevent transactions involving terrorists, drug lords and rogue countries. According to the Senate report, there were 25,000 transactions linked to Iran over seven years, worth a total of $19.4bn. The bank was also said to have moved billions of dollars from a Mexican subsidiary to its US business despite being warned that the cash could be linked to drugs gangs.
: : Barclays: Barclays was another of the UK banking giants that was not bailed out by the taxpayer, but any claim that it was better than the rest was severely tested recently when it emerged some of its staff had been manipulating Libor. Money is lent between banks all the time, and the London interbank offered rate (to give Libor its full name) is the daily rate that banks charge each other. Traders at Barclays fiddled their figures between 2005 and 2009, in both directions. To start with, some bankers inflated the rate in a bid to make bigger profits. Later on, Barclays – which has now been fined �290m by regulators – reported artificially low figures because it wanted to be seen as a bank that was in good health while others around it were struggling. The scandal cost chief executive Bob Diamond his job, and he was also hauled in front of MPs to explain himself. As so often happens with such a large organisation, a few highly-paid traders were to blame for a scandal that rocked the entire company, and the anger of the public was more than matched by that felt by tens of thousands of employees. Barclays was probably not alone in trying to manipulate interest rates. Regulators in a number of countries are thought to be looking at about 20 major banks. But because it was the first to be publicly shamed by the authorities, Barclays risks suffering a bigger PR hit than others.
: : Royal Bank of Scotland: The Royal Bank of Scotland group – which includes Natwest among its brands – had already taken a huge PR pounding thanks to its near collapse in 2008-09 and the subsequent controversy surrounding Sir Fred “The Shred” Goodwin, its former boss. But earlier this year, an IT problem meant that millions of customers were unable to access their online accounts, while many scheduled payments did not go through and customers were unable to get hold of their money. The knock-on effect was huge – even people who had never been near an RBS or Natwest branch risked getting caught up in the mess if payments they had been expecting from third parties failed to arrive on time.
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: : Santander: Santander – which incorporates what used to be Abbey, Alliance & Leicester and much of Bradford & Bingley – is well known in the UK, but its parent company has its headquarters in Spain. As such, it has found itself caught up in the Spanish economic woes, and the bank’s UK arm had its credit rating cut recently, along with more than a dozen other Spanish banks. The credit reference agencies said they thought Santander UK was in a stronger position than its parent, and there was no suggestion that it was in any serious trouble, but the move highlighted just how entwined the global banking system is.
: : Standard Chartered: Standard Chartered is not as well known to consumers as some of the other big UK banks – most of its work is carried out in Africa, Asia and the Middle East – but analysts had long considered it to be one of the most solid players within the sector. Yet when a regulator in New York state accused the bank this month of hiding $250bn in transactions involving Iran, labelling it a “rogue institution”, its reputation took a huge hit. Standard Chartered vehemently denied the accusations, and there was some suggestion that the regulator in question was looking to make a big splash for political reasons. There were also claims that regulators across the Atlantic were trying to undermine the London banking sector.A few days later, news emerged that the regulator and the bank had agreed a $340m fine in return for Standard Chartered being allowed to keep its licence in New York. It seems that the bank thought it was more important to keep its trading licences than allow the stand-off to continue, given what it might have meant to its already battered share price.
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: : Lloyds Banking Group: Lloyds has managed to stay out of the headlines in recent months, but it was only a few years ago that Halifax – which is now part of Lloyds – had been teetering on the brink.
Along with RBS, it was one of the UK banks that nearly brought the whole system crashing down in 2008, and its subsequent tie-up with Lloyds led to the new group being bailed out by the taxpayer. We still own more than 40pc of the group.
So what’s next? Despite the gloom surrounding the banking industry, there has also been some positive news in recent times.
Virgin Money believes it is on course to get five million customers by the end of the year, as it seizes on public dissatisfaction with its peers.
It had about four million people on its books after it bought Northern Rock at the end of last year, and Virgin claims it has seen a large influx of new customers since then. It hopes to launch a current account later this year.
Meanwhile, the Co-operative Bank is in the process of buying more than 630 branches from Lloyds Banking Group, in a sale forced on Lloyds following its state-backed bailout. It means that the Co-op will soon be joining the big boys in terms of numbers of branches.
On a regional level, Norwich and Peterborough Building Society is on a on a steadier course. Branch closures, the Keydata scandal and the fallout from the wider economic crisis had engulfed the society during a difficult few years, but its merger with Yorkshire Building Society seems to have put it back on an even keel.
Bank scandals will come and go as surely as night follows day. More often than not, the incompetence or bad behaviour of a few is all it takes, and it’s important to remember that the frontline staff we deal with on a daily basis – whether they are counter clerks or business banking relationship managers – are rarely the ones to blame.
But with the industry having taken a battering over the past few years, and with a number of new kids on the block looking to shake-up the sector, the pressure to return to the old ways of banking might soon pay off.