More than a dozen years on, the 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 ran up to a peak in 2007 ahead of the meltdown, then went into freefall. More than a decade later, they have failed to regain the lost ground.
Investors now price UK bank shares at well below net asset value, meaning the capital buffers built up since the crisis might not be so plump as they would like us to believe.
There have of course been all kinds of dilutions, bailouts and the like, but nonetheless, the trajectory of UK banks is a stark contrast with the likes of JP Morgan in the US.
The lacklustre performance of Barclays is particularly interesting in this context since, like JP Morgan, it managed to snap up some cheap assets, in its case from the smoking ruin of Lehman.
At the core of the banks’ problems, however, is confusion over what, and who, they are for.
The pre-crisis, pre-pandemic model is clearly no longer fit for purpose, but it is not at all obvious what should be the replacement.
Having benefited from a taxpayer bailout, it’s reasonable to argue banks have a responsibility to society, not just their shareholders.
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NatWest, which as RBS under Fred Goodwin behaved the most egregiously, has fully embraced this view under current boss Alison Rose.
The bank, in which the government still has a stake, proclaims itself ‘purpose-led’ and is keen on helping social problems such as gambling and financial abuse.
Goodwin’s grandiose headquarters at Gogarburn were symbolically transformed first into a food bank and then into a welcome centre for Ukrainian refugees. Laudable, definitely, but profit-maximising? Maybe.
Lloyds is on a very different path, courting ‘high value customers’ whom it hopes will buy more of its products.
This hoary idea – it used to be called ‘cross-selling’ – has never worked in the past. It also risks alienating customers deemed ‘low value’ and fobbed off with inferior service.
The banks legitimately want to modernise but do not seem to have grasped that customers who prefer old school branch banking still deserve decent service.
So the wave of branch closures continues. HSBC is taking an axe to a quarter of its network, more than 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 lone survivor.
In the absence of a convenient branch, trying to ring up is a prohibitive experience. One senior executive, in an unguarded moment in conversation, described customers with the temerity to attempt a call as ‘abusing the phone’.
The implied view – that a desire for conversation with a human is unacceptable customer behaviour – is quite extraordinary.
As traditional lenders have floundered, the hope was a new breed of fintech and challenger banks would take up the slack.
Reality has disappointed. Metro was recently fined for misleading investors over its capital. TSB, which styled itself as an ethical alternative to the Big Four, has been hit with a £50m penalty for IT failings.
Revolut has neglected to file its accounts on time and is operating under a Lithuanian banking licence, 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 over-prolific with its handing out of government-backed Covid loans.
The financial crisis resulted in a vast diversion of energy away from innovation and growth and into one of the biggest banking repair jobs of all time.
It was necessary, but the opportunity cost was enormous. It was also a long time ago, but unfortunately for investors and customers, the effects are still being felt.
This post first appeared on Dailymail.co.uk
