As Barclays ‘transforms’ do we have to give the big four banks a chance?

12th February 2013


The story may vary a little depending which the big four of the retail banks you are discussing, but they all have a long way to go before they can begin to think about winning the trust of UK consumers.

HSBC is probably in best reputational shape certainly this side of the Atlantic. Its biggest sins to date were committed in Mexico and the US.

Lloyds Group continues to regret its hasty purchase of HBOS at the height of the crisis and is minority owned by the state. Royal Bank of Scotland is majority state owned (above 80 per cent) and has just been slapped with a Libor fine. Barclays did not take taxpayer cash, but it is facing questions about just who provided its funding at the height of the financial crisis, Qatar or Sheikh Mansoor. It has shut its financial planning arm. It cited the economics of delivering advice though there were regulatory issues too. If anything, it was more deeply involved in Libor than RBS, but it took action to fix things sooner.

To varying degrees, the four banks have also been involved in misselling of payment protection insurance to individuals and interest rate swaps to business.

In a bid to emerge from this five year long storm, Barclays chief executive Antony Jenkins has outlined how Barclays plans to change culture under Operation Transform. He will aim to draw a line under the Bob Diamond era, as the Evening Standard reports today.

It’s not going to be easy for Barclays and its peers. First the banks now face some formidable critics among politicians, regulators and the public, of all political persuasions and none. The banks also face a new array of lobby groups.

Perhaps the most significant is Moveyourmoney, a group that is urging savers to abandon the big banks for smaller rivals, less beset with scandal.

To coincide with the relaunch, it has attacked the bonus pool of £1.852bn that it says Barclays is making available this year. It even highlighted this article in the Wall Street Journal suggesting insiders are downplaying the transformation.  That won’t be what Jenkins wanted to hear.

Let’s just say that when it comes to reputation management these days, it is difficult to get a clear run at it. But maybe we should allow them to do so.

Mindful Money is going to take a slightly controversial tack given the general anti-bank sentiment.

First we think that organisations such as Moveyourmoney have a huge role to play in keeping the big four banks on their toes. The risk of losing bank accounts and business will keep them more competitive than they have ever been in the past. And yet, we do not see an alternative to fixing those four banks. We therefore think Mr Jenkins and his peers should be extended the benefit of the doubt when it comes to their various transformation projects.

Second we think that bonuses per se are not the issue. If a country deems it wrong to have such spectacular remuneration, then perhaps we need a debate about taxation (though we also think you need to be careful not to punish genuine entrepreneurs outside the investment banks). We think it is not necessarily the extent of the bonuses that is the problem. It is the risk that the bonuses undermine the culture of the banks and what they deliver to customers. If bonuses are at the root of the problems with the banks they need to be tackled. But if we are allowing the big four to continue in investment banking – and post Vickers it seems like we are – they need to pay something approaching a competitive amount. That said, we approve of traders and directors having to work for several years before being able to realise their bonuses. But perhaps we need to see if the Chancellor’s electric ringfence works at separating investment and retail banking, before we condemn them outright.

Finally at some stage, we have to hope that – transformation complete – the big four can return to a role of providing loans and savings to the population, making money for the UK from the services their investment banks offer, and becoming investable again for your average investor rather than more specific recovery plays and the like. But unfortunately, for all the contrite words, we think this is at least a couple of year away. But at some stage, we may have to give the banks a chance to prove themselves reformed.


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