Banks are facing a
perfect storm, argues Allan Ross, First Independent Finance MD and
Barclays shareholder.
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The ongoing enquiry by John Vickers into the banking
industry has already suggested a need to break up the banks;
touched on the perfect storm they almost found themselves in;
raised the issues of better controls; and made it clear that banks
should be allowed to go bust.
The banks, on the other hand,
are now suggesting profits are being made, bonuses are part of
retaining key staff and that the time for regret is
over.
As a Barclays shareholder I
find myself wondering if the banks are creating their own perfect
storm by some of their current actions. They are raising the costs
to businesses of borrowing, lending less, being more risk averse at
grass roots levels, paying high bonuses, returning poor shareholder
value, distancing themselves from the views of the public and
distancing themselves from the views of the government.
Banks face a real danger from
a perfect storm scenario coming from shareholders, the government
and the public. Shareholders have seen investments failing,
experienced continued poor performance and watched senior bankers
get massive bonuses.
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By GlobalDataThe share value of one major
bank (the one that feels the time for regret is over) has fallen
from a high of £7.90 (€9) in 2007 to its current value of around
£3.
How can leaders justify that
massive bonuses are due, when staff, pensioners and the greater
public (through their pensions) fail to be rewarded for their
capital investment?
The government needs strong
banks to help our economy to deliver growth. However, they also
need to stay on the right side of the electorate and to ensure they
see a return from the investments they have made in the banking
industry over the past few years.
The government are rightly
concerned that the assets held in the retail, high street
operations of banks are being used as security to fund the higher
risk (and higher profit) investment banks.
Creating a position where
banks need to separate these activities will greatly affect the
profitability of the banks. But it will create safer banks, which
are much less dependent on the public purse for support in
difficult times.
My fear is that some banks
will take the view that the government has no business in getting
involved in their operations (other than bail them out when
required) and that can only increase animosity, fail to create
common ground and have a banking system at peril of non support in
the future.
Most of the public have stood
on the sidelines in all of this over the past few years. For many,
the effect to their personal household budgets has been cheap
mortgage repayments. That is about to change.
Some or all of us are about
to be affected by higher VAT, followed by National Insurance, a
need to work until we are older to get a decent pension, fewer
services from the public purse; increased costs to educate one’s
family; higher unemployment; higher rates of business
failures.
The public will see bonuses,
greed and an ungrateful approach to the assistance the tax payer
provided. There has already been a social backlash in Ireland over
the banking problems.
Senior bankers should remember that their ‘let them eat
cake’ mentality has led to social disruption in the past. The
leadership of our banks need to get real.
