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

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 pricing charts tells the story.

Shares of Lloyds, Barclays and NatWest peaked in 2007 before the crisis, then fell into freefall. More than a decade later, they have failed to regain lost ground.

Investors are now pricing UK bank shares well below net asset value, meaning the capital reserves built up since the crisis may not be as bountiful as they would like us to believe.

There have of course been all sorts of dilutions, bailouts, etc., but nonetheless, the trajectory of UK banks contrasts sharply with that of JP Morgan in the US.

Barclays’ poor performance is particularly interesting in this context since, like JP Morgan, it has managed to snatch some cheap assets, in its case from the smoldering ruin of Lehman.

At the heart of the banks’ problems, however, is 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 is reasonable to argue that banks have a responsibility to society, not just to their shareholders.

> Are you about to lose your bank branch? View our interactive map

NatWest, which as RBS under Fred Goodwin has behaved most egregiously, has fully embraced this view under current boss Alison Rose.

The bank, in which the government still has a stake, proclaims itself to be “driven by purpose” and keen to help social issues such as gambling and financial abuse.

Goodwin’s grand headquarters in Gogarburn has been symbolically transformed first into a food bank and then into a reception center for Ukrainian refugees. Laudable, yes, but profit maximizing? May be.

Lloyds is on a very different path, courting “high-value customers” who it hopes will buy more of its products.

This old idea – once called “cross-selling” – has never worked in the past. It also risks alienating customers who are deemed “low-value” and downgraded to substandard service.

Banks legitimately want to modernize but don’t seem to realize that customers who prefer old-fashioned branch banking still deserve decent service.

The wave of branch closures therefore continues. HSBC is axing a quarter of its network, or more than 100 sites, this year.

On my local main street, which once had a cluster of banks and building societies, a branch of the TSB hangs on as the sole survivor.

In the absence of a convenient agency, trying to call is a crippling experience. A senior executive, in a moment of unsupervised conversation, described customers having the temerity to attempt a call as “abusing the phone”.

The implicit view – that a desire for conversation with a human is unacceptable customer behavior – is quite extraordinary.

As traditional lenders floundered, the hope was that a new breed of fintech and challenger banks would take over.

Reality disappointed. Metro was recently fined for misleading investors about its capital. The TSB, which presented itself as an ethical alternative to the Big Four, was hit with a £50million fine for computer failures.

Revolut has neglected 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 with its handout of government-backed Covid loans.

The financial crisis has caused a vast diversion of energy from innovation and growth into one of the biggest bank repair jobs of all time.

It was necessary, but the opportunity cost was enormous. That was also a long time ago, but unfortunately for investors and customers, the effects are still being felt.

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