“I make no apology for attacking spivs and gamblers who did more to the British economy than Bob Crow (the RTM union leader) could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer”.—UK Business Secretary Vince Cable
It wasn’t Fred the Shred who started it, although he was the one to blow the gaffe on the whole Camelot of egregious greed that drove UK banking in the aftermath of Thatcher’s 1988 “Big Bang”. That event brought brash ambition to a once-douce pinstriped and bowler-hatted world.
To be fair, it was high time that finance in the City got wise to the bustling world of mergers and acquisitions driving corporate turmoil and outrageous profits swirling around Wall Street. Investment banking grew with the new hub of Canary Wharf. As well as major British banks overseas ones like Deutsche and Lehman Brothers soon had major presence there, as well as New York and ambitious insiders started to make eye-popping amounts of money.
The retail side of these banks continued in more modest, traditional fashion, They were used as an anchor of respectability, but soon were brought under the more abrasive world of efficiency, downsizing and short-term profits. Both personal and small business banking (retail; farming; tradesmen; etc.) were “streamlined” with branches disempowered, management centralised and cosy chats between manager and client dispensed with.
Banks grew by acquisitions and grew their profits from ever-more-ambitious deals in corporate finance, IPOs and M&As. Bright young things got creative with new “products” like bundling mortgages, managed funds and other financial instruments. It became standard to make serious profits with other people’s money—with the “other people” usually taking the risk.
At the top of there “Loadsamoney” heaps were the CEO’s who were compensated in proportion to what their batteries of young Turks could rake in. Prior to the financial crash, this Wild West atmosphere was showering wealth on those at the top.
‘It would be unacceptable I think from the point of view of our shareholders if we’re unable to attract and retain the type of people required to manage the risks in the bank and actually deliver profit to those shareholders.”—Stuart Gulliver, CEO HSBC
- Months before Royal Bank of Scotland was rescued in a £45bn taxpayer-funded bailout in 2008, the bank had paid its chief executive Fred “the Shred” Goodwin £5m in 2006. That was 38% more than 2005. It included a bonus of £3.8m on top of his £1.2m salary. On top of that, he was granted a £16.9m pension pot that paid out nearly £700,000 a year.
- In 2011, former investment banker turned chief executive Bob Diamond sparked controversy after he received a bumper pay packet from Barclays worth £11m in 2011. He had been granted a £1.35m salary, but also received a £2.7m share bonus, as well as £474,000 worth of perks including personal financial advice and chauffeurs. That was on top of share pay-outs and deferred payments pre-dating the financial crisis. Diamond—who only led the bank for a year—was ousted as a result of the Libor rigging scandal. Barclays was the first bank to settle with the authorities over the controversy, paying £290m in 2012.
- In 2011, the ex-chief executive of HSBC Stuart Gulliver took home £7.2m, a year when he was allowed to earn three times his £1.25m salary as an annual bonus. He could have been paid a maximum £12.5m, but failed to reach key targets such as cost cuts return, strategy and reputation. Overall, HSBC’s chairman Douglas Flint said the bank’s performance had been “satisfactory in aggregate” that year.
- António Horta-Osório, the former boss of Lloyds Banking Group – which rescued HBOS from collapse and subsequently took a £20bn state bailout in 2008 – received his highest pay-out in 2011. The package, which included a £7.5m bonus linked to a three-year pay scheme, which “was an outrage for taxpayers who footed the bill” (TUC).
- Bill Winters, a former investment banker at JP Morgan, was paid £8.4m in his first year on the job at emerging markets-focused lender Standard Chartered. The figure was bolstered by a share-based buyout award, meant to compensate him for quitting Renshaw Bay, the hedge fund he was previously running. He had otherwise negotiated an annual salary of £1.15m. Winters joined the bank just as it was launching a turn-around plan, after a damaging Iran sanction-busting scandal and a series of profit warnings.
‘Our shareholders love what we do. They love our universal banking model, the diversity of risk and our diversity of profits. What tell me is, ‘Bob, don’t be uncompetitive and pay below market bonuses”.—Bob Diamond, CEO, Barclays
From Personal to Impersonal Account
Having been a bank customer for half a century, this writer feels experienced enough to comment on the development (or otherwise) of retail banking. My experience is of three ‘stodgy’ banks in three countries. The experience differed in detail, but not in trend. All wound up as corporate giants who lost the plot when it came to customers.
Royal Bank of Scotland had a branch in my home town. When I stopped being a penniless student, I opened an account there in 1973, which held a healthy balance during decades I was away, When return in 1993, I also opened a business account, acquired credit cards for both and paid for overdraft facilities never used. By that time, the branch “manager” was no such thing. Serious financial discussion involved phone calls to people who, unlike local tellers, didn’t knew who you were. Researching a load to start a tour business, I found a far more favourable one with the local council.
Six years ago, the branch was closed and the accounts transferred to a branch 12 miles away and which offered no telephone contact. I switched to on-line. This was particularly hard to use when I developed sight impairment. When I complained, my statements arrived in braille, which I cannot read.
Bayerische Vereinsbank Theis account dates from 1974 when I worked for Siemens in Germany. The same personal banker for twenty years proved useful, as I movrf to the USA. Then came a series of several who knew me less well.
The last three years, service reduced to a common phone number, which became next to impossible to use as an automated voice with limited options would cut you off if your request was complex. Even if you reach a human voice, nobody knows you, nor can they handle differing issues like credit versus debit cards, etc.
Wells Fargo The breezy and friendly open-plan branch where I opened my account in 1976 was a breath of fresh air. Having a good salary, the account was usually flush with cash; credit card and mortgage payments made promptly and exact. Like most US banks, they struggled to deal with international issues as they knew little and cared less about the world outside the US.
After my return to the UK, a good balance was kept and activity came in bursts during my visits there. It meant I lost touch with the tellers. But that became irrelevant last year when the bank gave me two months to close my account as they no longer served customer with principal residences abroad. SO much for loyalty to customers of 45 years’ standing.
My Request to the Whole Wunch of Them
With internet banking and modernisation, its is understandable that retail banking could not stand still. But if personal tax advisers, accountants, investment consultants and mortgage lenders—not to mention short-term loan spivs—can make a decent living from personal, one-on-one service, major banks have lost the retail plot. By being swept up in the greed-led corporations captained by the Fred Goodwins of this world, they have not just betrayed millions of once-loyal customers, but overlooked millions in profitable, if small-scale, business in their race to make a killing at the casino.