Angela Knight, chief executive of the British Bankers Association (BBA) believes that “the blame game has gone on far too long and the time has come for a more measured and serious debate”.

“The industry does not duck its responsibility,” she said, “but with the economic problems of some countries that have been present for many years, though masked, now being so obviously displayed, it is clear to all that whilst we are part of the problem – we are by no means all of it.”

Speaking to delegates at the BBA Annual International Conference, Knight stressed: “The banking industry is responsible for banking. It does not run the regulator, it is not in charge of monetary policy and it is not responsible for public spending.”

Add value

Stephen Green, HSBC Holdings group chairman, argued that it is imperative for banks to demonstrate the value they can add to the economy and to society. “We need to focus on the raison d’etre of business and to turn our backs on short-term shareholder maximisation. More urgently, in the short term it is clear that strong banks will be needed to support recovery.”

Green confirmed that “often in the last two years, banks have been seen as being unwilling to meet customer demands, with all the consequent effects on our reputation”.

Green particularly welcomes the Bank of England’s creation of a Financial Policy Committee and its role of managing the overall supply of credit. “I believe,” he said, “that the use of such mechanisms as varying the capital requirements in the banking system, or administrative measures such as loan-to-value caps in key sectors, will be vital to support sustainable economic growth and reduce the probability of a further crisis.”

Far-reaching enquiry

The UK government has asked the Banking Commission (Commission) to undertake a far reaching enquiry into financial regulation. Its remit is wider than expected and will look into the state of competition in the industry and how customers can be sure of the best deal.

Andrew Tyrie MP, chairman of the government Treasury Select Committee, argued that the Commission, for its conclusions to be credible, will need to examine thoroughly all the main ideas on regulatory reform affecting capital and liquidity currently being aired.

Green sounded a warning regarding bank regulation. “It is a difficult path to tread,” he stressed. “Government and regulators need to calibrate carefully the impact of the various banking reform measures on our fragile Western economies. It is essential to recognise that it will take time for many banks to adapt, rebuild and reshape their balance sheets to meet the demands of the ‘new normal’. This means making some delicate judgments about both details and implementation timing of Basel III and Capital Requirements Directive III and IV if we are to avoid choking recovery and plunging into a new credit crunch.”

Tyrie stressed: “Regulation itself is a formidable barrier to entry into the financial services industry. The current, and probably justifiable, intensification of regulation seems likely to raise the barrier even higher, unless strenuous efforts are also made to promote competition.”

Tyrie wondered whether it was the complexity of Basel II rules which served to nullify their value. “If so, Basel III needs a thorough examination too,” he said.

Message from the US

Louis Susman, the US Ambassador suggested that, given that the US has lost some $7tr in stock-market wealth and $6tr in its housing market during the recession, regulation was inevitable.

“The US,” he explained, “is on the verge of passing the most comprehensive financial regulation reforms we have seen since the 1930s. The reforms are not perfect but we can’t let perfect get in the way of good. Along with these reforms we are working in parallel with G20 governments and international institutions, such as the Financial Stability Board, the Basel Committee on Banking Supervision and the IMF to improve the entire financial system.”

The new bill (the House and Senate have completed the conference committee stage of the bill and its now time for the final vote in the Senate) will provide greater scrutiny of large financial firms to prevent any one company from threatening the entire financial system. “If a big firm is failing, regulators will have the ability to shut it down and break it apart in a safe and orderly way without asking taxpayers to pay a dime,” said Susman.

Swans into ugly ducklings

Gordon Nixon, president and chief executive of Royal Bank of Canada, expressed similar concerns about Basel III. He said: “Basel III’s proposed rules are supposed to be a starting point for discussion. Ironically, these proposed rules, for all their good intentions, will negatively impact even the healthiest bank’s balance sheets in terms of capital, leverage ratios and liquidity and compromise economic growth. The proposals are so complex and onerous that we run the risk of an agreement that lacks transparency and integrity, or one that results in non-uniform implementation.”

Nixon added: “It has re-defined capital and risk assets, the effect of which is to turn swans into ugly ducklings”.

Canadian banks, for example, would be lifted from their position as well capitalised, liquid financial institutions – and recast as undercapitalised. “Banks that passed the ‘real life’ stress test may fail the theoretical one – a pretty good indication of flawed methodology,” he said.

Competition and transparency

Andrew Tyrie told BBA Conference delegates:  “Concern about inadequate competition in retail banking is widespread. So today I can announce that the Treasury Select Committee will begin an examination of the issue – competition in retail banking as well as the future of so-called free banking.”

He added: “Lack of competition within financial services has been a long-standing concern of mine, pre-dating the recent financial crisis. Examining competition within the sector is now more crucial than ever. The complaints, some justified, simply don’t go away.”

Tyrie also suggested that large bank bonuses are probably a consequence of inadequate competition in investment banking.

Another crucial ingredient is greater transparency. “Regulators are often needed to protect customers whenever there are complex products, whether in manufacturing or the service sector. And a crucial weapon in their armoury can be sunlight. Transparency, rather than heaps of further detailed regulation, can often curb concentrations of power, vested interest and provide better outcomes for consumers.”

Future resolutions

As the economic storm subsides, Gordon Nixon believes that strong banks will get stronger and weak banks will be pressured to re-structure.

“This suggests an era of opportunity for potential acquisitions but not until we have a clear line of sight on the true value of assets and clarity on regulation,” he explained. “As long as uncertainty and volatility remain, finding the right time to buy at the right price is like trying to catch a falling knife – but ultimately our industry will re-structure.”

Nixon forecast: “Banks will have to re-structure their business mix to ensure that capital is being deployed in the most efficient manner because neither the marketplace, nor regulators, will tolerate marginal returns on excess capital. The result will be re-structuring of balance sheets and assets and those that can adapt will benefit and those that are complacent and hope for a return to the ‘good old days’ will atrophy.”

Return of securitisation

Deven Sharma, president of Standard & Poor’s argued that securitisation may return in the near future. “As things stand,” he said, “regulatory uncertainty is likely a major factor behind the dearth of securitisation internationally. In Europe, about €30bn of securitised bonds have been sold this year compared with more than €500bn before the crisis – and some 95% has gone to central banks, not the private sector.”

He added: “Nobody expects a return to the levels or complexity of securitisation that we saw before 2007. But the comatose state of securitisation leaves a big hole in the pool of financing available to financial institutions and their customers. That in turn has a real impact on activity and jobs in the wider economy.”

Initiatives are underway, Sharma confirmed, to support a healthy and sustainable securitisation market for the future. More information about asset pools is being made available to investors, as well as ratings firms, to help them take a more informed view of credit risk. Industry bodies such as the European Securitisation Forum are seeking to bring greater transparency through standardised data reporting. “New structures are less leveraged, simpler and easier to understand,” he said.

Future vision

Stephen Green stressed that a sound banking system was imperative for the economic recovery.

“But we will never achieve this,” he said, “unless we can change the perception that financial services is an industry which is preoccupied with serving itself and its own short-term advantage into one where our primary objective is to service the needs of the wider economy.”

He added: “We have considerable work to do on this. We need to continue to show that we understand that parts of our industry behaved very badly in the run up to the crisis. We need to demonstrate that we recognise our obligations to behave responsibly to manage and understand risk and to create the sustainable value that the economy and wider society needs.”

Ambassador Susman concluded: “As an ex-banker I take great pride in the contribution of the financial industry in the past to the wealth and growth of the world economies. I have also felt the pain of the abuses of the past, which created hardships for so many and, quite frankly, let to populist anger against the industry.”

“However, I look to the future with optimism in that we have learned from the past. I am confident that whatever laws and regulations are passed will be appropriate, reasonable and not punishing to the financial sector, so that the banking industry will be allowed to remain the strong engine that leads the world to growth and recovery. We must constantly remember to retain the political will and the courage to do what is right for our employees, shareholders and for the people and communities we serve.”

Article contributed by Edward Peck – Asset Finance International

Image copyright: Flickr

Richard Wilcox, head of renewables at the Co-operative Bank, said the lender would be pumping £200m into the industry this year and was also looking to expand its 14-strong team of renewables experts.

The bank expects to use up the £400m of cash it ring-fenced in 2007 to fund renewable energy and carbon reduction projects, including onshore wind projects and combined heat and power systems.

Mr Wilcocx said it continued to be “inundated” with enquiries from community projects and smaller developers eager to utilise the new feed-in tariff regime brought in by the Government last month.

He said: “This will be the culmination of phase one of our commitment and in the next few months we are looking at plans to take us through 2011 and beyond. The feed-in tariff which came into force last month has created a long-term guarantee of exporting energy into the National Grid which has led to a real take off in these kind of projects.

“In other parts of the world these small micro-renewable projects are a major part of energy generation and while the UK maybe behind the game in a sense, we are running to catch up.”

He said that the way the feed-in tariff was “skewed” also opened up a huge opportunity for individual homeowners to produce their own power.

Mr Wilcox said: “In the past it would have taken nearly 30 years for the cost of a solar panel to pay back.

“Today it is nearer 10 years.”

Gerald Waterfield, senior corporate manager at the Co-operative’s Lancashire Corporate Banking Centre, said he had seen renewable energy become “increasingly attractive” due to the moves by the government.

The commitment made by the Co-operative yesterday coincided with an announcement from the North West Development Agency that it has £2m of grants available to develop carbon-reducing technologies.

Chief executive Steven Broomhead said it was working with Envirolink North West to fund companies working on waste treatment and recycling, water pollution, air pollution, land remediation and energy generation and efficiency.

Contributed by Lancashire Evening Post

Image copyright: Flickr

The UK banking industry is set for a year of change in 2010, as several new banks from Tesco and Virgin to Metro Bank attempt to enter the sector. Traditionally a stronghold of the Big Four, these new movers and shakers will need to work extremely hard to make a significant impact on the UK retail banking landscape. However, there is a great opportunity for the new players to leapfrog the competition through the use of more sophisticated and agile technology. The ability to implement systems and processes with a technological ‘clean slate’ gives these banking start-ups a huge potential advantage – if they can capitalise on it.

So as these new banks come onto the scene, what do they need to consider from a technology infrastructure point of view?

The customer comes first
A priority for financial institutions must be on understanding their customers better. By setting up an environment that enables them to get a complete ‘customer view’, new banks will be better placed to track customer activity, prevent fraudulent transactions and encourage increased customer use and activation of bank products. In order to win the confidence of disaffected customers, institutions need to offer added-value, and if appropriate, tailored services to their customers to help build their relationships. New entrants from the retail space, such as Tesco, will have a highly developed understanding of these techniques. The industry will be watching with interest to see how they apply their existing customer knowledge to their retail banking offering.

For corporate customers,  better reporting of their payments from all channels and offering dashboards and trend analysis services will prove popular. On the retail banking side; there is much focus on innovative new technologies, such as contactless, NFC and mobile, but the number of transactions generated by these emerging channels is still low. It is the traditional card-based payments that continue to account for significant transaction volumes and revenues. While it is important that banks can use new technologies where relevant, they must also ensure that their current products remain competitive so that they bring in that important core payments revenue.

Back to the future
Most new banks will start off with relatively small UK operations, depending on how they have entered the market. However small they are to start with, it will be crucial to their future success that they build scalability into their processes to effectively future-proof their technology. For example, banks may initially choose to offer a limited selection of cards to their customers, with a view to extending this further down the line to include a wider offering and multi-application cards.

When making early technology choices, it is important to ensure that systems are agile enough to react to the changing market place. This will be particularly important to the brand new banks that are likely to adapt their plans over relatively short time frames as new opportunities become apparent.

Another consideration will be the increasing movement towards agile payment systems or more integrated systems that are capable of handling payments from any channel, whether consumer or corporate, from start to finish – with no redundancy of technology, or duplication of processes and labour. These agile systems will enable financial institutions to manage transactions quickly and effectively, with less need for manual intervention and costly interfaces between different systems.

Buyer beware
It is important to differentiate between those financial institutions that have chosen a strategy of organic growth, and those that have acquired smaller players to gain a foothold and the beginnings of a branch network in the UK.  For instance, in January 2010, Virgin announced the acquisition of Church House Trust to “provide the platform from which [to] develop a retail banking business in the UK offering a full range of products to consumers under the Virgin Money brand” (Times Online, 8 Jan 2010, ‘Virgin Money buys minnow for retail bank launch’). Banks that decide to take this strategy must carefully consider whether they should utilise and adapt existing technologies, or if it would be more effective to start from scratch from an IT perspective.

Conclusion
While the Big Four are likely to retain their dominance of the UK retail banking market in the short-term, any increase in competition will certainly cause concern for banks that are dealing with dissatisfied customers and public anger at recent scandals surrounding the financial crisis and bankers’ bonuses. These smaller, more reactive competitors could certainly shake things up through the use of innovative and agile technologies, and this in turn can only be beneficial for customers.

Andy Brown, ACI Worldwide

Article originally published by Financial World / ifs School of Finance

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The latest data from The Co-operative Bank Current Accounts has revealed a 38% increase in current account sales in 2009*. Furthermore when looking in more detail the numbers show a 22% increase in customers switching their current accounts to The Co-operative Bank from other major providers, with a 31% increase in switching activity from the big four banks.

New research findings highlight many of the reasons which drive people to look for a new current account provider, with over a third citing customer service (29%), a quarter looking for online banking facilities (23%) and a local branch (19%) and more than one in ten looking for a more ethical provider (10%), and a transparent charging structure (14%)**.

The figures demonstrate that since the beginning of the financial crisis despite the usual trends of inertia in the current account market, people have started to look at their banking providers more closely, with general discontent and distrust leading to many customers voting with their feet.

When looking back over the last twelve months there have been a number of events that have triggered the switching activity, with peaks in the numbers switching accounts linked to events in the wider economic climate including public distrust in financial institutions, unease with remuneration policies and confusion over overdraft charging structures.  

Despite the increase in numbers switching, the research does show that some inaction does still exist when it comes to changing bank accounts, with the average person much more likely to switch energy providers, move house, or switch mobile phone companies than switch their current account.  However the research also now highlights that moving current accounts is now more common than other life events such as changing career, moving countries, or getting a divorce.

John Hughes, Business Leader, Retail Products for The Co-operative Financial Services comments, The findings clearly show that customers are now increasingly likely to switch their bank account, if they are unhappy with the service, facilities or ethos of their provider.

Historically many people chose their banking provider when they were younger and stayed with that provider throughout their life. However now more than ever consumers should review their banking products as their personal circumstances change to ensure that their account suits their financial needs and service requirements.  In the past moving a current account often seemed daunting, but actually, most banks now do all the work, including transferring all direct debits and existing balances, which makes the process much easier for customers.

Article contributed by The Co-operative Bank

Over the past year, the media has been full of terrible news about the availability of credit to most companies, especially SMEs. Many lenders, even relatively healthy ones, seemed to have tightened credit standards considerably.

This has often made life, already difficult in a weak economy, even more challenging for many companies. On this background, it is illuminating to look at the lending practices of Svenska Handelsbanken (also familiar to readers of the news because they just topped customer satisfaction polls.)

The common approach to lending is illustrated by the first graph which shows lending to corporate customers in the Eurozone. Most banks influence their lending decisions top down depending on their views on the economy and their outlook for loan losses. This can reduce the influence of the loan officer handling an individual case. The loan officer might have performed a thorough quantitative and qualitative analysis of the prospective borrower. But in this system, a loan that would have been approved a year ago is now declined. This is illustrated by the chart: at the beginning, when the economy was still recovering from the dot com bubble, banks were still fairly strict in their lending standards. But as the economy started growing nicely and steadily from quarter to quarter (the blue line), lending standards (the green line) were relaxed more and more. The result: loans to corporate customers were growing faster and faster (the red line). The moment lenders see signs of a weakening economy, lending standards are reined in and loan volumes fall as a result. This approach seems rational only for five seconds because drastically cutting off lending exacerbates the economic contraction that lenders were afraid of in the first place. And this policy generally leaves banks with loans made on wafer thin margins in good times when quality can really only get worse, but they do not make loans on much better margins at the trough of the cycle when credit quality could arguably only get better.

Figure 1: Eurozone GDP growth (quarterly), lending to corporates and bank lending standards

Handelsbanken, by contrast, does not change its credit policy over time. It does not believe in GDP or other macro forecasts. It rather believes in sound credit analysis of an individual customer. Hence no need for the bank headquarters to tell the loan officer at the front line how to do his or her job. In addition, the bank believes in Warren Buffett’s insight that “it’s only when the tide goes out that you know who is swimming naked”. In other words: during good times both good and bad credits look similar, but in tough conditions like today’s it is fairly easy to spot the good customers you want to continue lending to. Handelsbanken’s bankers have a much more satisfying and intelligent job where they can use their expertise and judgement to come up with their own best credit decision.

As a result of this policy, Handelsbanken’s lending to corporates is highly counter-cyclical. When everyone else is competing to lend, Handelsbanken’s market share drops, and when no loan is to be had from any other bank, Handelsbanken keeps lending happily and increases its market share again.

Does it work? By following this very simple and common sense approach, Handelsbanken has achieved a twin goal of having higher margins than their competitors AND loan losses that are consistently about 50% lower. The bank follows the same approach with the same results in other countries such as the UK. The loyalty to their customers even in bad times may be one of the reasons behind their stellar customer satisfaction.

Unsurprisingly, many other banks are looking at the Handelsbanken model today. Experienced loan officers should be in for a bright future.

Figure 2: Sweden, lending to corporates

Article contributed by Niels Kroner, author of ‘A Blueprint for Better Banking‘

Article cover image copyright: Flickr

Based within Coutts headquarters at 440 Strand, the Coutts Commercial Banking team is 100 people strong. The division is headed by Chris Dos Santos, who says:

‘As one of the UK’s leading private banks and wealth managers, Coutts has a long history of managing the affairs of people with complicated financial needs. Many Coutts clients have created their wealth through their business activities, whether that is as an investor, owner manager, or partner in a professional firm. Throughout our history, as well as helping them with their personal affairs, we have also offered the required services and products for their businesses’.

In the early 1990s, Coutts identified that its Commercial business had grown to such a size that it should be managed as a separate business. Coutts Commercial structured itself on sector lines, recognising that added value was delivered to the client by offering not just expertise in banking matters generally, but by ensuring that its Commercial Bankers understood the sector of business in which the individual clients operated.

Coutts was one of the first banks to offer this approach to the market, with the early sectors covered being:

• Media  – music, TV, film, theatre & arts, advertising and publishing.
• Professional Practices – legal, accountancy, financial services and latterly private equity and hedge funds.
• Commercial property.
• Charities and not-for-profit organisations.

Since the early 1990s, Coutts sector expertise has grown, with managers now specialising in the following additional areas:

• Healthcare.
• Insurance.
• Education.
• Premium retail.    

Chris adds ‘For many Coutts private clients, the most significant part of their wealth is tied up in their businesses. It was, therefore, natural for Coutts to offer commercial banking services as part of its holistic approach to wealth management. These days, Coutts Commercial does bank businesses, from £1m turnover concerns up to large, international corporates, where there may be no existing private client connection. However, these businesses appreciate the quality of service we provide and understand the long-term benefits of our relationship approach, as opposed to the rather transactional market environment that became so prevalent prior to the credit crunch. Obviously one of our core aims remains to offer the shareholders and managers of these businesses access to the personal services for which Coutts is well known, but our Commercial Banking service is more than capable to compete on a standalone basis’.

Article submitted by Coutts & Co – Private and Commercial Banking

Panmure Gordon analyst Chen is understood to be in conversations with potential investors for the bank, which has yet to be named, and could raise around £100m through a stock market listing.

He has also held talks with former Bank of Scotland chief Sir Peter Burt about chairing the venture.

But sources close to the stockbroker last night played down the idea that the launch of the new bank is imminent, saying that it is a “great concept, but a long, long way from being a reality”.

The bank would seek to raise deposits from wealthy clients by offering above-average interest rates, and would use the cash to lend money to medium-sized enterprises which are finding it hard to grow due to low availability of credit.

Chen, who has acted as an informal advisor to the Liberal Democrats during the financial crisis, recently quashed rumours that he was planning to run as a candidate for the party, saying that he couldn’t “afford the salary”.

Other financiers looking to enter the banking market – in which Alistair Darling has said he is committed to developing competition – are Sir Richard Branson’s Virgin Money and US entrepreneur Vernon Hill, who is planning a new operation called Metro Bank, which would have hundreds of branches in London.

Original article copyright Emma Keens – CityAM .com

Image Copyright: Flickr

The views contained in this article are solely those of the author and do not necessarily represent the views of the Commercial Finance People

This is a move that will see it gearing up to take on Scottish rivals in the corporate banking market.

The plans to step up the pressure on the established Scottish banks was revealed yesterday by the newly appointed Scotland chief executive of Britain’s biggest bank.

Speaking on the day of his appointment, John Rendall revealed HSBC’s strategy to further expand its business banking team. He also promised to open additional retail branches north of the Border.

Rendall disclosed that HSBC had already increased corporate lending north of the Border by 46 per cent in the four months to the end of April, compared with the same period in 2008. Loan value grew to £744 million in the period, while revenue generated from the division rocketed by 80 per cent.

HSBC has previously flagged its independent status – it has not been forced to turn to the government for financial help – as attractive to companies looking for loans.

Although it has not specified which institutions are its targets it is clear it has Royal Bank of Scotland and Bank of Scotland – previously the major players in the Scottish market – in its sights.

HSBC has already invested in its corporate activity in Scotland. Last year it opened a new north of Scotland commercial centre in Aberdeen and Inverness and established a new leveraged finance team in Aberdeen.

Scots-born Rendall, who is to take on the new role after a two-year stint as chief operating officer in Mexico, told The Scotsman: “We are very pleased with how the parts of our business have been developing in Scotland over the past few years, especially in the corporate banking sector. We have got bigger plans for Scotland – you might call them ambitious plans.”

Rendall, who grew up on Orkney and studied at St Andrews University, has worked at HSBC for 22 years.

Although he said it was “too early” to give full details of the bank’s planned expansion, he revealed that it was likely to focus on developing corporate banking as well as targeting potential international personal banking customers living in Scotland.

He said HSBC was set to open new branches in Scotland, but was reluctant to give an indication of how many or where they would be located. However, he said the bank – which has six branches north of the Border in Edinburgh, Glasgow, Aberdeen, Inverness and Perth and employs 3,000 staff in Scotland – was not looking to challenge the likes of Bank of Scotland, now part of Lloyds Banking Group, on the Scottish high street.

He said: “We will be making investments in branches, but we are not looking to spend the next ten years opening tens of hundreds of branches.”

In the new management structure, Irene Grant will remain as Scottish head of commercial and corporate banking.

The bank recently reported strong first-quarter results, following a successful £12.5 billion rights issue earlier this year.

Article by Jane Bradley for The Scotsman