These remain bleak times for Britain’s banks, and some of the most troubled have the deepest Scottish roots. Almost a decade on from the great financial crash of 2007-08 the post-binge convulsions continue to ripple through the sector with frustrating frequency.
Next week Royal Bank of Scotland is expected to run up its ninth annual loss in a row and announce another £800 million cost-cutting programme, involving thousands more job losses. Off-loading the UK government’s majority stake is now a post-2020 aspiration, according to the chancellor.
Who can say if the deed will be done by the time RBS marks its 300th birthday in 2027? The EU-imposed Williams & Glyn sell-off, as a challenger bank, has yet to be realised. A multibillion-dollar settlement with the US Department of Justice over mis-selling of mortgage-backed securities appears imminent now that other European banks have struck deals.
Then there’s the litigation by shareholder groups over RBS’s rights issue in the summer of 2008, months before its Fred Goodwin-inspired dreams of becoming the biggest bank on the planet crashed and burned. While three shareholder groups agreed compensation terms with RBS last year, two others seem determined to have their day in court.
On top of that, after a belated admission that RBS’s global restructuring group put repairing the bank’s balance sheet ahead of serving small businesses caught up in the downturn, millions more in compensation is promised.
Bank of Scotland, the other main pillar of Scottish banking, is in reality one of the banking brands in Lloyds Banking Group’s portfolio. Having merged with Halifax at the millennium, on the rebound after losing out to RBS in their battle to acquire NatWest, the renamed HBOS escaped RBS’s fate, post-crash, by succumbing to a UK government-sponsored shotgun merger with Lloyds.
Unlike RBS, Lloyds could soon be free of the UK government as shareholder. That taxpayer-funded stake is now below 5 per cent, down from 43 per cent at the height of the crisis. A clean break could come shortly. But like RBS, other legacy issues persist at Lloyds.
This month two former HBOS bankers in Reading went to jail for their roles in a fraud that fleeced small business customers of £245 million. It took Lloyds days after the sentences were delivered to promise a third-party review and “redress, if appropriate”. It had known about the fraud allegations since it acquired HBOS in 2008.
The initial write-offs from that deal — £52 billion in the first four years alone — and other costly reparations, everything from £17 billion for mis-selling pension protection insurance to a £226 million fine for rigging Libor, have left Lloyds struggling to put any momentum behind its share price.
The dire consequences of what happened a decade ago are only the start of UK retail banking’s challenges: stress testing, strengthened capital adequacy rules, a protracted diet of rock-bottom interest rates and expanded quantitative easing, a growing public appetite for online banking services, digital insecurity, sluggish growth and now rising inflation. All of which makes retail banking’s prospects problematic.
The Co-operative Bank, having been rescued once by hedge fund interests, has put another For Sale sign up. The Airdrie Savings Bank has opted to close its doors. Citing the onerous cost of regulation, its mortgage and loan books are being passed to TSB Bank.
TSB was spun off from the enlarged Lloyds Banking Group as the price the EU extracted for the state aid support for its merger. But TSB lasted little more than a year as an independent challenger bank. In October 2015 it agreed to be taken over by Sabadell, the Spanish banking group.
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