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Banks' reinvention still wide of the mark
By Esther Armstrong | Mon, 11th November 2013 - 11:55
Barclays (BARC) has announced a partnership with Asda to offer banking services in-store, in what it terms a "trial to make everyday banking services more flexible and accessible".
To begin with, four pilot bank branches will open from February 2014, with plans for a further four early next year.
Steve Cooper, head of Barclays retail and business bank, said: "We are constantly reviewing the way we work to ensure we can deliver a service that is shaped around what our customers want, offering them choice, flexibility and a seamless banking experience."
This is fairly typical of the language used by the banks in the charm offensive they have put forward since the financial crisis and myriad other public relations disasters that have struck the sector since - government bailouts, PPI misselling, Libor manipulation, subprime mortgage scandals, etc.
Take fellow London-listed Lloyds Banking Group (LLOY). In its third-quarter interim management statement at the end of October, group chief executive Antonio Horta-Osorio said: "We are well on our way to becoming a better, simpler, low-risk bank, which delivers the products our customers need and the strong performance and sustainable returns our shareholders expect."
After the all-time low in public confidence in the banks, it is hardly surprising they are opting to strike a more humble note in their communications with customers and shareholders.
But is it simply a veneer of respectability while the corporate cavorting carries on at the banks' headquarters, or is a genuine reinvention taking place?
Façade or for real?
Regulatory requirements under Basel III and the Prudential Regulatory Authority mean banks have had to show a real commitment to building up capital reserves.
So much so the Co-op recently had to fall back on institutional investors and bondholders to help raise the necessary £1.5 billion of further Common Equity Tier 1 capital the PRA requires of it.
Under the deal the Co-operative Group, which will have only a 30% stake if its secured, contributed £462 million, while other key investors committed to put in new money and exchange bonds for equity in the bank.
As part of the bank turnaround strategy, the Co-op Bank said it would be focusing on "retail and small and medium-sized business customers".
Meanwhile, through the process, the group "made the interests of retail investors a key priority", according to chief executive Euan Sutherland.
Royal Bank of Scotland (RBS) is another group which has bridges to mend with customers and shareholders. Ross McEwan has just taken over at the helm, and with his background in retail banking it is clear the focus RBS wants to take going forward.
McEwan said in the third-quarter results earlier this month: "I took on the job because I believe we can make this a great bank for our customers."
He is currently heading up a full review of the bank to improve customer service and expects to report his findings in February 2014.
"Our purpose is to serve our customers and to meet more of their financial needs. We need to find a way to serve them from a more efficient, effective and agile business platform than the one we have today. I will provide full details in February on how we intend to do this.
As it tries to distance itself from the riskier investment side of banking, Friday's settlement with the US Securities Exchange Commission in relation to residential mortgage-backed securities will be a painful reminder the past can still come back to haunt a business.
Not a single bank in the UK was left untarnished by the financial crisis, but gradually they are working to present cleaner and shinier operations while striving not to appear too flashy.
The aim here is to appear as if lessons have been learned from.
Tipping the balance
Convenient, efficient and friendly customer service is not necessarily synonymous with improved shareholder returns.
Soft and cuddly newbie to the high street Metro Bank, which counts dog-friendliness and extended opening hours as its unique selling points, saw pre-tax losses of £14.3 million in the three months to September and £38.6 million in the year-to-date, according to Sky News.
This was revealed in a letter to shareholders, in which Metro Bank alluded to a potential stockmarket flotation to raise fresh funding. This would top up the £250 million it has tapped investors for since it was established four years ago.
The bank's total losses since being set up are now £140 million, although its chairman Vernon Hill told shareholders the second quarter of 2013 "marked the peak quarterly loss and quarterly losses will now fall until the bank achieves profitability", Sky News continued.
On the positive side, customer numbers continue to climb and loans and advances grew at an annual rate of 370% between July and September. The bank says the new seven-day current account-switching regime has seen customers "vote with their feet", with customer accounts up from 136,000 on 1 January this year to 238,000 at the end of September.
To put Metro Bank's losses into perspective, Lloyds, which is admittedly much bigger, reported £440 million in third-quarter losses and yet is still talking up prospects of returning to dividend payments.
Meanwhile, RBS used its third-quarter update to warn of "substantial" full-year losses up ahead, while Barclays bucked the trend with profits in line with expectations at £1.39 billion in the third quarter.
Even when positive news is announced, negative news is never far away, however, with Barclays and RBS both named in the $800 million US Libor lawsuit.
So it is a game of two steps forward one step back for the banks at the moment, and it will take more than some cleverly composed customer-facing initiatives for investors and members of the public to think they are altogether out of the woods.