How TSB can be a much better bank from day 1
Comment: With TSB floating on the stock market this week, consumer champion James Daley has some tips for the bank’s management 
Photograph: AFP
Who’d want to be a British financial institution? If you have been to study the first 50 pages of TSB’s stock market prospectus, you may think that higher street banking was a one way ticket to losses and bail outs.
TSB lists 43 risks to its enterprise – every thing from the fragile macroeconomic climate to Scottish independence to the chance that folks just may well not acquire into its advertising and marketing spiel.
But TSB’s risk record is simply the prologue to a 332 web page document which goes onto boast about the rude overall health that Britan’s banking sector is now in. Maybe most revealing is the chart showing how profits prior to tax have grown amongst the UK’s six biggest banking institutions more than the past handful of years.
As you can see beneath, the combined retail banking revenue of Britain’s 6 biggest banks nonetheless totaled £5.4bn back in 2009 – the yr following the eye of the financial storm. And whilst revenue went onto fall even more nonetheless in 2011 and 2012 – this was nearly entirely down to the substantial bill for Payment Protection Insurance coverage mis-offering. If this is place to one particular side, you can see that banks’ underlying profits quickly rebounded following the crisis and touched new highs nicely over the pre-crash peaks in 2011, 2012, and 2013.
I’m not 1 of individuals commentators that believes banks shouldn’t be permitted to make a decent profit. But what the crisis exposed was a litany of poor practice and a rotten culture at the core of our nation’s banking sector. If this had genuinely unraveled – and banking institutions have been back to building their earnings in a honest and transparent manner, there is no way that there could have been a return to bumper revenue levels so swiftly.
Tougher to climb down from a large perch
While several banking institutions declare that they are topic to an unreasonable regulatory burden, and that retail banking in the United kingdom is barely worthwhile, the TSB prospectus tells yet another story.
But the longer that some of the cultural concerns go unchanged in our banking sector, the more difficult it will be for management to set these appropriate. Shareholders assume healthier development in their investment, and management are incentivised to supply it. Sustaining a drop in income in pursuit of a much more buyer-friendly banking model will be more difficult to promote to investors each 12 months if earnings carry on to expand at the degree they are. Even taking into account PPI claims, the massive 6 are currently making £8bn in mixed pre-tax profits. This yr, they are most likely to be back over pre-crash levels in absolute terms as effectively we relative terms.
It’s crucial for TSB to grasp this from the outset. If it will get hooked on earnings streams that are not transparent, or are not delivering the greatest outcomes for customers, it will get more difficult for it to adjust its position after it is floated, and doing work challenging to charm traders.
For now, it has a clean slate, and a likelihood to remove some of the worst practices that have been handed down by Lloyds.
Like most other banking institutions, TSB is not explicit about some of its bank charges (such as making use of your card overseas), its overdraft costs are nonetheless reasonably large, and it provides prolonged 0pc stability transfer offers which are predicated on the assumption that a amount of individuals will miss a payment and finish up possessing to pay out curiosity. These are all practices which I feel will be eradicated more than the next few years, as the new regulator continues its micro-management of the sector.
It would be as nicely for TSB to start off from a clean base, and create up. If it does not, it will end up caught in the same cycle as other banks, locating it difficult to consider the moral higher ground even if it needs to.
James Daley is the founder and managing director of Fairer Finance ( fairerfinance.com ) , the client group and monetary ratings internet site. He is also a regular pundit on the BBC One particular demonstrate, Rip-Off Britain, and a former editor for the buyer group Which?