Banking sector on the up; but reputational damage will take longer to heal
Posted by admin in on Tue, 04/05/2010 - 22:05
From the corporate doldrums to a return to the good times; if Barclays’ latest set of financial results are anything to go by the UK’s banking sector is definitely over the worst.
For the first three months of 2010, the banking giant announced pre-tax profits of £1.8 billion. This compares favourably to profits of £1.24 billion for the same period in the previous year after a major reduction in impairment charges and an increase in business.
Barclays has benefitted from a sharp fall in the rate at which loans and investments are going bad. The charge for loans and investments going bad is down by almost a third to £1.5bn. At the same time, the profits of its investment bank, Barcap, have surged 47% to £1.5bn.
The results mark a feeling of renewed optimism for the giant, with management once again looking forward to the future with confidence. This is the latest positive news from the UK banking sector at a time when full-scale recovery of the economy is a best shaky and consumers confidence is still wavering.
Barclays chairman Marcus Agius is keen to stress to the bank’s investors – and the world at large no doubt - that the Barclays example is proof of the strength of the so-called universal banking model. As far as he’s concerned it’s a big proverbial fingers’ up to those critics of the banking system who are putting their weight behind the unilateral imposition of bankers tax.
But while the balance sheets of banks may be enjoying an upward trajectory, the same cannot be said of their reputations, which have taken nothing short of a battering over the past year or so.
Repairing that reputational damage will depend to a large extent on how Barclays and its competitors in the market manage the contentious issue of bankers' pay and bonuses, where massive increases across the sector have been met with nothing short of disdain by UK taxpayers.
Even though Barclays Bank refused direct investment from the UK government during the recession, it has been tarred with the same brush as rivals RBS, Lloyds TSB and HBOS who were bailed out by the government. The net result has been that many taxpayers feel that the banking sector as a whole somehow owes UK taxpayers but has so far yet to deliver.
But big profits mean big bonuses and the challenge will be to reward the bankers with the remuneration packages they receive while at the same time showing a modicum of restraint to the outside world.
The Bottom Line:If Mr Cable has his way...
"If Mr Cable had his way, all the big banks would be broken up and bonuses would be virtually eliminated - a sure-fire way in my view of guaranteeing an end to the UK’s ability to compete as an international financial centre. Let’s not forget that this is a man who is on record as saying that everyone who works in a bank has an ‘aristocratic lifestyle’ clearly demonstrating his lack of understanding of the sector." A tough line on bankers’ bonuses could make a brain drain of financial talent a distinct possibility, warns Paul Marsden. Read more