Highly charged current accounts
Do you know how much you're paying for your current account?
According to bankers appearing before the Treasury select committee at Westminster today, people are well aware of that. It's not a problem.
But asked how much one of those bankers is paying for her own Lloyds account, the bank's executive director of retail couldn't say.
Brian Hartzer, her opposite number at the Royal Bank of Scotland, told MPs that the cost of funding and managing overdrafts for its customers is actually loss-making, which left the committee chairman a tad incredulous.
After all, it's reckoned that banks made £9bn profit last year out of running Britain's personal and current accounts.
The direction of travel for the committee is towards more transparency in current accounts, which looks like leading to the end of the myth of "free banking". After all, around half the profits being made on current accounts are from those who have their accounts in credit.
But Hartzer says there's already a high level of churn in the market, as 9% of current accounts are shifted each year, but that customer inertia rather than a lack of transparency is the problem. He went on to argue that people prefer simplicity in their banking.
Driving this was Benny Higgins, chief executive of Tesco Bank, also headquartered in Edinburgh, expanding fast and moving towards a launch of a current account offering. He says the reality of bank switching is actually closer to 3%, largely down to a lack of information to customers.
He was keen to stress how many customers told the Office of Fair Trading they wouldn't want to switch account providers again, and many more who wouldn't recommend it to others - conceding that the problem may be due to vendors handling direct debit agreements rather than the banks.
Tesco Bank is also targeting what it sees as the arrangements by which the existing big four banks - controlling 73% of personal and current accounts, with even more concentration in Scotland - in sharing information on customers' credit.
Stephen Hester, chief executive of the Royal Bank, was quizzed on whether he had anything to learn from the Financial Services Authority report - published last week - into the near-collapse of RBS.
He hadn't read it, he said, arguing most of the information comes from RBS in the first place - so why would he?
So he wasn't able to say if he would have any problems with that report being published. So far, the FSA has said it won't.
"Sources close to" Sir Fred Goodwin, the former chief executive, have made it clear that he wouldn't mind, having been cleared of wrong-doing.
Now, with Business Secretary Vince Cable urging the FSA to publish, we're waiting to find out if the RBS would object. It's not yet saying - at least until Mr Hester takes up the Treasury committee's invitation to read the report and get back to them.
Mr Hester was a bit clearer about the state of play with RBS's exposure in Ireland - a few hours before the latest brutal budget in Dublin's Dail.
The answer is a loan book of around £50bn - 40% of which is 'non-core'. That's not to say it's going to be marked down as loss. Losses are "significant", yes. But the 40% is the unsustainable bit of the Ulster Bank subsidiary that went far too far. The target is to run off that loan book, down to £30bn or so.
"There are no investment bankers anywhere near this in Ireland," Hester stressed. "This is bog standard lending that went wrong."
Hullo, I'm Douglas Fraser, and I'm business and economy editor at ´óÏó´«Ã½ Scotland. Welcome to my blog, where you can read my take on money matters, viewed from a Scottish perspective.
Comment number 1.
At 7th Dec 2010, John_from_Hendon wrote:Douglas,
Your are getting perilously close to exposing the truth behind the assertion that the economic catastrophe of 2008 was all about USA sub-prime lending. Britain's banks collapsed because of their own sub-prime lending far far nearer to home, but we are not supposed to say this in public. You may only whisper the truth in private between consenting bankers and regulators. Above all the market must never never have this confirmed.
As to current accounts - isn't this a diversion? Just like talking about Bankers Bonuses all the time. The real problem that dare not speak its name is non-performing debt and potentially non-performing debt. When interest rates rise to rational levels, say 5%, a Titanicly huge iceberg of debt will emerge and destroy the banks again - they know it, the Bank of England knows it - but we mustn't be told about it! This iceberg already exists and it must be deflated/deleveraged/unwound before the country can hope to recover.
On the Irish question: at least the Irish are admitting the private debt problem and working at fixing it - our private debt problem in the UK is so huge that we dare not even admit that it exists. Yet it does. You touch on the role of the FSA, quite rightly and you wonder why they can't/don't dare talk in public - you and I know why, and they do too. It would most assuredly scare the horses!
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Comment number 2.
At 8th Dec 2010, Olga Rikova wrote:At least the UK is still far better than South Africa in this respect - bank charges here are ridiculously high (in case anybody was wondering if something else might happen in an oligopoly type environment).
Scary to think that it may have been 'bog standard' lending in Ireland that caused the mess. Had the investment bankers got involved that would have pretty much been the end of the EU.
@Douglas - think you've hit the nail on the head with your second paragraph. Non-performing assets are hardly going to recover just because of Bank of England's QE and when rates do rise again, the stink will surface without a doubt. Diversions fiddling with awareness of current account charges and will not come to the rescue then.
Unless real action is taken to address the underlying issues in the UK banking system, we are just delaying the inevitable.
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Comment number 3.
At 8th Dec 2010, nine2ninetysix wrote:So Simon Hester hasn`t read the FSA report on the banking collapse. Isn`t this why we are in the mess we are in, high heid yins who didn`t have a clue what was going on round about them?
As for not making a profit on overdrafts, well if they care to tell us why that is I am sure we will all be sympathetic, until then "a tad incredulous" is my stance as well.
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Comment number 4.
At 8th Dec 2010, nine2ninetysix wrote:# 3 Simon / Stephen Hester oops.
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Comment number 5.
At 10th Dec 2010, The die is cast wrote:If you wish to pinpoint the areas of finance sector meltdown in the UK, you can forget Nat West, Lloyds, HSBC & Barclays (i.e the old 'Big Four' clearing banks)- they were all fairly boring & secure in comparison with the senior management of the RBS holding company & decision makers for the property portfolio within Bank of Scotland. The knock-on impact of their actions took Nat West, Halifax & ultimately Lloyds out of the play & into government ownership. Bradford & Bingley & Northern Rock were 'building societies' who made the mistake of playing with the big boys. Even Barclays' dalliance with the ABN deal was grounded on a share deal with a walk-away position - no such considerations from Fred the Shred.I find it hugely ironic that the big bad Big Four were not the cause of the financial armageddon in the UK.
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