Customers’ reluctance to try newcomers props up the banking giants

hen HSBC held its annual meeting at this time last year, the bank’s shares were trading at around 611p. When outgoing chairman Douglas Flint fronted up to shareholders for this year’s event last week, they were around 472p – 23% lower. If the meeting had been held a fortnight earlier, the picture would have been an even more gloomy 416p. At these sorts of share-price levels, the market is valuing the bank at almost less than half the value of its assets.

HSBC is not alone in getting such an assessment from the market. The UK banking sector is lagging behind the wider stock market and as all the major players publish their results in the coming fortnight, they will hope to elicit a better reception.

It is all too easy to understand why investors would shy away from the sector. Geopolitics, cybercrime, pressure from digital startups and the risk of financial fines are among the great imponderables for anyone wanting to take the plunge.

Errors from the past are still weighing on the banks, as HSBC knows all too well. A monitor installed as a result of a 2012 fine for money-laundering offences by the US has flagged up issues with the speed at which the bank is able to make changes to its internal systems and controls. Libor-rigging and manipulation of the foreign exchange markets have already shaken the public image of banks – and the fines knocked a dent in their profits.

Royal Bank of Scotland, meanwhile, could be facing a penalty of as much as £8bn for the way it sold mortgages to US investors during the sub-prime crisis nearly a decade ago. Its prospects of making an annual profit in 2016 – it would be its first since 2007 – are slim.

And then there is the payment protection insurance scandal. This has already cost the industry more than £30bn – and while the banks are desperate to draw a line under the compensation payouts through the introduction of a time bar, there has to be a risk that they will have to dig even deeper to cover the cost of mis-selling this insurance.

Add to the mix the fact that interest rates are still stuck at record low levels – with little immediate prospect of going higher – and the banking sector is stuck in a mire. Banks are finding it harder to make money on customers’ juicy deposits – and shoving up borrowing costs is difficult to pull off when other rates are so low.

These themes will play out in the coming days when the bank bosses line up to provide their latest trading updates – and also face their shareholders. Barclays’ new chief executive, Jes Staley, will address his on Thursday, personally delivering a message that appears likely to be very different to the one incoming chairman John McFarlane hoped for. A year ago, McFarlane described the dividend level as “less than we would wish”. How is he going to deliver the message to impatient Barclays shareholders that the all-important dividend is going to be cut almost in half for the next two years?

Yet despite this dismal backdrop, with the reputation of bankers at rock bottom, the established players appear confident about one thing: their high-street customers are reluctant to rock the boat. Barely 4% of retail customers move their current accounts each year – a figure that could increase tenfold, challenger bankTSB reckons, if customers were given more information about the accounts they hold with the big four.

One suggestion – handing over information about “foregone interest” on current accounts rather than savings accounts – seems unlikely to happen voluntarily. And the Competition and Markets Authority seems too scared to move – possibly the one piece of good news for the downtrodden banking sector.
FacebookTwitterPinterest Sounding the alarm: Simon Walker, director general of the Institute of

first Sports Direct felt its wrath, then the entire corporate world. Having told the billionaire Mike Ashley, who owns the clothing chain Sports Direct, that his treatment of the clothing chain’s low-paid warehouse staff “will leave a scar on British business”, the Institute of Directors has sent out a wider warning: allow executive pay to soar and the roof will fall in. Or, at least, a welter of government regulation will be imposed on boards, tying them up in administrative knots.

It is a counterintuitive message in some ways for a traditional supporter of the free market. The IoD is the oldest of the business lobby groups and its Regency-era Pall Mall offices are steeped in history, most of it centred on protecting the livelihoods of its immensely rich members.

Some club members must be asking themselves how self-imposed pay restraint could be considered a feature of a free market. Surely executives should be paid whatever a majority of investors believe they need to offer?

But pay restraint is seen by IoD director general Simon Walker, a former press chief at Buckingham Palace, as the crucial element in a campaign to keep meddling politicians and unnecessary regulation out of remuneration.

In this way he harks back to the Scottish philosopher and economist Adam Smith, who believed that owners of capital should accept they are part of wider society and honour a compact with workers to achieve a degree of fairness. It was either that or be crushed like the French aristocracy were to be in the 1789 revolution.

After BP’s recent AGM, when shareholders registered a protest vote against a £14m pay package for boss Bob Dudley, Walker said British boardrooms were “in the last-chance saloon”.

Walker took charge in 2011. In 2012 it looked like the shareholder spring would deliver a victory, but boardroom pay has continued to rise.

This week the pharmaceuticals firm Shire is expected to face down a revolt and WPP boss Sir Martin Sorrell will defend his £60m pay package.

If the votes against excessive pay are large and boardrooms continue to sail on, Walker, who steps down in October, must fear that the pressure for regulation will only build.
Energy firms could get burned


Business is business and if you expand too quickly nasty things can happen, whether you are in a technology of the future (solar) or a fuel of the past (coal).

Just days after Peabody Energy, the biggest US coalmining business, was forced into bankruptcy protection, one of the world’s largest solar companies, SunEdison, did the same last week. Last year Ahmad Chatila, the SunEdison boss, claimed he was aiming for his firm to be bigger than Exxon Mobil and his acquisition record suggested he was driving the business flat out to get there. But last week he admitted the firm needed to be “shedding non-core assets” to survive.

It is a nasty wake-up call for over-ambitious executives but the solar sector is still booming – although not so much in the UK, where the government is determined to put the brakes on subsidies. However, worldwide solar installations are expected to grow by more than 20% this year compared to 2015.