John McFall on 53 billion reasons why shareholders must play a bigger role in changing banking culture
Fresh data has been published by New City Agenda identifying the costs of the top ten misconduct scandals in the UK’s retail bank and building societies. Since 2000, this culture in banking has cost almost £53bn in fines and redress. Over £37bn was due to the mis-selling of Payment Protection Insurance to consumers, making the cost of this scandal more than four times the price of staging the 2012 Olympics. Almost £5bn meanwhile, was due to the mis-selling of Interest Rate Hedging Products to small businesses.
The key causes of these scandals have included poor quality products, inappropriate staff remuneration schemes and an aggressive sales-based culture. It has all had a devastating impact on the profitability of the UK’s retail banks and cost shareholders billions of pounds. Between 2010 and 2014, Lloyds Banking group has paid out over £14bn in misconduct costs and just £0.5bn in dividends to shareholders. At the same time, it has paid £2.1bn in bonuses. During the same period, RBS has paid out £6.4bn in retail banking misconduct costs and has not paid a penny of dividends to shareholders, but has paid £3.8bn in bonuses. If Barclays had not had to pay-out £7.3bn in misconduct costs then it could have almost trebled its dividend to shareholders.
The persistent misconduct and an aggressive sales based culture has made every UK citizen poorer through our pension funds and ownership of the bailed out banks. Shareholders should be leading the campaign to change bank culture and raise professional standards. They should demand public and transparent assessments of the progress each individual bank is making. And where senior executives preside over misconduct, shareholders must ensure they are held accountable; and demand significant clawback of bonuses.
New City Agenda will continue to focus on the issue of banking culture. Next Thursday (5th May), Anthony Jenkins, up until last year the CEO of Barclays, will share his experience of implementing a comprehensive programme of cultural change. Jenkins has previously highlighted that, in the years leading up to the financial crisis, banks were too aggressive, too self-serving and too focussed on the short-term. All of this has led to trust in the industry sinking to an all-time low. Now, he rightly wants to examine the challenges they will face in changing banking culture and what further reforms must be undertaken by banks, investors, regulators and policymakers
Lord John McFall of Alcuith is a backbench Labour Peer, a former member of the Joint Parliamentary Commission on Banking Standards and a founding member of New City Agenda
Published 28th April 2016