UK bank shares: not for widows or orphans

No-one earning their bonuses right now.

The half yearly reporting season for UK-headquartered banks is almost upon us.

Following nine years of record profits, UK-based but Asia-Pac focused Standard Chartered is likely once again to be the strongest sector performer. It reports on 1st August and no major surprises are expected. StanChart’s shares remain the strongest performer of the UK banks; as of this morning, StanChart’s share price has fallen by a mere 10.8 per cent in the past 12 months.

The day before on 30 July, HSBC reports its first half profits. Notwithstanding all the understandable hullabaloo over its extensive anti-money laundering failures, the market is likely to be in forgiving mood. HSBC’s share price, in the past 12 months, is down a relatively modest 14 per cent.

The reporting season kicks off with Lloyds Banking Group (LBG) on Thursday. Expect to hear positive noises about profits growth in 2013 and earnings being boosted in 2014 as a result of the Project Verde sell off having been scaled down in terms of assets sold. LBG’s share price, by the by, is down a whopping 35.6 per cent in the past 12 months.

Barclays will report on Friday and will attract a great deal of attention, following its role in the LIBOR scandal and the departure of Bob Diamond. It may even report an increase in underlying profits of up to 10 per cent year-on-year in the six months to end June. The plunging share price of Barclays seems to have played little more than a peripheral role when it has come to determining bonuses at Barclays. In the past year alone, the Barclays’ share price is down by a whopping 33.6 per cent.

Bringing up the rear, in more ways than one (share price down by 45.4 per cent in the last 12 months), Royal Bank of Scotland reports on 3 August. RBS continues to hemorrhage money in Ireland via its Ulster Bank operation. It remains very hard to foresee RBS returning to profit in 2012. The IT shambles earlier in the summer plus media rumours of an involvement in the LIBOR scandal, means that good news relating to RBS is some way off. There will be analysts that suggest that RBS’ share price has now sunk so low  - down from £3.63 to £1.98 in the past year - that it represents an attractive punt.  That may well be the case: but it is not one for widows or orphans.

Just in case any of the UK banks dare to suggest that a collapse in bank share prices is a disease afflicting banks around the world and that they really are earning their bonuses, don’t believe them.

Two of the largest US-based banks – US Bancorp and Wells Fargo – have enjoyed strong double-digit share price growth in the past year; Westpac and National Australia Bank have also shown a rise in their share price while Canada’s largest lender, Royal Bank of Canada’s share price is flat.

Meantime, the results have been released today of the latest UK Customer Satisfaction Index (UKCSI) by the Institute of Customer Service. 

In the banking sector, the UKCSI shows – yet again – that first direct ranks top. With a certain degree of predictability, the Coop Bank ranks second.

The survey will really deserve a greater degree of comment if and when first direct and the coop do not come out at the top of the poll of 26,000 customers.

For the record, Yorkshire Bank ranked third, just ahead of Nationwide and HSBC in fourth and fifth places respectively.

London at night, Photograph:Getty Images.

Douglas Blakey is the editor of Retail Banker International

Photo: Getty Images
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The future of policing is still at risk even after George Osborne's U-Turn

The police have avoided the worst, but crime is changing and they cannot stand still. 

We will have to wait for the unofficial briefings and the ministerial memoirs to understand what role the tragic events in Paris had on the Chancellor’s decision to sustain the police budget in cash terms and increase it overall by the end of the parliament.  Higher projected tax revenues gave the Chancellor a surprising degree of fiscal flexibility, but the atrocities in Paris certainly pushed questions of policing and security to the top of the political agenda. For a police service expecting anything from a 20 to a 30 per cent cut in funding, fears reinforced by the apparent hard line the Chancellor took over the weekend, this reprieve is an almighty relief.  

So, what was announced?  The overall police budget will be protected in real terms (£900 million more in cash terms) up to 2019/20 with the following important caveats.  First, central government grant to forces will be reduced in cash terms by 2019/20, but forces will be able to bid into a new transformation fund designed to finance moves such as greater collaboration between forces.  In other words there is a cash frozen budget (given important assumptions about council tax) eaten away by inflation and therefore requiring further efficiencies and service redesign.

Second, the flat cash budget for forces assumes increases in the police element of the council tax. Here, there is an interesting new flexibility for Police and Crime Commissioners.  One interpretation is that instead of precept increases being capped at 2%, they will be capped at £12 million, although we need further detail to be certain.  This may mean that forces which currently raise relatively small cash amounts from their precept will be able to raise considerably more if Police and Crime Commissioners have the courage to put up taxes.  

With those caveats, however, this is clearly a much better deal for policing than most commentators (myself included) predicted.  There will be less pressure to reduce officer numbers. Neighbourhood policing, previously under real threat, is likely to remain an important component of the policing model in England and Wales.  This is good news.

However, the police service should not use this financial reprieve as an excuse to duck important reforms.  The reforms that the police have already planned should continue, with any savings reinvested in an improved and more effective service.

It would be a retrograde step for candidates in the 2016 PCC elections to start pledging (as I am certain many will) to ‘protect officer numbers’.  We still need to rebalance the police workforce.   We need more staff with the kind of digital skills required to tackle cybercrime.  We need more crime analysts to help deploy police resources more effectively.  Blanket commitments to maintain officer numbers will get in the way of important reforms.

The argument for inter-force collaboration and, indeed, force mergers does not go away. The new top sliced transformation fund is designed in part to facilitate collaboration, but the fact remains that a 43 force structure no longer makes sense in operational or financial terms.

The police still have to adapt to a changing world. Falling levels of traditional crime and the explosion in online crime, particularly fraud and hacking, means we need an entirely different kind of police service.  Many of the pressures the police experience from non-crime demand will not go away. Big cuts to local government funding and the wider criminal justice system mean we need to reorganise the public service frontline to deal with problems such as high reoffending rates, child safeguarding and rising levels of mental illness.

Before yesterday I thought policing faced an existential moment and I stand by that. While the service has now secured significant financial breathing space, it still needs to adapt to an increasingly complex world. 

Rick Muir is director of the Police Foundation