Not promising the earth, ethical banks win custom

By Ingrid Melander and Lorraine Turner

BRUSSELS/LONDON (Reuters) - As the financial crisis hit a climax in Belgium with the split-up of its largest bank Fortis in October, new clients were rushing to a small, "ecologically correct" bank.

Triodos -- investing not in derivatives but in tangible products such as wind turbines which the general public can understand and even applaud -- was not the only alternative institution to benefit in Europe.

Around the world, the mainstream financial sector and its banks are facing flak for having crafted the mind-numbingly complex financial products that helped set off the worst financial crisis in 80 years.

Besides Triodos, Britain's Ecology Building Society and the Co-operative Bank say they are net beneficiaries, with some analysts arguing they are building a more trustworthy franchise even though the returns they offer depositors are modest.

"The big banks speculate on money which, at the end of the day, I don't know whether they have or not but it's got nothing to do with reality," said 58-year-old Michele Bellay.

Interviewed outside a Fortis branch in central Brussels, she said she would be willing to switch to an "ethical bank" rather than a High Street one: "It corresponds to the real economy, ... to what people live every day."

An average of 60 new accounts a day were opened in the Belgian branch of Triodos in October -- five times the usual figure, its managing director Oliver Marquet said.

The bank, with headquarters in the Netherlands and branches in Spain and Britain, says it invests only in green, social and cultural projects, such as wind turbines and medical centers.

"We started seeing something unusual in July ... it accelerated in September, and accelerated even further in October with the crisis at Fortis and Dexia," said Marquet, of the increased business.

Credit rating agency Moody's analyst Irakli Pipia said "ethical banks" were benefiting to an extent from a trend for people to spread their money around to benefit from capped state guarantees for deposits in each institution.

TRANSPARENCY

The ethically focused groups say they are transparent and invest in tangible projects, and that this explains an increase in deposits and clients at a time of financial turmoil.

"We invest in the real economy -- ecological buildings, wind turbines, cultural projects. We don't invest ... (in) purely virtual products," Marquet said.

"Transparency is absolutely key and explains why we hold on well in crisis," he said.

Paul Ellis, Chief Executive of the Ecology Building Society said that communicating with clients was key: "Ourselves, Co-Operative and Triodos, we make a point of telling people what we do with their money," he said in an interview.