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Can UK's bad banks turn over new leaf?

Tuesday, December 30, 2014 - 02:37

It's not been the best year for banks around the globe but bad behaviour in Britain has proved particularly costly. Sonia Legg looks at why and asks if the UK financial sector will ever regain the top financial centre crown it lost this year to New York.

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It's been a costly year for many of the world's banks. Not least last month's £2.7 billion ($4.3bln) fine imposed on six banks by U.S. and UK regulators for trying to manipulate the foreign exchange market. HSBC and RBS were two of the culprits and the UK's reputation leaves much to be desired. Think tank New City Agenda has totted up how much British banks have paid out in fines and compensation over the past 15 years. The total - 38.5 billion pounds ($60bln) 2014 also saw London lose its crown as the world's leading financial centre to New York. It's all down to prolonged bad behaviour and a failure to deal with it, says Justin Urquhart Stewart from Seven Investment Management. (SOUNDBITE) (English) JUSTIN URQUHART STEWART, SEVEN INVESTMENT MANAGEMENT, SAYING: "The key thing with the banking sector was making sure we had proper surgery. In American they carried out surgery with a scalpel, we decided to use Savlon and sticky tape and then wondered why it didn't work very well and did not reform fast enough." The list of scandals is lengthy. It includes the mis-selling of loan insurance. The rigging of the Libor interest rate And most recently the manipulation of foreign exchange and benchmark interest rates Most accept the problem here in London was an aggressive sales culture that took hold over two decades. Even at branch level staff received cash bonuses, ipods and tickets to top sporting events for simply hitting sales targets. (SOUNDBITE) (English) JUSTIN URQUHART STEWART, SEVEN INVESTMENT MANAGEMENT, SAYING: "There was a fundamental problem in the British banking system. When you started mixing investment with commercial banking - they have totally separate cultures. One primarily services itself, the other one services its clients - neither do both very well. But if you put one with the other, one eats the other." The mis-selling of payment protection insurance was one of the worst scandals in UK banking history. It cost banks at least 27 billion pounds. Lloyds had the biggest bill - but four of Britain's main lenders were at it. The high-margin products were meant to cover repayments if customers fell ill or were out of work. But they were often sold to people who didn't need them or would never be eligible to claim. A change to the old culture is underway. Barclays has a new boss and Lloyds is axing 9,000 jobs and restructuring - in the hope it can start repaying the state bailout it received in 2008. But things will never be the same - and that's partly due to technology. (SOUNDBITE) (English) JUSTIN URQUHART STEWART, SEVEN INVESTMENT MANAGEMENT, SAYING: 'There are alternative financing arrangements coming to the fore such as peer-to-peer and crowdfunding - they are small so far but they could increase to quite a significant level. That and disintermediation for retailers meaning they can provide alternative services to clients so they won't need the banks so much." At least 20.8 million people are glad about that. That's how many complaints UK banks have received since the start of the financial crisis. A few new year resolutions may be in order in 2015.

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Can UK's bad banks turn over new leaf?

Tuesday, December 30, 2014 - 02:37