RBS has been basking in the limelight of record profits. But Ian Fraser finds one of its rivals less than impressed
Who would begrudge the Royal Bank of Scotland’s record pre-tax profits of £4.4 billion, announced last week? It was certainly a polished performance and put the Edinburgh-based institution on the map as a world-class player. Last year, it pulled in greater profits than every other Scottish plc put together.
RBS shareholders certainly aren’t complaining. They saw the value of their equity soar by 9.1%, with the shares closing at 1659p on Thursday. Even though the share price slipped back to 1633p by Friday’s close, investors are sitting pretty. If you’d bought the shares a year ago at 646p amid the City’s lack of appetite for the NatWest takeover deal, you would have nearly trebled your money.
The surviving RBS/NatWest staff aren’t complaning either. Each received a one-off bonus equivalent to 10% of their salaries. This weekend, wine bars and pubs up and down the country were heaving as employees celebrated receiving average ex gratia payments of £2,100 each.
Its board of directors is enjoying being lionised in the City for injecting some life into a limp stock market — even though at least one investment analyst worries they may now have become super-confident. Chief executive Fred Goodwin last week seemed to be revelling in his nickname “Fred the Shred” when he offered to make “mercy killings” of underperforming peers. He has a wicked sense of humour.
The atmosphere at the Royal Bank of Scotland’s St Andrew Square headquarters was in marked contrast to the doom and gloom over at the Mound where Bank of Scotland chief executive Peter Burt last week appeared disconsolate that his cherished deal with Abbey had been blown out of the water.
The Royal Bank’s directors are also making significant personal gains. Perhaps sensing that the rally in the share price may slow, executive deputy chairman Sir George Mathewson last Thursday cashed in £3.6m of his own share option entitlements. Lord George Younger, the former Scottish Secretary and the man who Mathewson succeeds as chairman at the annual meeting on 14 April, cashed share options worth £528,000.
So who would dare to cast aspersions on such a triumphant success Scottish story? Step forward Jim Spowart, chief executive of the Halifax subsidiary, Intelligent Finance, the Royal Bank of Scotland’s near neighbour in Edinburgh and a former helmsman at its own Direct Line insurance arm.
Last night Spowart accused the UK’s “Big Four” clearing banks of showing disregard for last year’s Cruickshank Report and of continuing to profiteer at account holders’ and the public’s expense.
In total HSBC, Lloyds TSB and Barclays — together with the Royal Bank of Scotland / NatWest — have in the current reporting season declared total pre-tax profits of £18.6bn between them. Spowart believes that at least £9.5bn of this was generated from their UK retail financial services businesses.
In his review of UK banking last year, the former regulator Don Cruickshank estimated that, in 1999, the UK’s banks were making excess profits of £5bn at UK customers’ expense.
Spowart, who believes this increased in 2000, said: “Nobody could begrudge such big profits if they ran the most efficient or innovative businesses in the world. But the truth is they don’t. They’re making such large profits off the backs of their customers by paying them low rates of interest on the money they have and charging them high rates of interest on the money they borrow.”
Spowart who founded Intelligent Finance, the Halifax direct banking subsidiary which now employs 1,575 people in Edinburgh and Livingston added that the “unappealing” interest rates offered by most high street banks on deposits are encouraging customers to defect.
He said: “It’s little wonder we have seen more than 180,000 applications as their customers begin to vote with their feet.”
Intelligent Finance is offering connectivity between accounts that enable customers to enjoy interest rates of between 4% and 6% on their current accounts. This compares to interest rates of 0.1% offered by most high street clearers on their current accounts. Spowart claimed new account openings are increasing at 26% per month with each customer opening an average of 1.93 accounts with Intelligent Finance.
In a populist attack on the “big four”, Intelligent Finance added that their £9.5bn UK retail profits is equivalent to: handouts of £500 to each of the UK’s 19 million households, 3p off basic rate income tax and 20p off a litre of petrol.
But Spowart drew an immediate riposte from the other banks. The spokesman for one “Big Four” bank said: “It is absolutely ridiculous to start making those kinds of comparisons. That really is a nonsensical statement from Spowart. The big four are paying corporation tax and benefiting investors such as pension schemes and ISAs. The Halifax made profits of £1.89bn. Is Spowart also accusing it of ripping off its customers?”
Alex Pagett, head of corporate affairs at Bank of Scotland said: “Without profits, a bank such as this would not survive. The bank would be less efficient and would no longer be able to employ 19,000 people.
“Is there something in the Scottish culture that takes exception to success and profitability? Even if there is, the Bank of Scotland is certainly not going to apologise for being profitable.”
Intelligent Finance’s parent company Halifax was last month accused of adopting a “phoney position as the consumers’ champion” by rivals when it claimed it was slashing its basic mortgage rate by 0.75% to 6.75%.
This article was published in the Sunday Herald on 4 March 2001.