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RBS and the huge cost of doing bad business
Chief executive Stephen Hester admits the bank's culture was bad as he reports a leap in half-year losses. The question is, what is he doing about it?
It’s getting to the point with banks’ financial results that we need a separate line in the accounts titled ‘the cost of doing bad business’.
Royal Bank of Scotland (RBS.L) is the latest bank to issue its half-year results and, like Barclays (BARC.L), Lloyds (LLOY.L) and HSBC (HSBA.L), its figures are marred by more provisions for its mis-selling of loan insurance to personal and business customers.
There’s an extra £125 million set aside for mis-selling payment protection insurance (PPI), bringing the total cost to RBS so far to £1.3 billion, of which just over half (£700 million) has been paid out in compensation.
Then there is the first appearance of interest rate swap mis-selling in RBS’s accounts. Swaps were another form of loan insurance using derivatives that were sold to small business owners who had no idea, because the bank didn’t explain, of what they were getting into.
That’s another £50 million please, which I know is small change to a bank of RBS’s size, although the figure is bound to rise.
Then there is the Libor rate-fixing scandal, which is enormous but whose financial implications are so far unknown. RBS, which is 81% owned by taxpayers, confirmed today that it had sacked a number of employees for misconduct. Like many other banks it is still under investigation by regulators.
‘The Libor situation is on our agenda and is a stark reminder of the damage that individual wrongdoing and inadequate systems and controls can have in terms of financial and reputational impact,’ said chief executive Stephen Hester.
Quite so. Hester’s words could also apply to the computer meltdown that hit millions of RBS customers in June and prevented them from accessing their accounts. Sorting out that mess has cost the bank another £125 million.
The reason for what the bank insists on calling a ‘technology incident’ has not been uncovered. It may emerge that it was the fault of underinvestment, although RBS says it increased spending on technology in the past three years. Until then, however, as a non-RBS customer, I’m prepared to be a bit charitable about the disaster. Hugely damaging though it is to a bank’s reputation to be unable to tell people where their money is, technology errors do occur in business and can be described as one-offs.
But I’m getting tired of seeing the provisions for mis-selling presented as a series of separate incidents when in fact they are all one manifestation of a bad culture within the banks.
In his commentary Hester concedes that the culture of banking was all wrong and that banks like RBS must be rebuilt around the one ‘central truth’ that is ‘good and enduring customer service’.
It would be good to see RBS set some targets here. Post-bailout banking is not just about how much lending is being done or how fast dodgy loans and toxic assets are being disposed of. It’s also about how much of a positive impact banks are having on customers’ lives.
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Look up the shares
- Royal Bank of Scotland Group PLC (RBS.L)
- Barclays PLC (BARC.L)
- Lloyds Banking Group PLC (LLOY.L)
- HSBC Holdings PLC (HSBA.L)
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