UK banks have become some of the biggest culprits when it comes to regulatory-related earnings setbacks. February was a month in point. RBS, Lloyds and Barclays all followed a dispiritingly regular template of profit warnings.
These charges, now clearly a recurring business cost seemingly built into these banks business models, long ago lost their capacity to shock. Chief executives cannot even be bothered to apologize for them anymore. At Barclays, Antony Jenkins asserted that although a resolution of legacy conduct and litigation issues might have reduced profits, doing so was in the long-term interest of shareholders. He didnt explain how it is in the interest of shareholders continually to pay for sins that employees and management committed.
At Lloyds, António Horta-Osório acknowledged his disappointment at the charges. The bank is pleased about a reducing frequency of customer complaints about its banking services. However, it excludes from its measure of customer satisfaction any dealings with their complaints over PPI.
The UK banking scene has a few large incumbents. Many, it seems, long ago up gave up hope of operating profitably; gouging customers by mis-selling them inappropriate products became the only way they knew how to make money. Its no coincidence that customer service at UK banks is notoriously bad. As banks try to recover margins by cutting headcount they shed the very relationship managers and branch staff that used to bind them to, and keep a watchful eye on, businesses and retail customers.
Last month at Cass Business School, Vernon Hill, founder and chairman of Metro Bank, the UKs first newly chartered retail and commercial bank in the past 100 years, expressed surprise at its rapid growth in London and the southeast since starting in 2010.
Euromoney is surprised that he is surprised. Metro Bank is competing on the basis of customer service and convenience in a banking market that simply ignores both. It funds purely retail and doesnt overpay for deposits. It finds that customers care much more about being well served than about getting the best price. Stores open from 8am to 8pm seven days a week, simply unheard of in UK banking.
Business customers have a banker they deal with. Retail clients calling the bank find a person answering the phone, not an automated message. Its simple stuff; Hills business heroes tend to be retailers not bankers.
Providing good customer service requires good staff. Metro Bank can afford them because it is not spending every last penny it earns on maintaining decades-old IT infrastructure that regularly breaks down and leaves customers unable to take out their own cash from ATMs. Metro Bank uses an off-the-shelf IT system from a Swiss supplier.
Hill is fun to listen to. "Barclays has pulled out of the safe-deposit-box business because its too complex to manage," he notes. "Heres how complex it is at Metro Bank. You fill out a form. We give you a key."
Hokey? Sure. But Hill has just completed a fourth round of capital-raising, wringing an additional £387 million from US institutional and private equity investors to fund further rapid growth. He lets slip that the bank might undertake an IPO in London in 2016.
Theres a lot of agonizing among UK policymakers that challenger banks cant make headway against the big incumbents. Metro grew assets by 145% last year and deposits by 128%; it now has 285,000 personal and business customers, served from 25 stores, with 12 more planned to open this year. It opened its first when the financial crisis was already two years old.
Challenger banks can thrive in a market so badly served if they are well led and have good business models.