Barclays and others overcharging customers?
Strong profits from Britain’s banks may indicate a return to normality but surely it shows they are overcharging their customers. Shouldn’t the competition concerns about retail banking be extended to corporate and investment banking too?
Barclays (LON:BARC) has reported a £1.56bn profit for the three months to September, making £4.5bn so far in 2009, and it promised its first dividend since the credit crunch put a halt on payments. HSBC doesn’t give quarterly numbers but boasts its profits are significantly ahead of last year and ahead of expectations.
The two banks rescued by the taxpayer – Lloyds Banking Group (LON:LLOY) and RBS (LON:RBS) – remain loss-making but that is because current profits are still being offset by write-downs on past lending. However, they, like HSBC and Barclays, admit bad debts are not as bad as they were.
But if banks are making big profits they must be making it from someone, and it is the clients that are paying, either in interest payments or advisory fees. (We have to hope there is very little proprietary trading going on now.)
Investment banking in particular is highly profitable, not only because of the volume of refinancing but the rates charged. Rights issues fees, for instance, have doubled to 4 per cent even though massive discounts on the shares offered reduce the underwriters’ risk considerably.
But where is the competition in corporate banking? Barclays purchase of Lehman Brothers and Merrill Lynch’s takeover by Bank of America since the crunch – because of the crunch – has reduced choice even further while RBS not only swallowed up ABN Amro, the resultant choking has left it a diminished player.
In a perfect world, clients would negotiate fees down, but in reality, a company needing to raise capital is in a poor position to bargain.
The European Commission and UK government are playing to the gallery in imposing measures to break up retail banks to offer greater choice, but a bit more competition in corporate banking would be a good thing – even if it means a bit less profit for the banks.
