Insights from the UK and beyond
By Chris Hughes
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The latest competition review of UK banking should aim to be the last. An antitrust probe in 2000 led to limited price controls after concluding that British lenders made excess profit. There were two more big investigations after the financial crisis. Yet concerns about market inefficiencies persist. That suggests the Competition and Markets Authority should do something radical this time.
The CMA says it is minded to conduct a comprehensive investigation of UK banking later this year. The industry is at least as oligopolistic as it was 14 years ago. Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have 77 percent of personal accounts and 85 percent of small-business banking.
So-called challenger banks have emerged from disposals by Lloyds and RBS as mandated by the European Commission. But the market has become more concentrated, especially in mortgages, after Lloyds swallowed Halifax and Bank of Scotland and several former building societies collapsed. Customer dissatisfaction is high. Yet just 4 percent of SME customers and 3 percent of personal customers switch accounts annually. The banks say things are already changing for the better. Twas ever thus.
In the blink of an eye it look as if the City is “booming” again after Barclays and HSBC announced buoyant investment banking earnings on Monday.
Both banks were hit by a surge in bad debts as the recession took its toll on borrowers, but analysts said that resurgent debt and foreign exchange trading and market share grabbed from troubled rivals fuelled the largely positive results.
Banking stocks led the FTSE decline after HSBC’s plan of a deep-discount rights issue and embattled life insurer AIG announcement of a $61.7 billion quartely net loss, the biggest in U.S. corporate history.
The Treasurer of the United Reformed Church pointed to the relative stability of HSBC — despite market speculation about its capital adequacy — compared with the parlous state of some of its rivals.
First Direct has pulled the shutters down on new mortgage business. Albeit a temporary move, it is yet more unsettling news for scores of homeowners coming to the end of cheap deals. Such a move is unprecedented, but perhaps comes as little surprise, given that the lender has been market-leading for quite some time. With pricing more or less 0.5 percent below that of its nearest competitor, the influx of new business that has created a huge backlog is understandable.
The mortgage market is moving at an alarming pace: First Direct’s decision to suspend new borrowing and push business to its parent company, HSBC, is yet another example of lenders taking action to manage volumes. Others have used other means of stemming inflows — increasing rates, withdrawing products and restricting their best rates to lower loan-to-value customers, as the fallout from the credit crunch continues.