A MATTER OF TRUST
It is remarkable how the reputation of banks has been battered particularly over the last years. From the packaging of toxic loans they classed as safe, to the falsification of LIBOR, the immorality of their industry has been laid bare.
For decades banks and their branch managers were seen as pillars of the community and regarded as such by the public. At some point banks decided to use their manager's reputations to their financial advantage and used them to sell financial products to their customers.
I remember speaking to bank managers in the mid-eighties and they were complaining that their roles were changing and they were having to meet targets for selling endowments attached to mortgages before the branch earned any bonus. The quality of the advice or need for the endowment was ignored and instead any bonus was simply based on numbers sold.
The success they had in flogging endowments encouraged banks to really go for it and they moved onto customers that had significant balances on deposit and sold products which earned the bank huge amounts of commission. At the same time they made most of the branch managers redundant and replaced them with "advisers".
Not content with offering their long term customers derisory interest rates, their next money making scheme was to squeeze more out of their borrowers by flogging Payment Protection Insurance (PPI) on top of loans and credit cards they sold. By running a casino, sorry, investment bank alongside the other money making ruses above, profits went through the roof, but as the bible says "be sure your sin will find you out" and for banks the last few years have been a series of judgement days.
The endowments that were sold have failed to meet their "promised" payouts and have resulted in a shortfall in the amount required to meet the mortgage outstanding. The percentage of complaints to the Financial Ombudsman Service that relate to banks is 72% based on the latest figures. As for PPI, so widespread was the mis-selling that anyone who was forced to take this type of policy out is now effectively getting their payments, plus interest, back whether they had a need for the plan or not.
Unfortunately the people paying for all this are you and I and the amount is unquantifiable. Loyal savers are getting screwed with ridiculous interest rates. For example the current interest rate for a Bank of Scotland ISA is 0.5% and the Halifax Liquid Gold account (which still exists) is paying 0.05%! Yet new customers are enticed with bonuses meaning they earn more interest than the long term customers.
The money the Bank of England has been printing under Quantitative Easing is being kept by the banks to repair their balance sheets rather than enter the economy in the form of increased lending which is hampering the prospect of recovery. And yet banks still insist that they have to pay £1m plus bonuses to some of their staff. Nonsense.
The whole financial system is based on trust. A bank note is a piece of paper that states "I promise to pay the bearer a sum of …". Once trust is broken it is almost impossible to repair. The high street banks had our trust and they didn't just break it, they tore it up and shoved it down our throats. No wonder investors refuse to trust the Eurozone bank's declarations as to the extent of their bad loans no matter how much they try to reassure the market.
Banks have shown they deserve neither our trust nor loyalty, so next time a teller suggests you may want to meet an "adviser" or you get a call saying you have quite a lot in your account that could be doing better, remember they are suggesting this for their own financial benefit, not yours!
Thankfully there are plenty areas of life where trust and honesty still exist and golf is one of them. Stephen Gallacher, who we are delighted to sponsor, has very kindly filmed a series of golf tips exclusively for ASAM which we will be running throughout the year. Above I have given you my thoughts on bankers, and in the first video Stephen shows how to cope with bunkers. Stephen's solution involves hitting them hard with a metal club so no matter how much you want to, please do not get our messages mixed up.
If you are a golfer, or you know anyone who may be interested, the videos can be found on our website .
For and on behalf of Alan Steel Asset Management
Authorised and regulated by the Financial Services Authority