Wednesday, 23 December 2009

Bank Charges - Still Up For Grabs

Like any other industry, banking services are a chargeable product. Recently, the Office of Fair Trading gave up on its attempt to halt what were seen as "unfair" overdraft charges.

The outcry here is because the charges are seen as often exceeding the amounts by which people exceed their authorised overdraft limit - sometimes (as in the case of student Julia Turner) for exceeding their limit by the princely sum of 1p. Why, we ask, should we have to pay nearly GBP50 of charges for going GBP10 over our limit? The objection seems to be not so much to paying a charge, as to the "fairness" of the charge.

Therein lies the rub. What is "fair" when it comes to charges for financial services? We can't see or touch them, and many would say that they see little benefit in them. The charging mechanism grew from the 80s when banks started to compete for deposits and paying interest on current accounts where previously current and even some savings accounts earned no interest, but the funds were lent out at a premium in the days of the "3-6-3" rule (borrow at 3%, lend at 6% and be on the golf course by 3.00pm).

As competition and the number of "banks" increased, so "traditional" revenue streams eroded. In addition, the cost of bank premises were going up, as well as the costs of staff, technology and regulation. In the face of declining lending margins and increasing costs, something had to give. In this case, it was charges for services.

Charges are here to stay, but many people don't realise what they get for them. At the least, you have your money looked after, a monthly statement, an ATM card plus several thousand ATMs in the UK and overseas to get cash from and someone to advise you when needed. In return, most bank accounts maintain a very low "average balance" (the money that's left over after all your deductions have been made for utilities, Council Tax, etc) which does not, by itself, cover the bank's costs of running your account.

The whole system of charges in any bank should be transparent (you should be able to request a copy of your bank's tariff of charges which sets out the amounts and conditions under which they are charged). If you don't like them, look for another bank or type of account (as I have done in the past). Remember, you DON'T have to do business on terms which to you seem unfair. There are accounts which don't allow you to go overdrawn, so if you want to avoid "unfair" overdraft charges, have one of those, but be preapred for other limitations.

It appears that the message is slowly getting through to the banks, who apparently are reducing their charges. However, they will probably find other means of recouping them.


Tuesday, 22 December 2009

Bonuses Banished??

There's still a huge debate over bankers' bonuses and whether they are deserved or not. What seems to be missing is a closer look at who is getting bonuses and why.

Our friends in Westminster continue to make political hay out of the fact that some bankers are being paid bonuses at all. Whilst this may delight the public, there are some facts that are being overlooked and/or conveniently ignored:

1. The bankers aren't solely to blame for what's happened. True, we would expect them to have exercised more caution, as the good times couldn't last. However, the current government (remember the boast that we had "abolished boom and bust"?) has plenty to do with the current state of play as they certainly didn't discourage people from borrowing as it resulted in more tax revenues form VAT and stamp duty on property sales.

2. The UK FSA either couldn't or didn't have a grip on things. They are now belatedly shutting the proverbial stable door after the horse has bolted (having warned the owners that it might come to this).

3. Joe Public equally played his part as he lashed out on luxuries, holidays and spent, spent, spent.

4. Shareholders in banks came to expect exponential revenue growth as a right. As credit became cheaper, riskier investments had to be made to earn a decent return.

Now for the banks. The convenient excuse is that they have been saved with taxpayers money. True? Almost. Northern Rock was nationalised, RBS is more or less completely owned by the taxpayer, whilst what is now Lloyds Banking Group is majority owned after the current government set aside normal legislation to enable it to take over HBOS. Barclays and HSBC however, are still free of government interference (Barclays, perhaps by the grace of God as their bid for ABN failed in the face of the RBS consortium's offer). There are those that say that HSBC and Barclays have benefited as business previously with RBS and HBOS may have gravitated to them, and therefore were also indirectly "rescued".

This is over-simplifying the situation; when any bank is in trouble, there will naturally be a "flight to quality" of some of its business. The fact is, HSBC and Barclays have been better managed (or so it seems) and therefore haven't needed to be bailed out. Why shouldn't they and their employees (and indeed their shareholders) be rewarded for not placing an EXTRA burden on the UK taxpayer?

Of course, this doesn't suit the politicians who are trying to distract attention from their abuse of their expense accounts and their economic mismanagement, so we'll still see the "bash the bankers" (who are also seen as "the rich" in this case in the current class war).

To stop bonuses that are part of the market mechanismk for rewarding talent is to drive that talent away and reduce London's competitiveness as a financial centre. In the end, this can't be good for the UK or for tax receipts to the government. In the end, the banks are still needed. New regulation is coming into place that will limit their excesses and I hope that we'll also see an FSA staffed by people who understand what they're doing.

Wednesday, 9 December 2009

Who's Learned Their Lesson?

In March and April I wondered how people were looking at opportunities presented by the current world economic crisis.

Since then, stockmarkets have recovered from their lows, some economies have started to show signs of life again, and the flood of redundancies seems to have slowed to a trickle. General feeling is that things are lurching towards recovery.

Interestingly, some organisations may be persisting in making the same mistakes that got us into our current state of affairs. By this, I mean that they are being very particular about the qualifications of potential hires. Of course, this may indicate that they have learnt from their mistakes and now know exactly what they should have done, but I can't help feeling that there are others who want to hire the same kind of specialists who failed to see the problems coming - in other words, who couldn't see the whole wood for the specialist trees.

In good times and bad, specialists have their place (look at the management of our railway network which seems to be by accountants rather than engineers, for instance), but in bad times you need people who can think on their feet and think outside the proverbial box. Often, a specialist will not be able to generate the thought processes needed in these circumstances.

What people need to do is look at the skills needed for a job, ask if what they had before was right (and why/why not) and then think about the sort of skills needed for the future strategy of their company. This assumes that they are out of "survival mode" and have the luxury of thinking about the future now.

The employment market is flooded with good, hard-working people who will be an asset to any organisation that they join. People are not like specialist parts for a car, and in searching for exactly the right match, hirers risk passing up golden opportunities to take on some real talent at a lower price which, although it might go through a "learning curve", will prove invaluable in the long term. Some people will still "miss the boat".